SHRI LOKESH CHAND JAIN,NEW DELHI vs. ACIT, NEW DELHI

The facts in brief are that the assessee is an individual who derives income from manufacturing of garments and exports thereof. The Assessing Officer noted that the assessee has received sum of Rs.12,72,741/- as interest income from FDRs and he has also paid sum of Rs.15,07,927/- as interest on various loans for his business and only net amount of Rs.2,35,185/- was debited to the P&L account. However, there is another interest amount of Rs.10,000/- which too was claimed for deduction u/s.80HHC. The Assessing Officer held that interest income of Rs.12,72,741/- and other interest of Rs.10,000/- is to be taxed as ‘income from other sources’ and further miscellaneous income earned due to fluctuation on foreign exchange amounting to Rs.2,40,641/- cannot be held to be business income, and therefore, he disallowed the claim of deduction u/s.80HHC by these amounts. In the quantum proceedings such disallowance stood upheld in various rounds of litigation which has been discussed by the ld. CIT (A). The penalty has been levied by the Assessing Officer on such a disallowance of deduction u/s.80HHC Rs.5,01,052/- on the charge that the assessee has furnished inaccurate particulars of income.

Ld. CIT (A) too has confirmed the penalty after detailed discussion and after observing and holding as under:- Regarding the disallowances of the deduction claimed by the appellant, the order the AO dated 08.02.2010 has become final as the appellant did not file any appeal against this order dated 31.10.2009. As noted by AO, the appellant made excess claim of deduction that amounts to furnishing of inaccurate particulars. Regarding 90% of miscellaneous income of Rs.5,72,614/-, the appellant reduced only Rs.2,14,043/- instead of Rs.5,15,352/-. Thus, the appellant claimed excess deduction of Rs.3,01,309/- by furnishing inaccurate particulars. This excess claim cannot be accepted as bonafide mistake which would not have come into taxation

without scrutiny assessment. Moreover, the appellant never pleaded the ground of bonafide mistake. Regarding disallowance of deduction as a result of interest income of Rs. 12,72,741/- out of FDR and Rs. 10,000/- from other source, appellant never submitted any explanation before the AO and hence these amounts also comes under excess claim of deduction by furnishing of inaccurate particulars. As far as income arising out of fluctuation rate of foreign exchange, the appellant did not cooperated with the AO during the assessment proceeding as per the direction of the Hon’ble ITAT. (As held in the case of CIT Vs. Motor General Finance Ltd. (2002) 254 ITR 449 (Delhi), adverse inferences can be drawn when satisfactory explanation and documentary evidences are Although, the penalty provision u/s 271(1)(c) are not automatic and a must in every case of addition, this particu7lar case falls outside such general proposition.”

After hearing both the parties and on perusal of the relevant findings given in the impugned order as well as material referred to before us, we find that the penalty has been levied on disallowance of deduction u/s.80HHC for which consists of disallowance of interest on FDRs at Rs.12,72,741/-, misc. interest income of Rs.10,000/- and fluctuation of foreign exchange amounting to Rs.2,40,641/-. As per Assessing Officer, the excess claim of deduction that amounts to furnishing of inaccurate particulars of income as the assessee has reduced only Rs.2,14,043/- instead of Rs.5,15,352/- which is 90% of the misc. income and accordingly it was held that there is an excess deduction of Rs.3,01,309/-. The deduction on account of interest income was also held to be income from other sources. In so far as fluctuation rate of foreign exchange is concerned, the appeal of the assessee in quantum proceedings have been decided against the assessee on technical grounds that assessee did