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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI N.V. VASUDEVAN, JM &DR. A.L.SAINI, AM
O R D E R
Per Dr. Arjun Lal Saini, AM:
The captioned appeal filed by the assessee, pertaining to Assessment Year 2007-08, is directed against the order passed by the Ld. CIT(A)-xiv, Kolkata, in Appeal No.58/CIT(A)-XIV/Kol/10-11, dated 20.03.2014, which in turn arises out of an order passed by the Assessing Officer u/s 271(1)(c) of the Income Tax Act, ( hereinafter referred to as the Act), dated 24.06.2010.
The brief facts qua the issue are that during the assessment proceedings, the Assessing Officer noted from the balance sheet, of M/s. Tirupati lnternational, the assessee’s proprietorship concern for the year ended 31.03.2007, there was an outstanding debit balance, (i.e, withdrawal) of Rs.4,52,178/- in proprietor's capital a/c. whereas the outstanding unsecured loans from different parties stood at Rs.13,84,427/- as on 31.03.2007. Based on the information the AO considered that the assessee didn't utilize the loans taken by him for his business purpose as Suresh Kumar Gupta Assessment Year: 2007-08 such the expenses under the head 'interest on loan' on full amount of loan, claimed by him in his balance sheet is not allowable. Therefore the AO worked out the disallowance on account of interest paid amounting to Rs.39,964/- being the expenditure not incidental to his business and the same was therefore liable to be added back to his total income. In response to show-cause notice of the AO, the assessee appeared on 22.12.09 and stated that the he had no explanation to offer against the said observations and also has no objection against the proposed addition. Therefore, Rs.39,964/- was disallowed as expenses & subsequently added back to his total income. Penalty proceedings u/s.271(1)(c) of the I. T. Act were initiated on this score for concealment of income. 3. During the course of scrutiny proceedings the assessee filed a list of 'sundry creditors' as appearing in his accounts for F.Y. 2006-07, in which he claimed to have the outstanding credit in the name of M/s. A. B. Industries amounting to Rs.1,61,059/- as on 31.03.2007. For verification notice u/s.133(6) of the I.T. Act was sent to M/s. A. B. Industries. The reply received from M/s, A. B. Industries revealed that as per their accounts the outstanding debtor in the name of M/s. Tirupati International as on 31-03-2007 was at Rs.1,49,276/-. This discrepancy brought to the notice of the assessee by the AO. In response, the assessee filed a written reconciliation. The AO accepted reconciliation of the difference amount of Rs.7904/, the assessee's explanation was acceptable but it was found that there was a difference in opening balance of Rs.1227/- as on 01.04.2006. Therefore, the assessee himself admitted that his claim of outstanding credit of this amount of Rs.1227/- in the name of M/s. A. B. Industries was unexplained. Therefore, Rs.1227/- was added back to the total income of the assessee as the same could not be explained by the assessee. Penalty Page | 2 Suresh Kumar Gupta Assessment Year: 2007-08 proceedings u/s.271(1)(c) of the I T. Act was also initiated on this score for concealment of income. In the same reconciliation the assessee has also admitted that he has recorded a purchase amount higher than the bill amount (Bill No. 230 dated 31.10.2006) by Rs.2,652/-. In view of the assessee's own confession this amount of claim of purchase of Rs.2,652/- was disallowed as expenses and the same was added back to the total income of the assessee. Penalty proceedings u/s.271(1)(c) of the I. T. Act was also initiated on this score for concealment of income by way of claiming bogus expenditure. On the aforesaid additions, the AO imposed penalty U/s 271(1) (c) at Rs.8944/- 3. Aggrieved by the order of the AO imposing penalty, the assessee filed an appeal before the ld. CIT(A), who confirmed the order of the Assessing Officer. The CIT(A) held that the order of penalty passed by the AO, imposing penalty of Rs. 8,944/- u/s. 271(1)(c) of the Act was based on the factual position. The CIT(A) also held that the A/R of the assessee himself has admitted that he has no objection against the AO's proposed addition/disallowance of Rs. 39,964/’- on a/c of his assessee`s claim of expenses on interest paid. The ld CIT(A) noted that the assessee had also admitted before the AO during the scrutiny proceedings that his claim of outstanding credit of Rs. 1,227/- in the name of Sundry Creditor, namely, M/s. A.B. Industries remains unexplained by himself. In the case of the addition made by the AO of Rs. 2,652/- which arose out of purchase amount recorded by the assessee, higher than the bill amount and which assessee had admitted from inadvertent mistake and which is a natural phenomenon incidental in normal course of business. Page | 3 Suresh Kumar Gupta Assessment Year: 2007-08 5. Before the CIT(A), the assessee submitted that in the case of Dy. C.I.T. V. Rajan H. Shinde [2005] 93 ITD 1 Pune (TM) wherein it was held that "Concealment cannot be presumed merely because assessee has offered additional income." The assessee had also cited a judgment in the case of C.I.T'. V. Reliance Petro-products (P). Ltd. [2010] 189 Taxman 322/230 CTR 320/322 ITR 158 (SC) wherein it was held that - "A mere making of claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particular regarding income of assessee.
The ld CIT(A) held that the submissions made by assessee citing the judgements of various Courts are not sustainable in the instant appeal as the assessee hadnot (in a single event) been able to supply any cogent or clinching evidences in support of his claim during the scrutiny proceedings/penal proceedings. Therefore, CIT(A) confirmed penalty of Rs. 8,944/- imposed by AO.
Not being satisfied with the order of the ld. CIT(A), the assessee is in further appeal before us and taken the following grounds of appeal: 1.“For that under the facts and circumstances the ld. CIT(A) erred both on facts and in law in confirming the penalty u/s.271(1)(c) of the Act.”
8. The ld. Counsel for the assessee has submitted before us that mere making of claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particular of income. The ld. Counsel has submitted that as far as interest on unsecured loan debited on books of accounts, is concerned, it can be noted that all the loans were primarily taken exclusively for the purpose of business of the assessee and the interest as payable to such loan creditors were charged to the Profit & Loss A/c, which was a correct procedure. Incidentally, the Page | 4 Suresh Kumar Gupta Assessment Year: 2007-08 drawings were exclusively made by the proprietor which turned the Capital Balance to a debit balance and the Ld. Assessing Officer resorted to disallow a proportionate part of interest on loan which he considered as having not been utilized for business purpose. But this does not lead to concealment of income or furnishing inaccurate particular of such income because the disclosure made by the assessee are correct for the very simple reason that the same interest becomes an allowable expenses once the debit balance of the proprietor’s capital a/c turns into credit balance in the subsequent years, which is quite likely to happen. So, simply because the capital accounts gets debited by temporary over- drawings and the interest becomes inadmissible for the time being, the matter cannot be equated to a case of concealment of income or furnishing of any inaccurate particulars of such income. In all fairness, there is no case of any concealment, rather it is a case of inadmissibility of certain expenses, which in itself, does not become a Ground for penalty u/s.271(1)(c).
On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the AO, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
Having heard the rival submissions and perused the materials available on record, we are of the view that the drawings were exclusively made by the proprietor which turned the Capital Balance to a debit balance and the Ld. Assessing Officer resorted to disallow a proportionate part of interest on loan which he considered as having not been utilized for business purpose. The Assessing Officer observed that the drawings having not been utilized for business Page | 5