1 IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 16-12-2015 HONOURABLE MR.JUSTICE M.JAICHANDREN AND HONOURABLE MRS.JUSTICE S.VIMALA Tax Case (Appeal) Nos.906 to 908 of 2013 Commissioner of Income Tax, Chennai .. Appellant in all appeals. Versus M/s.Balaha Chemicals Agencies, Cissons Complex, Room No.12, 4th Floor, 150, Montieth Road, Egmore, Chennai-600 008. .. Respondent in all ppeals Prayer in T.C.A.No.906 of 2013: Appeal filed against order of Income Tax Appellate Tribunal "A" Bench, dated 14.2.2013, in ITA No.308/Mds/2012, under Section 260 of Income Tax Act, 1961. Prayer in T.C.A.No.907 of 2013: Appeal filed against order of Income Tax Appellate Tribunal "A" Bench, dated 14.2.2013, in ITA No.309/Mds/2012, under Section 260 of Income Tax Act, 1961. 2 Prayer in T.C.A.No.908 of 2013: Appeal filed against order of Income Tax Appellate Tribunal "A" Bench, dated 14.2.2013, in ITA No.310/Mds/2012, under Section 260 of Income Tax Act, 1961. For Appellant: Mr.J.Narayanasamy For Respondent: Mr.A.S.Sriraman for Mr.S.Sridhar COMMON JUDGMENT (Judgment of Court was made by M.JAICHANDREN,J.) above Tax Case Appeals have been filed against common order passed by Income Tax Appellate Tribunal, `A' Bench, Chennai, in I.T.A.Nos.308, 309 and 310 of 2012, relating to assessment years, 1997-1998, 1998-1999 and 2001 and 2002. 2. brief facts of case are as follows: 2.1) respondent in present appeals, (hereinafter referred to as "the assessee") had been engaged in dealership and distribution of various industrial chemicals, which are being used in textile industry. assessment of assessee, for assessment years 1997-1998, 1998-1999 and 2001-2002, had been completed, disallowing claim for deduction of commission, as 3 expenditure paid to D.D.Vyas, Proprietor of M/s.Shree Narottam Agencies, Srinivas Vyas, Proprietor of M/s.Pushpak Sales Corporation and Manohar Vyas, Proprietor of M/s.Srinivasa Enterprises. 2.2) Assessing Officer had concluded in assessment that no services had been rendered, by agent, for payment of commission. Such finding was based on survey conducted in case of D.D.Vyas. additions made in assessment years had been upheld by Income Tax Appellate Tribunal, in I.T.A.Nos.1236, to 1239/Mds/2006, dated 15.6.2007. On being satisfied that assessee firm had concealed particulars of its income and had furnished inaccurate particulars of such income, by claiming false expenditure, Assessing Officer had levied penalty, under Section 271(1) (c) of Income Tax Act, 1961. 2.3) Aggrieved by said order, assessee had preferred appeals before Commissioner of Income Tax (Appeals). Commissioner of Income Tax (Appeals) had held that commission payments made to D.D.Vyas and his sons cannot be treated as false or inaccurate particulars and accordingly, appeals had been allowed. 4 2.4) Aggrieved by order passed by Commissioner of Income Tax (Appeals), Revenue had filed appeals before Income Tax Appellate Tribunal. Tribunal had held that it is not case of Revenue that payments claimed by assessee, as deductible, were found to be bogus in nature. It had also been held that no material was brought on record before Tribunal, by Revenue, to show that decision of Supreme Court, in C.I.T. Vs. Reliance Petroproducts Private Limited (322 ITR 158 SC) and decisions of Madras High Court, in C.I.T. Vs. S.Sankaran [241 ITR 822 (MAD)] and C.I.T. Vs. Cafco Syndicate Shipping Company [294 ITR 134 (Mad)], would not be applicable to facts and circumstances arising in appeals. Thus, Tribunal had dismissed appeals filed by appellant. 2.5) Aggrieved by order passed by Tribunal, Revenue has preferred present appeals before this Court, under Section 260A of Income Tax Act, 1961, raising following substantial question of law. "1. Whether under facts and circumstances of case, Income Tax Appellate Tribunal was correct in dismissing appeal preferred by revenue against order of Commissioner of Income Tax (Appeals) directing assessing officer to delete penalty levied 5 by assessing officer under Section 271(1)(c) of Income Tax Act, 1961?" 3. learned counsel appearing on behalf of appellant had submitted that Income Tax Appellate Tribunal had erred in dismissing appeals preferred by appellant, against order of Commissioner of Income Tax (Appeals), directing Assessing Officer to delete penalty levied under Section 271 (1)(c) of Income Tax Act, 1961. He had further submitted that Income Tax Appellate Tribunal ought to have appreciated fact that assessee had concealed particulars of its income or had furnished inaccurate particulars of such income. 4. learned counsel had further submitted that Tribunal had failed to note that even though payments of commission had been rooted through banking channels, genuineness of transactions is vital to prove that payments had been made wholly and exclusively for purpose of business. He had further submitted that Tribunal had failed to note that assessee firm had concealed particulars of income, by claiming bogus payments of commission. 6 5. It had been further submitted that Tribunal had erred in holding that it is not case of Revenue that payments claimed by assessee were found to be bogus and that assessee had not concealed particulars of income or furnished inaccurate particulars of income, as laid down in Section 271(1)(c) of Income Tax Act, 1961. 6. It had also been submitted that Tribunal had failed to note that judgment of Delhi High Court, in C.I.T. Vs. Zoom Communication P Ltd. (327 ITR 510), would apply to facts of present case. learned counsel had further submitted that quantum appeals filed by assessee had become final. He had further submitted that it had been found that sub agents of D.D.Vyas and his Sons were incapable of being commission agents, as they had no knowledge of business. 7. It had also been stated that cheques deposited in name of commission agents had been withdrawn, immediately, thereafter. It had also been stated that, in spite of sufficient particulars having been given, assessee had not furnished sufficient materials to show bona fide nature of transactions 7 carried on by commission agents. No books of accounts had been maintained to prove that transactions were bona fide in nature. As such, Tribunal had erred in dismissing appeals filed by Revenue. 8. learned counsel appearing for appellant had relied on decision of Supreme Court, in MAK DATA (P) LTD., Vs. COMMISSIONER OF INCOME-TAX II (2013) 38 TAXMANN.COM 448 (SC), wherein, it had been held that question is whether assessee has offered any explanation for concealment of particulars of income, or for furnishing inaccurate particulars of income. explanation to Section 271(1) of Act raises presumption of concealment when difference is noticed by assessing officer, between reported and assessed income. 9. learned counsel appearing for respondent/assessee had submitted that Section 271(1)(c) of Income Tax Act would not apply to facts and circumstances of case, to levy penalty on assessee, alleging that it had concealed particulars of its income or had furnished inaccurate particulars of such income. learned counsel had further submitted that there is no error in 8 findings of Income Tax Appellate Tribunal, dated 14.2.2013, while rejecting appeals filed by Revenue. 10. learned counsel appearing for respondents had relied on following decisions in support of his contentions: 10.1. In Civil Appeal No.2463 of 2010, dated 17.3.2010, COMMISSIONER OF INCOME TAX Vs. RELIANCE PETROPRODUCTS (P) LTD, Supreme Court had held that merely because assessee claimed deduction of interest expenditure which has not been accepted by Revenue, penalty under Section 271(1)(c) is not attracted. Mere making of claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding income of assessee. 10.2 In Tax Case Nos.1 and 2 of 1980, dated 29.6.1995, COMMISSIONER OF INCOME TAX Vs. CHANDRAKANT M.TOLIA, Division Bench of this Court had held that assessee, having produced discharged hundis displaying names and addresses of creditors and relevant books in respect of hundi loans, initial burden cast on assessee, under explanation to Section 271(1)(c), stood discharged and, thereafter, Department 9 having taken no steps to discharge burden that shifted on it, Tribunal was justified in deleting penalty. 10.3 In Tax Case (Appeal) No.246 of 2007, dated 5.3.2014, COMMISSIONER OF INCOME TAX Vs. CHOLAMANDALAM INVESTMENT & FINANCE CO. LTD., Division Bench of this Court had held that, in order to invoke penalty proceedings, under Section 271(1)(c), Revenue should prove that claim made was not sustainable in law and assessee had made concealment of particulars of income. 10.4 In Tax Case (Appeal) No.504 of 2009, dated 12.11.2013, COMMISSIONER OF INCOME TAX Vs. GEM GRANITES, Division Bench of this Court had held that, Explanation to Section 271(1) raises presumption of concealment, when difference is noticed by Assessing Officer between reported and assessed income. burden is on assessee to show otherwise, by cogent and reliable evidence and when initial onus placed by explanation has been discharged by assessee, onus shifts on revenue to show that amount in question constituted their income and not otherwise. 10 11. In view of submissions made by learned counsels appearing on behalf of appellant, as well as respondent in present appeals and on perusal of records available and in view of decisions cited supra, we do not find any cause or reason to interfere with order passed by Income Tax Appellate Tribunal, dated 14.2.2013. 12. It could be noted, from order of Commissioner of Income Tax (Appeals), dated 25.11.2011, that assessee had been dealing in distribution of various industrial chemicals during relevant financial years. manpower employed by assessee was too small to handle distribution work, when compared to total volume of business and areas to be covered. Hence, assessee firm had been engaging several commission agents to identify customers, booking orders, recovering dues etc. All commission payments made to Commission agents, by assessee, except payments made to D.D.Vyas and his sons had been found to be genuine and therefore, allowed by assessing officer. 11 13. It had also been found by Commissioner of Income Tax (Appeals) that, in survey conducted, under Section 133A of Act, receipts of commission from assessee, by D.D.Vyas and his sons, had not been examined. disallowance of commission payments to concerns of D.D.Vyas and his sons had been made only on presumption that amounts paid to sub agents were not genuine in nature. receipts of commission in hands of D.D.Vyas and sons had not been questioned. In fact, receipts of commission by D.D.Vyas and his sons, from assessee, had been assessed to tax. From ledger extract, it could be noted that commission payments to D.D.Vyas and sons were at regular intervals, during relevant financial years. commission payments had been made by way of cheques and there was no evidence on record, furnished by department, to show that commission paid to D.D.Vyas and his sons had been received back, by assessee or by anyone operating on its behalf. 14. From facts available, it could be seen that department had not shown anything to prove that assessee 12 had not incurred expenses, by way of payments of commission to D.D.Vyas and his sons. disallowance was only on ground that sub-commissions claimed to have been paid by D.D.Vyas and his sons, to their sub-agents, were not genuine in nature. Based on decision of Supreme Court, in CIT Vs. Reliance Petroproducts Private Limited 322 ITR 158 (SC), it had been held that mere claim of deduction will not automatically attract penalty, under Section 271(1) (c) of Act. 15. It had also been held that mere failure of assessee to explain satisfactorily amounts shown as expenditure would not lead to imposition of penalty, unless there are some materials to prove that claim was false, as held by Income Tax Appellate Tribunal in case of SUPER METAL INDUSTRIES Vs. DCIT 317 ITR (AT) 161 (Mumbai). 16. allegation made by department that sub- agents were tea stall owners and soap sellers, who had been 13 introduced by D.D.Vyas and his sons, for purpose of opening of bank accounts, cannot be put against assessee. assessee cannot be held to be liable for sub agents, if any, nominated by Commission agents, who had received payments of commission. department had failed to discharge onus of proving that assessee had made false claims, wilfully, or had furnished inaccurate particulars, while claiming deductions on payment of commission. 17. We find that Tribunal had given proper reasons for dismissing appeals, confirming order passed by Commissioner of Income Tax (Appeals). Tribunal, had rightly dismissed appeals filed by Revenue holding that no specific error could be pointed out in order passed by Commissioner of Income Tax (Appeals) - XII, Chennai, dated 25.11.2011, relating to assessment years 1997-1998, 1998-1999, 2001-2002. Tribunal had also found that Revenue had relied upon findings of Tribunal in quantum appeal filed by assessee. However, it had been found, on perusal of order of Tribunal passed in quantum appeal, that disallowance of commission payments was made by Tribunal, by observing that assessee shall show 14 that service was actually rendered and expenditure is exclusively and wholly incurred for purpose of business. Tribunal had also observed that payment of commission in question had been made, by way of cheques and recipient of commission had been assessed to tax. 18. It had also been observed that it is not case of Revenue that money which assessee had paid to agent, by way of cheques, had come back to assessee. It had also held that genuineness of payment is evidenced by banking transactions. Only deductibility of payments was found to be not tenable for want of evidence to establish that payments had been made wholly and exclusively, for purpose of business of assessee. Tribunal had also held that it is not case of Revenue that payments claimed by assesseee, as deductible, were found to be bogus in nature. 19. Relying on decision of Supreme Court, in C.I.T. Vs. Reliance Petroproducts Private Limited (322 ITR 158 SC) and decisions of Madras High Court in C.I.T. Vs. S.Sankaran [241 ITR 15 822 (MAD)] and C.I.T. Vs. Cafco Syndicate Shipping Company [294 ITR 134 (Mad)], Tribunal had dismissed appeals filed by Revenue. Tribunal had also held, while dismissing appeals filed by Revenue, that no materials were brought on record before Tribunal, by Revenue, to show that decisions relied on by Tribunal, to arrive at its conclusions, were not applicable to facts and circumstances of present case. As such, Tribunal had not found sufficient cause or reason to interfere with order passed by Commissioner of Income Tax (Appeals) and had rejected claim made by Revenue, while dismissing appeals. 20. We are also of view that Revenue has not been in position to show that payments of commission made by assessee, which is said to have been assessed to tax, were bogus in nature. Further, there is nothing on record to show that assessee had concealed particulars of its income or had furnished inaccurate particulars of such income. In such circumstances, we do not find any merit in appeals filed by Revenue. As such, question of law raised in present appeals is answered in favour of respondent assessee and against Revenue. Accordingly, present Tax Case Appeals 16 stand dismissed. Index:Yes/No (M.J.,J) (S.V.J.) Internet:Yes/No 16-12-2015 csh To 1. Commissioner of Income Tax, Chennai. 17 M.JAICHANDREN,J. and S.VIMALA,J. csh Tax Case (Appeal) Nos.906 to 908 of 2013 16-12-2015 Commissioner of Income-tax v. M/s. Balaha Chemicals Agencie