"Assessee's Appeal Against Penalty Upheld by CIT(A) Restored to AO for Fresh Consideration"

The assessee, proprietor of M/s. Steel Syndicate of India, filed an appeal against the order of the ld. CIT(A), NFAC, Delhi for the assessment year 2011-12. The appeal was regarding a penalty of Rs.1,80,208/- maintained out of a total penalty of Rs.3,55,087/- imposed by the AO. The AO had noted that the assessee paid a commission of Rs.5,83,199/- to Shri Arpit Khandelwal, who was a regular employee of the company. The AO disallowed the commission paid, added it to the income of the assessee under 'Income from business and profession', and initiated penalty proceedings for concealment and furnishing of inaccurate particulars of income. The AO confirmed the penalty, and the ld. CIT(A) upheld it. However, during the hearing, the Bench noted that the ld. CIT(A) passed an ex-parte order without providing adequate opportunity for the parties to be heard. The Bench decided to provide another opportunity for the assessee to contest his case before the AO. The Bench also noted that the assessee had been negligent in pursuing his case and awarded a cost of Rs.5,000/- to be deposited in the Prime Minister Relief Fund. The appeal of the assessee was allowed for statistical purposes. The Bench clarified that their decision to restore the matter back to the AO should not be construed as a reflection or expression on the merits of the dispute.

The assessee has filed an appeal against the order of the ld. CIT(A), National Faceless Appeal Centre, (‘’for short NFAC’’), Delhi dated 16-12-2022 for the assessment year 2011-12 raising therein following ground of appeal.

That LdCIT(A) has erred in maintaining penalty of Rs.1,80,208/- u/s 271(1) (of Income Tax Act, 1961)( c) of the Act out of total penalty of Rs.3,55,087/- imposed by the AO

2.1 Brief facts of the case are that the assessee is proprietor of M/s. Steel Syndicate of India which is engaged in the business of trading of iron and steel materials. The assessee is also engaged in wind power generation at Jaisalmer. AO during the course of assessment proceedings noted that the assessee had paid commission for purchases at Rs.5,83,199/- to Shri Arpit Khnadelwal for which the assessee was asked to file the list of persons to whom payments made who are covered u/s 40A(2)(b) (of Income Tax Act, 1961). On examination of the details relating to payment of commission, it was found that commission of Rs.5,83,199/- was paid only to Shri Arpit Khandelwal, son of the assesse while Shri Arpit Khandelwal was employed on regular basis with the company and drawing salary of Rs.2.60 lacs during the year under assessment. Thus the reasonability of genuineness of commission payment for purchases to the tune of Rs.5,83,199/- was not found justified and the AO disallowed the commission paid amounting to Rs.5,83,199/- and added to the income of the assessee under the head ‘’Income from business and profession’’ and penalty proceedings u/s 271(1)(c) (of Income Tax Act, 1961) were initiated for concealment and furnishing of inaccurate particulars of income.

2.2 In penalty proceedings u/s 271(1) (of Income Tax Act, 1961)© the AO vide his order dated 26-03-2018 had confirmed the penalty by observing as under:-

3.1 Further, on the issue of disallowance of Rs.5,83,199/-

being commission for purchases paid to Shri Arpit Khandelwal, the

assessee failed to establish how the purchase of goods facilitated by

him on special assignment has benefitted the assessee in saving

revenue. Shri Arpit Khandelwal is a regular employee of the assessee

earning salary. No other employee of the assessee enjoyd privilege of

earning commission either on sale or purchase. Thus the assessee has

intentionally paid high commission to Shri Arpit Khandelwal to

inflate his expenses and at the end the money so debited from firm’s

account will travel to assessee’s family.

Further, assessee’s contention that the disallowances were made

without proper basis and claim of expenses were genuine is not

acceptable as the same were made by making proper enquiries and

unearthed by due diligence which is confirmed by the disallowance of

appeal by the ld. CIT(A).

4. In totality, the sum comes out to be Rs.11,49,150/-

(Rs.5,65,951 + Rs.5,83,199/-).

2.3 In first appeal, the ld. CIT(A) has confirmed the penalty levied u/s 271(1)(c) (of Income Tax Act, 1961) by observing as under:-

‘’3.4 Considering the facts of the case, penalty order and

decision of the Tribunal, I am satisfied that assessee furnished

inaccurate particulars of income and AO was justified in

levying the penalty u/s 271(1) (of Income Tax Act, 1961)( c) . Accordingly, levy of penalty

to the extent relatable to disallowance of commission is upheld

and appeal of the assessee is dismissed.’’

2.4 During the course of hearing, none appeared on behalf of the assessee to

contest the case before the Bench.

2.5 On the other hand, the ld. DR supported the order of the ld. CIT(A)

2.6 We have heard the ld. DR and perused the materials available on record. The Bench noted that the ld. CIT(A) has passed the ex-parte order without providing adequate opportunity of being heard to the parties. The Bench feels that the assessee should be provided one more opportunity to contest his case before the AO as the assessee could not advance his arguments as to the penalty imposed by the AO u/s 271(1)(c) (of Income Tax Act, 1961). It is also noted that the assessee remained negligent to pursue his case for which the Bench awards cost of Rs.5,000/- and the same may be deposited in the Prime Minister Relief Fund and copy of the same shall be submitted to the AO for proof and thus the appeal of the assessee is restored to the file of the AO to decide it afresh by providing one more opportunity of hearing, however, the assessee will not seek any adjournment on frivolous ground and remain cooperative during the course of assessment proceedings before the AO. Thus the appeal of the assessee is allowed for statistical purposes.

3.1 Before parting, we may make it clear that our decision to restore the matter back to the file of the A.O. shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by A.O. independently in accordance with law.

4.0 In the result, the appeal of the assesee is allowed for statistical purposes.

Order pronounced in the open court on 18/05/2023.

Sd/- Sd/-

(Rathod Kamlesh Jayantbhai) (Sandeep Gosain)

Judicial Member

Dated:- 18/05/2023