MEHTA SULFITES (I) LTD,MUMBAI vs. ACIT 10(2), MUMBAI

On the facts and in the circumstances of the case and in law, Order U/S 271(1)(c) dated 30-03-2012 is invalid and bad in law.

On the facts and in the circumstances of the case and in law, the learned C.I.T.(A) erred in Confirming Penalty U/S 271(1)(c) Rs.213771/- without considering our Submission Properly.

The only issue raised in both the grounds by the assessee relates to upholding the penalty u/s 271(1)(c) of the Act of Rs. 2,13,771/- by the ld. CIT(A) . The facts in brief are that the assessment of the appellant was framed on 28/02/2002 u/s. 144 of the Act. The assessee went into appeal before the CIT(A) and the Tribunal against the impugned assessment order. The tribunal vide order dated 05/05/2008 directed the AO to make fresh assessment by admitting fresh evidence after giving due opportunity to the assessee. Assessment was completed and framed u/s 143(3) of the Act vide order dated 24/12/2009 at Rs.21,09,920/- by adding Rs.4,45,000/- on account of unproved unsecured loans and interest thereon of Rs.19,719/-.

The Assessee filed appeal before the CIT(A) and submitted that 95% of the confirmations from various parties were produced before the AO out of total money raised during the year of Rs. 1,58,19,960/- and it was only with respect to Rs.4,45,000/- the confirmations could not be furnished while strongly submitting that all these loans were taken and repaid by account payee cheques. The assessee during the year raised unsecured loans of Rs.1,58,19,960/- out of which the confirmation in respect of Rs.4,45,000/- were not furnished before the AO. The AO further stated that the assessee could not prove the identity, creditworthiness and genuineness of the creditors and the same were treated as unexplained cash credit u/s 68 of the Act. The CIT(A) rejected the appeal of the assessee and confirmed the decision. The ld. AO vide order dated 28/03/2012 imposed a penalty of Rs.2,13,771/- u/s 271(1)(c) by holding that assessee committed default by furnishing wrong particulars of income. The ld. CIT(A) confirmed the imposition of penalty of Rs.2,13,771/- by holding that the case of the assessee is covered by u/s 271(1)(c) of the I.T. Act which says that if a person fails to substantiate the explanation offered by him or which is found to be false, penalty is leviable . The ld CIT(A) confirmed the penalty by holding that the assessee’s explanantion was not bona fide and penalty was rightly imposed u/s 271(1)(c).

The ld. AR submitted that the assessee borrowed money from loan creditors on which interest was paid after deducting TDS. The ld. AR submitted that all these transactions were accepted and repaid by account payee cheques and even the interest on outstanding loan were paid through banks. He further submitted that the assessee had gone through a severe business financial crunch and suffered huge losses due to influx of Chinese material into Indian market thereby the assessee lost its entire market share and eventually the business was closed. It was only in this ground the assessee had to raise huge money on interest from the market and which were duly repaid. He further submitted that out of total money raised of Rs.1,58,19,960/- the confirmations could not be produced in respect loan creditors of only Rs.4,45,000/- which was borrowed from 13 parties . He further argued that all these loans were repaid with interest by account payee cheques and the mere accepting the order of CIT(A) in quantum appeal or not filing appeal in quantum appeal before Tribunal should not be construed as that the assessee admitted that these loans were not genuine. He further submitted that the assessee had not furnished any wrong particulars of income and the penalty imposed u/s271(1)(c) was unwarranted and uncalled for and therefore the same deserved deletion by reversing the order of CIT(A). He strongly placed reliance on SHREE NIRMAL

We have considered the rival submissions and perused the material on record and find that the assessee could not produce confirmations in respect of 13 parties from whom the assessee had raised unsecured loans amounting to Rs.4,45,000/-. He further noted that the assessee raised this money and liquidated the same through account payee cheques . The assessee did not challenge the quantum order of CIT(A) confirming the addition of Rs.4,45,000/- u/s 68 of the Act and interest of Rs.19,719/- . We further note that the ld. AO levied penalty of 271(1)(c) by observing that the assessee furnished the inaccurate particulars of income which was confirmed by CIT(A) on the ground that the assesseee case was covered by explanation 1 to Section 271 of the Act. But we differ with the observation of CIT(A) and are of the view that the mere confirmation of addition by CIT(A) the penalty cannot be levied and sustained. The assessee raised the money through account payee cheques and outstanding unsecured loans along with interest were also repaid by cheques. In the case of SHREE NIRMAL COMMERCIAL LTD. vs. COMMISIONER OF INCOME TAX (Supra) the honble Bombay High court has held that where the assessee no where admitted that the amount added u/s 68 was his concealed income , no penalty u/s 271(1)(c) could be levied. In the case of NATIONAL TEXTILES Vs COMMISSIONER OF INCOME TAX 249 ITR 125 , the Hon’ble Gujrat High Court has been held that provision section 68 of the Act , permitting the Assessing Officer to treat the unexplained e cash credit as income are enabling provision for making certain additions where the there is a failure by the assessee to give explanation or where the explanation is not to the satisfaction of the assessing officer and the addition made on this account would not automatically justify imposition of penalty under explanation 1 to u/s 271(1)(c). The facts of the assessee are squarely covered by the above decisions. Respectfully following the ratio laid down in these decisions, we reverse the order of CIT(A) and delete the penalty and therefore the appeal of the assessee is therefore allowed.

""यथ" / The Respondent 3. आयकर आयु"त(अपील) / The CIT(A) 4. आयकर आयु"त / CIT - concerned

"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड" फाईल / Guard File आदेशानुसार/ BY ORDER,