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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’, NEW DELHI
Before: SH. AMIT SHUKLA & SH. O.P. KANT
PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 22/ 08/ 2016 passed by the Ld. Commissioner of Income-tax (Appeals)-37, New Delhi [in short the Ld. CIT(A) ] for assessment year 2009-10 in relation to penalty under section 271(1)(c) of the Income-tax Act, 1961( in short the Act The grounds of appeal raised are reproduced as under:
The learned Commissioner of Income Tax (Appeals) has erred in upholding the penalty of Rs.2,03,220/- imposed by the Assessing Officer which was bad both on facts and in law in imposing penalty u/s 271(1)(c) of the Income Tax Act, 1961.
The Learned Commissioner of Income Tax (Appeals) has erred in upholding the penalty of Rs.2,03,220/- imposed by the Assessing Officer on account of disallowance of interest paid to M/s. Fab India Overseas Private Limited.
The Learned Commissioner of Income Tax (Appeals) has erred in upholding the penalty of Rs.2,03,220/- imposed by the Assessing Officer since initiation of penalty by Assessing Officer was itself defective since vide order dated 29/11/2011 the Assessing Officer had initiated a general penalty under Section 271(1)(c) and has not initiated penalty under specific disallowances. 4. The learned Commissioner of Income Tax (Appeals) has erred in upholding the penalty of Rs.2,03,220/- when notice of demand under section 156 of Income Tax Act, 1961 is itself defective since the said demand is raised for the assessment year 2012-13 whereas the order pertains to the year 2009-10. 5. The Appellant may be allowed to add, alter, modify or delete any or all of the grounds of appeal at the time of hearing.
Briefly stated facts of the case are that the assessee 2. company was engaged in the business of sale of ready-made garments and made-ups of textiles. For the year under consideration, the assessee filed return of income declaring total income of Rs.1,48,99,754/ -. The case was selected for scrutiny and assessment under section 143(3) of the Act was completed on 29/ 11/ 2011 after making various additions/ disallowances aggregating to Rs.1,48,13,444/ -. Penalty proceedings under section 271(1)(c) of the Act were initiated accordingly. On further appeal, against the quantum additions/ disallowances, a disallowance Rs.6,57,669/ -has been upheld by the Tribunal. Consequently, the Assessing Officer levied penalty of Rs.2,03,220/ - vide order dated 22/ 09/ 2015 holding that the assessee has furnished inaccurate particulars of its income with respect to the said disallowance of Rs.6,57,669/ -. The Ld. CIT(A) also upheld the said penalty levied by the Assessing Officer. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above. The sole issue involved in grounds raised by the assessee is 3. in respect of the levy of penalty under section 271(1)(c) of the Act on disallowance of interest of Rs.6,57,669/ - paid to M/ s Fab India Overseas P. Ltd. (FIOPL). It has been pointed out by the lower authorities that the assessee company has received a sum of Rs.2,52,89,149/ - as unsecured loan from FIOPL and paid interest of Rs.6,57,669/ -. The Assessing Officer observed that the assessee sold goods mainly to FIOPL and sales proceeds at the year-end were outstanding and in the books of accounts of the assessee the FIOPL was shown as debtor of Rs.5,26,61,159/ -. According to the Assessing Officer, on one side the sales proceeds of M/ s FIOPL are outstanding, whereas on the other side the assessee is making interest payment on unsecured loans received from the same party. According to the Assessing Officer the transaction in dispute was covered under section 40A(2)(b) of the Act. The Assessing Officer concluded that it is a direct benefit given by the assessee to FIOPL and same amounts to diversion of income by the assessee. The disallowance made by the Assessing Officer has been upheld by the Ld. CIT(A) as well as by the Tribunal in quantum proceedings. In penalty proceedings, the Assessing Officer has noted that 4. no reply was filed by the assessee and thus, he following the decision of the Hon High Court in the case of Zoom Communication Private Limited reported in 371 ITR 51 levied the penalty u/ s 271(1)(c) of the Act. Before the Ld. CIT(A), the assessee contended that the loan accounts and the sale accounts were maintained separately and in respect of the sales, Bill to Bill payments were received from the FIOPL. It was also contended that related party disclosures was duly made by the assessee. This explanation was not accepted by the Ld. CIT(A). According to the Ld. CIT(A), the accounting policy adopted by the assessee was not in accordance with the principle of accountancy. In view of Ld. CIT(A), the explanation of the assessee was not bona fide, and thus, he upheld the penalty levied by the Assessing Officer.
Before us, the Ld. counsel of the assessee filed a paperbook containing pages 1 to 118 and submitted that assessee has filed all the particulars on the issue in dispute fully and truly and claimed the amount of interest paid as business expenditure. According to the Ld. counsel merely making a claim which is not sustainable in law does not amount to furnishing of inaccurate particulars of income. Further, he referred the decision of the Hon e Supreme Court in the case of Reliance Petroproducts Pvt. Ltd., 322 ITR 158 (SC) and submitted that merely the fact that assessee had claimed the expenditure, which was not accepted or was not acceptable to the Revenue authorities, that by itself would not attract penalty under section 271(1)(c) of the Act.
The Ld. DR, on the other hand, supported the order of the lower authorities and relied on the decision of the Hon High Court in the case of Zoom Communication Pvt. Ltd. (supra)
and filed a list of other decisions on the issue of penalty under section 271(1)(c) of the Act.
We have heard the rival submissions and perused the relevant material of record. In the instant case, penalty has been levied by the Assessing Officer on the ground of filing inaccurate particulars of income by the assessee. We have observed from the facts of the case that the assessee has duly disclosed the related party transactions in documents filed before the Assessing Officer. The assessee has also filed respective accounts of loan and sales. Thus, the assessee has disclosed all the facts truly and fully before the Assessing Officer. The Assessing Officer has also not pointed out as which factual information filed by the assessee is found to be false or incorrect. The assessee has explained maintaining of two separate accounts in respect of the loan and sales. The assessee also explained about outstanding sale proceeds from M/ s. FIOPL. We do not find the explanation either as false or malafide. In our opinion, penalty under section 271(1)(C) of the Act cannot be levied, merely on the ground that the addition has been sustained by the Tribunal in quantum proceeding, unless particulars furnished by the assessee are found to be false or the explanation furnished by the assessee is not bona fide. The Hon Reliance Petro products Private Limited (supra) has clearly held that making a claim which may not be sustainable in law does not amount to furnishing of inaccurate particulars of income. Thus, respectfully, following the above decision of the Hon Supreme Court, we delete the penalty levied and cancel orders of the lower authorities on the issue of penalty. Accordingly, the ground No.1 & 2 of the appeal are allowed.
Since the penalty levied has already been deleted the other grounds are rendered infructuous.
In the result, the appeal of the assessees allowed. Decision is pronounced in the open court on 27th June, 2018.