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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
आदेश / O R D E R
Per V. Durga Rao, Judicial Member:
This appeal filed by the assessee is directed against the order of the Learned Commissioner of Income Tax (Appeals)-14, Chennai in dated 27.03.2015 relevant to the Assessment Year 2003-04.
The only issue involved in this appeal relating to penalty u/s. 271(1)(c) of the Income Tax Act, 1961 (hereinafter as "the Act").
The brief facts of the case are that the assessee is a film producer, filed his return of income for the assessment year 2003-04 on 01.12.2003 by declaring total income of Rs. 80,00,114/-, which was set off against brought forward loss of earlier years. The case was selected for scrutiny and assessment was completed u/s. 143(3) of the Act on 23.03.2006 assessing total income of Rs. 1,48,40,872/- before set off of brought forward losses of earlier years. While computing the assessment, the Assessing Officer (AO) made addition of Rs. 68,40,758/- towards following heads:
(i) Difference in loan account Rs. 23,00,000 (ii) Interest Rs. 7,00,000 (iii) Cash expenditure Rs. 2,30,668 (iv) Cost of print Rs. 5,31,590 (v) Publicity expenses Rs. 85,000 (vi) Administrative expenses Rs. 15,00,000 (vii) The difference in opening balance Rs. 14,00,000 offered by the assessee Rs. 68,40,000
In the course of the assessment proceedings, the A.O has noticed that the assessee’s major expenditure claimed as interest paid of Rs. 1,39,02,046/- on money borrowed from more than 175 loan creditors totaling Rs. 11,81,72,827/-. The A.O picked up some cases to verify the genuineness of loans and she noticed that the closing
3 -: balance of loan creditors as per the books and as per confirmation letters, there is a vast difference in some cases. When the assessee was asked to explain, the assessee vide his letter dated 21.03.2006 offered the difference in closing balance as his income to the tune of Rs. 14,40,000/-. As the A.O found discrepancy in the figures offered by the assessee as per their books of accounts with the figure shown by the creditors in their confirmation letters, she brought to tax a sum of Rs. 23,00,000/-. In respect of Rs. 30,00,000/- loan availed by the assessee for which, the assessee could not produce any confirmation letters due to their relationship with the said creditors, interest paid and claimed to the tune of Rs. 7,53,000/- has been disallowed by the A.O.
Further, it was noticed by the A.O that cash payments exceeding Rs. 20,000/- have been made contravention to s. 40A(3) of the Act amounting to Rs. 11,53,341/-and 1/5th of this was disallowed. The A.O stated in the assessment order that expenses relating to Cost of Print and Publicity amounting to Rs. 5,31,590/- and Rs. 85,000/- respectively incurred in connection with the films which were produced and released in earlier years were claimed in this year and hence, the same is disallowed. So far as the administrative expenses of Rs. 15,00,000/- was concerned, the same was disallowed by the A.O for want of supportive evidence. On appeal, the Ld. CIT(A) confirmed the order of the A.O on the ground that the assessee has not filed any supportive
4 -: evidence nor produced any books of accounts/confirmation letters to verify the expenditure claimed by the assessee.
Subsequently, the A.O has initiated penalty proceedings u/s. 271(1)(c) of the Act by issuing a notice on 16.03.2012. The ld. counsel for the assessee has appeared before the A.O during the course of penalty proceedings on 21.03.2012 and submitted that the additions are due to difference in confirmation letters relating to loan amounting to Rs. 23,00,000/- and interest paid on loans at Rs. 7,53,000/- and difference in opening balance of Rs. 14,40,000/- totaling of Rs. 44,93,500/- and submitted that neither concealment of income nor filed inaccurate particulars of income and the assessee could not file the confirmation letters due to strange relationship between the creditors with the assessee.
On appeal before Ld. CIT(A), the Ld. CIT(A) only confirmed the additions in respect of penalty levied by the assessee difference in loan account of Rs. 23,00,000/-, interest of Rs. 7,00,000/-, administrative expenses of Rs. 15,00,000/- the difference in opening balance offered by the assessee of Rs. 14,00,000/-. The remaining additions on which penalty levied by the A.O is deleted.
5 -: 7. On being aggrieved, the assessee carried the matter before the Tribunal.
In so far as penalty levied in respect of difference in loan account of Rs. 23,00,000/- is concerned, the case of the assessee is that the disallowance/addition amounting to Rs. 23,00,000/- being difference in the confirmations admitted by the financiers in the assessment proceedings. It is submitted by the assessee that the assessee has borrowed funds from the various creditors therefore, there is difference in confirmations given by the financiers and submitted that it is neither concealment nor filing of inaccurate particulars of income. However, the A.O and Ld. CIT(A) has not accepted the explanation of the assessee and penalty is levied. We have considered the entire facts of the case, it is a fact that the assessee has borrowed money from various creditors nearly about 175 and there is a difference in confirmations when compared to books of accounts of the assessee.
However, it was explained by the assessee that said difference is due to reconciliation of year end entries between assessee and his creditors. In our opinion, this cannot be considered as neither concealment nor filing of inaccurate particulars of income. Levying of penalty on this count is not justified therefore, the same is deleted.
6 -: 9. In so far as penalty levied on disallowance of interest amounting to Rs. 7,50,000/- is concerned, the A.O gave a finding that the assessee is not able to substantiate that the assessee has payable the principle amount and therefore, restricted disallowance to only interest and the same is confirmed by the Ld. CIT(A). We find that the difference arose because of books of accounts of the assessee and the assessee is not able to file confirmations that the amounts are payable to the creditors therefore, the A.O has disallowed the interest on the ground that the principle amount itself is not paid by the assessee therefore, interest cannot be allowed. The assessee is not able to establish before the A.O that the amounts borrowed by the assessee to the extent of Rs. 30,00,000/- loan availed, the assessee could not produce confirmation letters therefore, the A.O has disallowed the interest. It is submitted before us that due to strange relationship with the creditors, the assessee is not able to file confirmations. It is further submitted that the assessee has borrowed the loan and he has to pay interest along with the principle amount. Therefore, in the return of income an amount of Rs. 7,53,500/- claimed as an interest. The claiming of the interest expenditure is neither concealment nor filing of inaccurate particulars of income. We find that the assessee borrowed certain amounts from various creditors and as per the books of accounts of the assessee, he has to pay interest of Rs.7,53,500/-. The 7 -: A.O has asked the assessee to produce confirmation letters, the assessee is not able to produce the same. At the best, the A.O can make an addition in respect of loan borrowed is not explained by the assessee and also interest claimed by the assessee. In our opinion, the disallowance of interest claimed by the assessee cannot be considered neither concealment nor by filing of inaccurate particulars of income simply because the assessee was not able to file confirmation letters. We find that the A.O is not justified in levying the penalty on this count confirmed by the Ld. CIT(A).
So far as penalty levied on account of Rs. 15,00,000/-, the claim of the assessee is that the amount was refunded to distributors debited to profit and loss account under the head ‘administrative expenses’.
The A.O as well as Ld. CIT(A) has confirmed the additions and penalty is levied on the ground that no evidence was produced that the amount was refunded to distributors. Before us, the ld. counsel for the assessee has submitted that an amount of Rs. 15,00,000/- was refunded to various distributors and not able to file confirmation letters from them due to strange relationship with the distributors. We find that the assessee is in the business of film making and sometimes it is necessary to refund money to the distributors whenever there is a huge loss but it is depend upon the understanding between the parties and 8 -: also agreement between parties. The assessee is not able to file any details however, taking into consideration of the nature of the business of the assessee, simply because the assessee is not able to file details of expenses debited to profit and loss account cannot be considered neither concealment of income nor filing of inaccurate particulars of income and therefore, we are of the opinion that the A.O and Ld. CIT(A) is not correct in levying the penalty on this count and the same is deleted.
So far as penalty on account of Rs. 14,40,000/- in respect of difference in opening balance is concerned, the assessee himself has admitted that there is a difference but the assessee is not able to substantiate his case before the A.O as well as Ld. CIT(A) that how this difference has arose therefore, penalty is levied. In our opinion, when the assessee himself has admitted before the A.O that there is a difference in opening balance and the same is offered for taxation. In our opinion, it cannot be neither concealment nor filing of inaccurate particulars of income and therefore, the difference in opening balance cannot be considered the penalty levied u/s. 271(1)(c) of the Act. We are of the opinion that the A.O as well as Ld. CIT(A) not justified in levying the penalty.
9 -: 12. In view of the above, the penalty levied by the A.O and confirmed by the Ld. CIT(A) is cancelled. Hence, the appeal filed by the assessee is allowed.
In the result, the appeal filed by the assessee is allowed.