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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI JASON P. BOAZ (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the revenue against order dated 01/06/2012 passed by the CIT (Appeals)-39, Mumbai, for the assessment year 2005-2006, whereby the Ld. CIT(A) has allowed the appeal of the assessee filed against penalty order passed by the AO u/s 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act.’) and deleted the penalty imposed by the Assessing Officer.
2. Brief facts of the case are that the assessee company filed its return of income for the Assessment Year (A.Y.) 2005-06 declaring the total income of Rs. 24,21,111/-. During the course assessment proceedings assessee furnished details and get its account audited u/s 142 (2A) of the Act as asked by the AO. After hearing the authorized representative, the AO passed 2 Assessment Year: 2005-06 assessment order u/s 143 (3) determining the total income of the assessee at Rs. 15,27,37,740/-. The assessee carried the matter before the CIT (A) in the first appeal. The Ld. CIT(A) after hearing the assessee deleted some of the additions made by the AO and partly allowed the appeal. Still aggrieved, the assessee filed second appeal before the ITAT, Mumbai. The revenue also preferred cross appeal. During pendency of the quantum appeal the AO passed penalty order u/s 271(c) of the Act. In the quantum appeal the ITAT either deleted the additions confirmed by the Ld. CIT (A) or set aside to the authorities below except the addition of Rs. 42,85,578/- made on account of un explained cash credit. The assessee had not contested the addition made by the AO on account of prior period interest to the tune of Rs. 17,40,076/-. The assessee challenged the penalty order before the Ld. CIT(A). The Ld. CIT(A) deleted the penalty in view of the Tribunals order passed in the quantum appeal.
Aggrieved by the order of Ld. CIT (Appeal), the revenue has preferred this appeal before us on the following effective grounds:-
1. “On the facts and in the circumstances of the case and in law, the ld. CIT (A) erred in directing to delete the penalty of Rs. 2,32,38,605/- levied by the A.O. u/s 271 (1) (c), saying that the assessee’s explanation was not found to be false without appreciating that the onus of proof was on the assessee which failed to discharge.
The appellant craves to leave to add to, amend and / or to alter any of the grounds of appeal, if need be.
3. The Appellant, therefore, prays that on the grounds stated above, the order of the CIT (A)-39, Mumbai, may be set aside and that of the Assessing Officer restored.”
4. Before us the Ld. Departmental Representative (DR) relying on the assessment order submitted that the Ld. CIT(A) has wrongly deleted the penalty of Rs. 2,32,38,605/- holding that the assessee’s explanation was not 3 Assessment Year: 2005-06 found to be false without appreciating the fact that the assessee has failed to discharge the onus. The Ld. CIT(A) has further ignored that the ITAT has confirmed addition of Rs. 42,85,578/- made on account of un explained cash credit and the assessee had not challenged the addition of Rs.17,40,076/- made on account of prior period interest. Therefore, the impugned order is liable to be set aside.
5. On the other hand the Ld. Counsel for the assessee submitted that the Ld. CIT(A) has rightly deleted the penalty levied by the AO. So far as addition of Rs. 42,85,578/- made on account of un explained cash credit is concerned, the findings of the Ld. CIT(A) are based on the Law laid by the Hon’ble Supreme Court in CIT vs. P K Noorjahan 237 ITR 570. The Ld. CIT(A). As regards addition of Rs.17,40,076/-the Ld. Counsel submitted that the findings of the Ld. CIT(A) is based on the law laid down by the Hon’ble High Court of Bombay in Reliance Petro products P Ltd., 322 ITR 158. Hence, there is no merit in the appeal of the revenue.
We have heard the rival submissions and gone through the entire record including the cases referred by the parties. We notice that in the quantum appeal the ITAT has either deleted the additions confirmed by the Ld. CIT (A) or set aside the issues in question to the authorities below except the addition of Rs. 42,85,578/- made on account of un explained cash credit. We further notice that the assessee had not contested the addition made by the AO on account of prior period interest to the tune of Rs. 17,40,076/-. In the ground of appeal
, the revenue has mentioned the entire amount of penalty calculated on the total additions including the additions either deleted or sent back to the AO for determining afresh by the ITAT in quantum appeal. Whereas, the aforesaid two additions were there before the Ld. CIT(A) for consideration, Accordingly, the Ld. CIT(A) has discussed the said two issues and held that penalty cannot
4. Assessment Year: 2005-06 be levied on the aforesaid said two additions. The relevant portion of findings in respect of penalty levied on addition in respect of disallowance of interest reads as under: “6.1 Further it is also held that merely because the assessee had claimed the expenditure which was not accepted or was not acceptable to the Revenue, that by itself would not attract the penalty u/s. 271(1)(c) of the I.T. Act. Thus considering the facts of the case that merely because appellant’s claim was not admissible in the current year but was to be claimed in the preceding previous year would not invite the penalty. It is also seen that during the assessment proceedings, the appellant was asked to explain as to why the interest of Rs. 17,40,076/- should not be disallowed. The appellant has submitted before the A.O. as follows:
“With reference to Para 12 of the aforesaid show cause notice, in respect of the prior period item Rs. 17,40,076/-, being interest paid on term loan, we may state that we have accounted for the expenditure in the year in which we received the advice from the bank, in the absence of advice from the bank the same was not booked and provided in the immediately preceding previous year. We may state that expenditure is allowable in the year in which it got crystallized and therefore the same is allowable.
In the alternative, we submit that preceding year’s assessment may please be rectified u/s 154 of the Income Tax Act, 1961, to allow the aforesaid expenditure of Rs. 17,40,076/- towards interest on term loan for the period ending 31-03-2004.”
6.1.2 From the above it is seen that the appellant has given the explanation and the explanation was not at all found be to be false. In view of this, I am of the view that the appellant has made the claim on a bona fide belief that it is an allowable expenditure. The appellant has also offered the explanation for the claim made which was not found to be false. In view of this the claim cannot be considered as concealment of income or furnishing of inaccurate particulars of income. In view of this penalty levied on disallowance of interest expenses is deleted.”
5 Assessment Year: 2005-06
We notice that the findings of the Ld. CIT(A) on this issue are based on the ratio laid down by the Hon’ble Bombay High Court in Reliance Petroproducts P Ltd.(supra) in which it has been held that mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. The assessee had claimed the interest paid on term loan borrowed. The AO made disallowance of the said amount on the ground that the same pertained to the preceding previous year. But the contention of the assessee was that it received advice of the Bank in the accounting period relevant to the assessment year under consideration and since, the same had not been claimed in the preceding year it was claimed during the assessment year under consideration. So, we do not find the element of concealment of income or furnishing of inaccurate particulars of income so as to attract the provisions of section 271(1)(c) of the Act. Hence, we do not find any reason to interfere the findings of the Ld. CIT(A).
Similarly, the Ld. CIT(A) has held that penalty cannot be imposed on the addition of Rs. 42,85,578/- made on account of un explained cash credit holding as under:
7.3 In the instant case the addition is made u/s 68 which also a deeming fiction where provisions of sec 68 are analogous to sec 69. Further it is not a case where no explanation has been provided but it’s a case where due to circumstances beyond the control of the assessee it could not substantiate its explanation. Nevertheless mere inability to substantiate would not be the ground for levying the penalty because there is no independent finding of any fact which suggests that the assessee had earned such income which was not offered for tax. Similarly, the explanation offered is not found to be false by bringing any material on record and therefore considering the entire facts and circumstances of the case I am of the opinion that no penalty could be levied. In this regard reliance is also placed on the judgment of ITAT Chennai. A Bench in case of Dr. V Muralikrhshnan reported in 11 ITR (Trib) 443 where the penalty 6 Assessment Year: 2005-06 was deleted under similar circumstances in which the then assessee could not produce the books of accounts and records since they were seized by CBI from his chartered accountants office and accordingly the additions were also confirmed. However in the same case when it came for penalty the honorable ITAT deleted the penalty stating that “So non-production of books of accounts had a valid reason. Explanation 1 to sec 271(1) (c) was not applicable. The assessee had offered an explanation which had not been found false by the AO. Penalty could not be levied U/s. 271 (1)(c).
Thus considering the facts of the case and judicial authorities in this regard penalty levied is deleted.”
We further notice that the Ld CIT(A) has based its findings on the ratio of law laid down by the Hon’ble Supreme Court in CIT vs. Smt P K Noorjahan(supra), followed by the Hon’ble Madras High Court in S V Kalyanam, 327 ITR 447 and the decision rendered by the ITAT Bench Chennai in the case of Dr. V Muralikrishanan 11 ITR 443(Trib). As pointed out by the Ld. CIT(A) no defect was reported by the CAs concerned while auditing assessee’s accounts pertaining to the assessment years 2004-05 and 2005-06. As per the audited Balance Sheet, the assessee’s outstanding balance as on 31.3.2004 was reduced to nil as on 31.3. 2005. However, the assessee could not substantiate its claim by producing the corroborating documentary evidence as the documents were damaged/destroyed in flood. In Dr. V Muralikrishanan’s case (supra), the Chennai Tribunal has deleted the addition made by the AO in the similar circumstances. As per the settled position of law assessment proceedings and penalty proceedings are two separate proceedings and addition to the income of the assessee does not ipso facto make the assessee liable for penalty. In the absence of independent findings penalty u/s 271(1)(c) cannot be imposed.
In view of the reasons discussed above we do not find any legal infirmity in the findings of the Ld. CIT(A). Accordingly, we, affirm the findings of the Ld. CIT(A) and hold that the Ld. CIT(A) has rightly held that on the basis of the 7 Assessment Year: 2005-06 addition of Rs. 42,85,578/- made on account of un explained cash credit, in this case, penalty u/s 271(1)(c) of the Act cannot be imposed.
In the result, appeal filed by the revenue for assessment year 2005-2006 is dismissed