ACIT, CHENNAI vs. NARASIMHULU GALI MUNUSAMI, CHENNAI

आदेश / O R D E R

PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:

This is an appeal filed by the Revenue against the Order dated

18.10.2016 of Commissioner of Income Tax (Appeals)-15, Chennai, in ITA

No.292/CIT(A)-15/2015-16 for the AY 2012-13 and raised the following

grounds:

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2.0 Delay:

The Revenue filed appeals with delay of 32 days and the Ld.AO filed

the condonation petition explaining the reason for delay. We heard

both the parties and condone the delay.

3.0 All the grounds of the appeal are related to the imposition of penalty

u/s.271(1)(c) of IT Act. For the AY 2012-13, the assessee filed return of

income declaring total income of Rs.1,07,28,130/- on 28.09.2012. The

assessment was completed u/s.143(3) on total income of

Rs.1,48,70,350/-. The AO made addition to the return of income as

under:

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Addition of undisclosed income as per Sec.26AS Rs. 16,09,085.00 Disallowance of depreciation Rs. 2,11,846.00 Addition of sundry creditors Rs. 23,21,294.00 Total Rs. 1,48,70,350.00

4.0 The AO initiated penalty for concealment of income and furnishing of

inaccurate particulars and issued notice to the assessee calling for his

explanation. The assessee explained that there was no concealment of

income or furnishing of inaccurate particulars and the addition made by

the AO was related to the advance received from Britannia Industries for

sale of products which cannot be assessed as income as per IT Act, but

accepted to purchase peace with the Department. The assessee further

stated that the excess depreciation was claimed inadvertently. The

assessee agreed for the addition to avoid protracted litigation with the

Department and relied on the decision of CIT v. Manjunatha Cotton

Jinning Factory v CIT and argued that the notice issued u/s.271(1) was

defective by not making known the offence for which the penalty is

initiated. Accordingly, argued that the notice issued u/s.274 r.w.s.271

needs to be quashed. Not being convinced with the explanation of the

assessee, the AO levied the penalty of Rs.12,42,668/- being 100% tax

sought to be evaded. Against the order of the AO passed u/s.271(1)(c)

r/w 274, the assessee went on appeal before the CIT(A) and the Ld.CIT(A)

deleted the penalty holding that there is no concealment of income or

furnishing of inaccurate particulars.

5.0 We heard the rival submissions and perused the material placed

before us.

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The AO in the Assessment Order made the addition of

Rs.15,20,000/- mainly due to the difference in the form 26AS. The

assessee explained before the AO that the amount of Rs.15,20,000/-

represented loan amount and a sum of Rs.89,085/- was reimbursement

of expenses. Both the components of loan and reimbursement does not

constitute income. During the appeal hearing, the Ld.AR submitted that

the assessee is engaged in business of franchise manufacturer of bread

products and has contract for manufacturing of rusks for Britania

Industries Ltd. During the previous year relevant to the AY, the assessee

has received a sum of Rs.15,20,000/- as advance from the Britania

Industries Ltd. for which the conversion bill was not raised and the

amount was outstanding as loan against conversion. The remaining

amount of Rs.89,085/- was reimbursement of unloading charges. The

Ld.AR also produced the ledger account copy and reconciliation statement

with Form-26AS. Wherein the assessee has received a sum of Rs.20.00

lakhs as loan against conversion on 27.12.2011 out of which

Rs.15,20,000/- was outstanding. Form-26AS represents all the receipts

relating to income loans and other miscellaneous receipts on which TDS

required to be deducted. In the instant case, the Ld.AR has furnished

sufficient evidence to show that the amount of Rs.15,20,000/- was an

advance and the same fact was accepted by the AO in the Assessment

Order. A sum of Rs.89,085/- was accepted as reimbursement of

unloading charges. These facts are not disputed by the Revenue. The AO

merely added back the loan and reimbursement of expenses to the

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returned income. The AO has neither proved it as concealment of income

nor established that the amount represents furnishing of inaccurate

particulars hence does not attract penalty u/s.271(1)(c) and the penalty

imposed by the AO on sum of Rs.16,09,085/- to difference in Form-26AS

is cancelled.

6.0 The next issue is related to the penalty on disallowance of

depreciation:

The AO made the addition of Rs.2,11,846/- on account of

disallowance of depreciation. The assessee has purchased the machinery

for Rs.25,93,624/- out of which the assets worth Rs.30,26,359/- was used

for less than 180 days and claimed full amount of depreciation. Though

the assessee at the time of assessment explained that it was a mistake, it

is obligation on the part of the assessee to claim correct amount of

depreciation. Had the case has been not selected for scrutiny, this issue

would not have come to the notice of the Department and the excess

depreciation of Rs.2,11,845/- continued to escape the income. Therefore,

this is a clear case of concealment and the penalty levied by the AO on the

issue of excess depreciation is confirmed and the assessee’s appeal on this

ground is dismissed.

7.0 The next issue is related to the levy of penalty on sundry creditors

amounting to Rs.23,21,294/-:

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The AO has made the addition of sundry creditors since the

outstanding was more than three years. No other reason has been

assigned by the AO in the Assessment Order. The Ld.AR argued that the

amount of Rs.7,34,348/- is relating to AG Industries and the sum of

Rs.15,86,976/- relating to quality print pack are opening balances and the

AO cannot impose penalty u/s.271(1)(c) on the opening balances. It is

undisputed fact that the assessee could not be established the

genuineness of outstanding balances. Therefore, the AO made the

addition to the returned income. The AO has not established that the

sundry creditors are not genuine and no evidence was brought on record

to show that the amount outstanding was bogus. Both the sundry

creditors are opening balances. When the opening balances are added to

the returned income, there is no case for penalty u/s.271(1)(c), unless it

is proved by the AO that the outstanding balance was bogus. In this case,

no such finding was given by the AO. Therefore, we are unable to uphold

the penalty imposed by the AO and confirm the order of the Ld.CIT(A) on

this issue. The assessee’s appeal on this ground is allowed.

8.0 The next issue is defect in the notice issued u/s 274 r.w.s 271 for

non-striking of irrelevant column relating to concealment of

income/furnishing inaccurate particulars. The assessee relied on the

decision of the Hon’ble Karnataka High Court in the case of CIT v.

Manjunatha Cotton Jinning Factory. From the penalty order it is clear that

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the AO has levied the penalty for concealment of income and furnishing inaccurate particulars. Therefore the AO has initiated penalty for both the offences of for concealment of income and furnishing inaccurate particulars and there is no defect in the notice. Hence this argument is not tenable and dismissed.

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

Order pronounced in the Open Court on 7th June, 2017, at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन) (!ड.एस. सु�दर $संह) (N.R.S. GANESAN) (D.S.SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

चे�नई/Chennai, 5दनांक/Dated: 7th June, 2017. TLN

आदेश क0 .�त$ल6प अ7े6षत/Copy to: 1. अपीलाथ-/Appellant 4. आयकर आयु8त/CIT 2. ./यथ-/Respondent 5. 6वभागीय .�त�न�ध/DR 3. आयकर आयु8त (अपील)/CIT(A) 6. गाड* फाईल/GF