RAMA GARG,SEHORE vs. DCIT-3(1), BHOPAL, BHOPAL

This appeal by the assessee is directed against order dated 10.01.2024 of Commissioner of Income Tax (Appeal), National Faceless Appeal Centre, Delhi arising from penalty order passed u/s 271(1)(c) of the Act for the Assessment Year 2012-13.

Smt. Rama Garg 2. The assessee has raised following grounds of appeal:

1. That the learned CIT(A), NFAC erred in not holding that the penalty order was bad in law. It was perverse; (2) it was based on irrelevant material; (3) it was un- reasonable; (4) there was mis-application of the provisions of law; (5) the authority misdirected.

2. That the learned CIT(A) NFAC erred in not holding that the penalty order passed by the A.O. was without following rule of natural justice and fair play and was therefore a nullity and the same may be declared null and void. 3. That the learned CIT(A) NFAC erred in confirming the penalty levied on power expenses of Rs.7,99,254/- on the basis of the disallowance of expenses confirmed by the Hon. ITAT, Indore bench is bad in law and needs to be deleted. 3. The assessee is a trader and engaged in sale and purchase of food grains and pulses. In the scrutiny assessment completed u/s 143(3) on 17.03.2015 the Assessing Officer made various additions including on account of disallowance of electricity expenses which is relevant for the appeal before us.

4. The Assessing Officer vide order dated 22.03.2018 passed u/s 2711)(c) levied penalty against two additions i.e. 25% of disallowance of total purchase and electricity and power expenses.

The matter in the quantum appeal was carried to this Tribunal and vide order dated 05.12.2019 this Tribunal deleted the addition made on account of adhoc disallowance by purchases however, the addition made by the Assessing Officer on account of electricity

Smt. Rama Garg charges has been confirmed by this Tribunal and consequently the CIT(A) has restricted the penalty to the extent of disallowance of electricity expenses.

Therefore, the Ld. AR has submitted that the claim of the assessee is a bona fide claim though the same was disallowed for want of supporting evidences. He has relied upon the decision of Hon’ble Supreme Court in the case of CIT Vs Reliance Petroproducts (P)

Ltd 322 ITR 158 and submitted that the disallowance of expenses cannot be mean that the assessee have furnished inaccurate

Smt. Rama Garg particulars of income. He has further contended that sorting and packaging is an essential part of the business of the assessee. The assessee has not claimed any other electricity expenses except the electricity expenses which are incurred exclusively for the business of the assessee and the assessee has duly recorded the details of the expenses and the consumption of the electricity in the books of accounts which is a bona fide claim of the assessee. He has also relied upon the judgment of Hon’ble Supreme Court in case of CIT Vs. State Bridge Corporation Limited 258 Taxman 63 and submitted that merely because the claim of expenditure was not accepted or not acceptable to the revenue, that by itself would not attract penalty u/s 271(1)(c) of the Act. He has also relied upon the following decisions:

(i) Balaji Vegetable Products (P) Ltd Vs. CIT (Karnataka High Court) (ii) PCIT Vs M/s Rana Sugar Ltd (Punjab & Haryana High Court)

Thus the Ld. AR has submitted that the penalty levied by the Assessing Officer u/s 271(1)(c) against the disallowance of electricity expenses is not justified and the same may be deleted.

Smt. Rama Garg 6. On the other hand Ld. DR has submitted that the assessee has not produced any evidence in the shape of electricity bill, proof of payment and consumption of electricity for the business purpose of the assessee. The Assessing Officer has recorded this fact that the assessee has claimed electricity expenses of Rs.7,99,254/- however, during the assessment proceedings the assessee failed to produce any bill of electricity despite various opportunities provided by the Assessing Officer to substantiate of her claim of electricity expenses. Therefore, the claim of the assessee was absolutely not tenable. In support of his contention he has relied upon the judgment of Hon’ble Bombay High Court in case of Clariant Chemicals (India) Ltd vs. ACIT 229 Taxman 267 and submitted that after considering the decision of Hon’ble Supreme Court in case of CIT Vs. Reliance Petroproducts (P) Ltd as well as other decision of Hon’ble Bombay High Court (supra) has upheld the penalty levied u/s 271(1)(c) of the Act in respect of disallowance of claim u/s 35 in respect of 6 items out of total 9 items claimed by the assessee. Ld. DR relied on the orders of authorities below.

Smt. Rama Garg 7. We have considered the rival submissions as well as relevant material on record. There is no dispute that the Assessing Officer has disallowed the claim of electricity expenses for want of supporting evidences and the same was confirmed by CIT(A) as well as by this Tribunal vide order dated 05.02.2019 in para 47 and 48 as under:

“47. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The Id. CIT(A) sustained these additions by observing as under: "8.3 In the remănd report submitted by the A0, it was stated that no electricity bills in the name of Rama Garg produced by the assessee. The assessee produced only one bill that too in the name of M/s. Garg warehousing. In the rejoinder it has been stated by the assessor That M/s. Garg Warehousing is owned by Mr. Vinod Agarwal, Husband of the warehousing License has been surrendered and the said premises were used by the appellant for her business activities during the year without paying any consideration. Hence the electricity expenses have been debited to the books of the appellant. 8.4 I have considered the facts of the case and the submissions of the appellant. It is an admitted fact that the electricity connection bills are in the name of Garg Warehousing. Apart from making this contention, the appellant has brought no material/evidence on record to show that the said premises were indeed used for the business of the appellant. In the absence of any evidence, the contention of the appellant remains unsubstantiated. Addition on identical issue has also been made u/s 143/3) in the succeeding assessment. In view of above, the addition made by the A0 is uphold. The ground of dismissed.

Smt. Rama Garg matter of record that the process of sorting grains is an essential part of business activity of the assessee and the assessee has installed the sorting machine which cannot run without electricity.

Sorting machine is a part of Plant & Machinery shown in the balance sheet of the assessee and Assessing Officer has allowed the depreciation on the said machine. Therefore, the existence and use of sorting machine for the business purpose has not been disputed by the Assessing Officer. Hence, in the facts and circumstances of the case where the consumption of electricity in the process of sorting the food grains and pulses is an inevitable part of business activity of the assessee then the claim of electricity expenses is not an absolutely bogus claim but the same was disallowed for want of supporting evidence. The assessee has explained the claim of electricity as the machine is used in the godown owned by the husband of the assessee and therefore, the electricity connection was also in the name of husband of the assessee. The Assessing Officer has not disputed this fact to the extent of the godown owned by the husband of the assessee however, since the assessee could not furnish the supporting evidence of electricity bill in her name the claim of the assessee was disallowed. Therefore, even the 7

Smt. Rama Garg assessee failed to substantiate the claim, the explanation of the assessee for such failure and the claim of the assessee is not mala fide but the same falls in the ambit of bona fide claim and explanation. The explanation-1 to Section 271(1)(c) of the Act read as under:

Explanation 1:Where in respect of any facts material to the computation of the total income of any person under this Act- (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) [or the [Principal Commissioner] or Commissioner] or to be false, or (B)such person offers an explanation which he is not able to substantiate [and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him]. Then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.

Clause(B) of Explanation 1 contemplates the situation where the explanation offered by the assessee is neither substantiated nor found to be bona fide then the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this Section 271(1), be deemed to represent the income in respect of which particulars have been Smt. Rama Garg concealed. In the case in hand though the assessee was not able to substantiate the explanation but the explanation of the assessee is a bona fide one and consequently the disallowance made by the Assessing Officer for want of supporting evidence would not ipso facto lead to the conclusion that the assessee has furnished inaccurate particulars of income or concealed particulars of income.

The decision of Hon’ble Bombay High Court in the case of Clariant Chemicals (India) Ltd Vs. ACIT is specifically on the facts when the weighted deduction u/s 35 of the Act was claimed by the assessee in respect of non existing items of capital expenditure. Accordingly, in the facts and circumstances of the case the penalty levied u/s 271(1)(c) of the Act is deleted.

Order pronounced in the open court on 26.06.2024.