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Income Tax Appellate Tribunal, DELHI BENCH
Before: SHRI BHAVNSH SAINI
ORDER
Per Bhavnesh Saini, Judicial Member :
This appeal by the assessee has been directed against the order of Ld. CIT(A)12, New Delhi dated 13th October, 2017 for assessment year 2012-13, challenging the levy of penalty u/s 271(1)(c) of the IT Act.
I have heard Ld. Representatives of both the parties and perused the material on record.
During the year under consideration, the assessee was running two proprietory concerns namely M/s. Hoti Lal Chuni Lal and M/s. Vimal Traders which were involved in Trading in Food grains and commission agent. The assessee has shown unsecured loan of Rs. 39,41,156/- which were received from his family members and relatives on which he has allowed interest of Rs. 4,26,840/-. On the other hand the assessee has shown debtor of Rs. 3.40 crores in the name of M/s. Ganga Ram Har Prasad which is Proprietor concern of his wife and left unrecovered such heavy debtors and no interest charge by assessee for delay payments. The AO, therefore, noted that on the one hand assessee has paid interest to family members and relatives and on the other hand heavy amount of Rs. 3.40 crore is still outstanding on close of the financial year but no interest have been charged. Show cause notice was issued as to why the interest may not be disallowed. The assessee agreed for the disallowance, the AO accordingly disallowed Rs. 4,26,840/- by considering the fact that if simply interest of 12% is charged on the interest free debtors the addition would come to the above amount. The AO vide separate order levied the penalty u/s 271(1)(c) of the Act on the aforesaid addition.
The assessee challenged the penalty order before the Ld. CIT(A). The appeal of assessee was decided vide order dated 26th October, 2016, the Tribunal, however, restored the matter that the file of CIT(A) to decide the appeal afresh. The written submission of the assessee is reproduced in the appellate order in which the assessee
briefly explained the assessee has not concealed any income. The assessee did not file appeal against the quantum addition just to buy peace of mind, to avoid litigation and to save litigation cost. The assessee is in a trading business like Food grain and there are always heavy creditor and debtors. The balance sheet of the assessee would disclose that there were sundry debtors of Rs. 5.58 crores and sundry creditors were of Rs. 5.17 crore. The addition made is intangible and is not real. Therefore, on difference of opinion no penalty be levied against the assessee. The assessee relied upon several case laws in support of the above contention. The Ld. CIT(A) however dismissed the appeal of assessee because assessee did not charge interest on the delayed payments and has not explained the issue before the authorities below.
Appeal of the assessee has been dismissed.
The Ld. Counsel for the assesee reiterated the submission made before the authorities below. He has referred to PB 57 which is Trading and Profit and Loss account to show that no interests is paid to the creditors and no interest is charged from the debtors. Only interest have been disallowed without any reasons, therefore, it is not a fit case of levy of the penalty. On the other hand Ld. DR relied upon orders of the authorities below.
I have considered rival submissions. The AO in the assessment order noted that the assessment proceedings had been attended by the assessee and filed necessary details. The assessee also produced books of accounts which were basis
checked. The assessee as per profit and loss account claimed deduction of interest of Rs. 4,26,840/-. The AO noted that assessee has shown unsecured loan of Rs. 39,41,156/- which were received from his family members and relatives on which the above interests have been paid. The assessee has shown debtors of Rs. 3.40 crores in the name of the concern which belong to wife of the assessee. The assessee did not charge interest on the unrecovered Sundry debtors for delayed payment. The AO, therefore, directed if interest be charged on the delayed payment at the rate of 12% P.A. then the amount of interest will comes more than interest paid of Rs. 4,46,840/-. The assessee agreed to the addition before the AO. These facts clearly disclosed that AO proposed to charge interest on the debit balance of Rs. 3.40 crores which amount is not recovered till the close of the financial year. The AO, however, did not bring any agreement on record which may authorize the assessee to charge interest on the debit balance for delayed payment. No material is also produced on record to justify the addition on account of notional interest so charged by the AO. Hon’ble Gauhati High Court in the case of B and A Plantation and Industries 242 ITR 22 held that there is no provision in Income Tax Act, empowering the ITO to include in the income of assessee, interest which were not due or collected. Hon’ble Supreme Court in the case of A.Raman and Company 67 ITR 11 held that law does not oblige a trader to make maximize profit. In the facts of the case, it is clear that the assessee did not charge any interest on delayed payment from the debtor for which no material have been produced as to under what circumstances, such interest could be charged on the business transactions. The assessee being a trader is not under compulsion to do the business at the dictate of the AO. The assessee also explained that the nature of business of the assessee would so that there are always huge sundry debtor and sundry creditors which fact have not been disputed by the authorities below. Therefore, it is a case of mere disallowance of interest without any justification, which would not disclose any concealment of particulars of income or filing inaccurate particulars of income on behalf of the assessee. May be the assessee did not challenge the small addition in appeal would not disentitle the assessee to contest the levy of penalty. It is well settled law that quantum and penalty matters are distinct and different. Considering the totality of the facts and circumstances of the case, I am of the view it is not a fit case of levy of the penalty. I accordingly set aside the orders of authorities below and cancel the penalty u/s 271(1)(c) of the IT act. I may note that findings in this order are relevant to the penalty matter and shall have no bearing on the quantum addition agreed by the assessee.
In the result appeal of the assessee is allowed.
(Order Pronounced in the Open Court.)