N. K. INDUSTRIES LTD.,AHMEDABAD vs. THE DY. CIT, CIRCLE-3(1)(1), AHMEDABAD

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ITA 731/AHD/2025Status: DisposedITAT Ahmedabad19 May 2026AY 2011-124 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that a disallowance under Section 36(1)(iii), even if confirmed, does not automatically constitute furnishing inaccurate particulars of income or concealment of income. Therefore, the penalty levied under Section 271(1)(c) for this specific disallowance cannot be sustained.

What were the facts?

The assessee company's income was assessed at a significantly higher amount than initially declared, leading to additions for trading losses, unexplained expenses, and disallowance under Section 36(1)(iii). Penalty proceedings were initiated for furnishing inaccurate particulars of income.

What were the issues?

Whether a disallowance under Section 36(1)(iii) can be a basis for levying penalty under Section 271(1)(c) for furnishing inaccurate particulars or concealment of income.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH

Before: Ms. Annapurna Gupta & Ms. Suchitra Kamble

For Appellant: Shri Biren Shah, A.R
For Respondent: Shri Kalpesh Rupavatia, Sr. D.R

आदेश/ORDER Per Suchitra Kamble, Judicial Member:

This is an appeal filed against the order dated 27-07- 2024 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2011-12.

2.

The grounds of appeal are as under:- “1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the legality of the Assessing Officer's order passed u/s. 271(1)(c) of the Act imposing penalty for furnishing inaccurate particulars of income. 2. On the facts and in the circumstance of the case, the learned CIT(A) erred in confirming penalty levied by the Assessing Officer u/s. 271(1)(c) of the Act with regards to disallowance u/s 36(1)(iii) amounting to Rs. 1,45,18,708/-.

I.T.A No. 731/Ahd/2025 N.K. Industries Ltd., A.Y. 2011-12 3. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal. Total tax effect [Note: above tax effect is inclusive of cess @ 3%] 1,49,54,269/-”

3.

The assessee company had filed its return of income on 19.09.2011 declaring total loss of (-)Rs.11,38,82,183/-. An order u/s 143(3) r.w.s. 142(2A) was passed on 21.11.2014 assessing total income at Rs. 313,84,49,238/- inter-alia making the following additions/disallowance and penalty proceedings u/s 271(1)(c) were initiated for furnishing inaccurate particulars of income or concealment of particulars of income. In first appeal, the Ld.CIT(A) vide order dated 22.11.2016 has confirmed the following additions :-

1) Loss on A/c of trading in cotton wash oil Rs.44,77,69,621 2) Unexplained expenses as per Debit Note Rs.32,79,68,772 3) Disallowance u/s 36(1)(iii) Rs. 1,45,18,708

Accordingly, a fresh opportunity of being heard was given vide show cause notice dated 22.02.2018 asking the assessee to show cause as to why penalty u/s 271(1)(c) should not be levied on the confirmed addition. In response to the show cause notice dated 19.02.2018, the assessee vide its submission dated 23.03.2018 has filed its reply. The Assessing Officer after taking cognizance of the assessee’s reply has imposed penalty as per the details given in para 5 of the penalty order which is as follows: “5. Considering the above discussion, I am, therefore, satisfied that this is a fit case for levy of penalty u/s. 271(1)(c) of the Act as the assessee has furnished inaccurate particulars of income. As per the provisions of Section 271(1)(c), minimum penalty leviable is 100 per cent of the tax sought to be evaded and the maximum penalty leviable is 300 per cent of the tax sought to be evaded. The penalty leviable in this case is worked out as under:-

I.T.A No. 731/Ahd/2025 N.K. Industries Ltd., A.Y. 2011-12

Calculation of Penalty u/s 271(1)(C)

Sr. Items Amount No. 1 Assessed Income Rs.313,84,49,238 2 Income other than concealed Income Rs.234,81,92,137 3 Concealed Income (Sr. No. 1-2) Rs.79,02,57,101 4 Concealed income subject to levy of Rs.79,02,57,101 penalty 5 Tax evaded on concealed income Rs.26,25,03,650 subject to levy of penalty 6 Minimum Penalty leviable @100% of Rs.26,25,03,650 the tax at Sr.No.5 above 7 Maximum Penalty leviable @300% of Rs.78,75,10,950 the tax at Sr.No.5 above

Thus, the Assessing Officer levied penalty of Rs. 26,25,03,650/- u/s. 2711C of the Income Tax Act.

4.

Being aggrieved by the penalty order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.

5.

The ld. A.R. submitted that the CIT(A) was not right in confirming the penalty u/s. 271(1)(c) of the Act to the extent with regard to disallowance u/s. 36(1)(iii) amounting to Rs. 1,45,18,708/-.

6.

The ld. D.R. relied upon the assessment order and the order of the CIT(A).

7.

We have heard both the parties and perused all the relevant material available on record. This appeal is delayed by 186 days for which the assessee has filed separate details/application for condonation of delay. The reason for

I.T.A No. 731/Ahd/2025 N.K. Industries Ltd., A.Y. 2011-12 delay appears to be genuine, hence delay is condoned. The assessee claimed deduction u/s. 36(i)(iii) relating to interest on borrowings, even if this deduction was disallowed till the quantum before the Tribunal, it cannot be stated that the assessee furnished inaccurate particulars of income or there is concealment of income. Thus, the decisions cited by the ld. A.R that Hon’ble Apex Court confirming Hon’ble Gujarat High Court decision in case of PCIT vs. National Diary Development Board (2020) 114 taxmann.com 554 (SC) is squarely applicable in assessee’s case. Thus, the disallowance u/s. 36(1)(iii) by the Assessing Officer even if confirmed, the same cannot be treated as inaccurate particulars of income or concealment of income u/s. 271(1)(c) of the Act. Thus, the penalty u/s. 271(1)(c) of the Act does not sustain.

8.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 19-05-2026

Sd/- Sd/- (Annapurna Gupta) (Suchitra Kamble) Accountant Member Judicial Member Ahmedabad : Dated 19/05/2026 TRUE COPY a.k. आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद

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