Shri Abdulhaq Shamshulhaq Iraki, Ahmedabad V. The Deputy Commissioner of Income Tax, Circle-1(2), Ahmedabad

ITA 1344/AHD/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6552 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 02-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K C THAKER
• Keywords: Set aside
• Section: 271(1)(c)

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NOS. 1344 & 1345/AHD/2017 ( ASSESSMENT YEARS : 2008-09 & 2009-10) ABDULHAQ SHAMSHULHAQ IRAKI PROP. OF TARUN ENTERPRISE, HEENA HOUSE, OLD MAYUR SOAP FACTORY, TAVDIPURA, SHAHIBAUG, AHMEDABAD / VS. D.C.I.T. CIRCLE 1(2), AHMEDABAD ./ ./ PAN/GIR NO. : AAFPI5495L ( APPELLANT ) .. ( / RESPONDENT ) & ./ I.T.A. NO. 1346/AHD/2017 ( ASSESSMENT YEAR : 2009-10) INAMULHAQ SHAMSHULHAQ IRAKI PROP. M/S. IRAKI TRADING CO., HEENA HOUSE, OLD MAYUR SOAP FACTORY, B/H. POLICE COMMISSIONER OFFICE, TAVDIPURA, , AHMEDABAD / VS. D.C.I.T. CIRCLE 1(2), AHMEDABAD ./ ./ PAN/GIR NO. : AABPI3662D ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI K. C. THAKER, A.R. / RESPONDENT BY : SHRI L P. JAIN, SR. DR ITA NOS. 1344 TO 1346/AHD/17 [ABDULHAQ S. IRAKI & INAMULHAQ S. IRAKI VS. DCIT] - 2 - DATE OF HEARING 04/04/2019 !'# / DATE OF PRONOUNCEMENT 30/04/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEALS HAVE BEEN FILED AT THE INSTAN CE OF THE CAPTIONED ASSESSEES AGAINST THE RESPECTIVE ORDERS O F THE COMMISSIONER OF INCOME TAX (APPEALS)-10, AHMEDABAD (CIT(A) IN SHORT), ALL DATED 24.03.2017 ARISING IN THE PENA LTY ORDERS DATED 12.03.2015 (SAME IN CASE OF FIRST ASSESSEES BOTH Y EARS) & 05.03.2015 (IN CASE OF INAMULHAQ S. IRAKI) PASSED B Y THE ASSESSING OFFICER (AO) UNDER S. 271(1)(C) OF THE IN COME TAX ACT, 1961 (THE ACT) CONCERNING AYS. 2008-09, 2009-10 (BO TH ASSESSMENT YEARS IN CASE OF ABDULHAQ S. IRAKI) & 20 09-10 (IN CASE OF INAMULHAQ S. IRAKI). 2. GROUND OF APPEAL RAISED BY THE ASSESSEE IN ITA N O. 1334/AHD/2017 READS AS UNDER: THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS I N HOLDING THAT THE AO HAS RIGHTLY LEVIED PENALTY ON ACCOUNT OF DISALLOWAN CE OF INTEREST CLAIMED U/S. 36(1)(III) OF THE ACT AND THEREBY CONFIRMING T HE PENALTY TO THAT EXTENT. 3. BRIEFLY STATED, THE ASSESSEE, AN INDIVIDUAL IS A PROPRIETOR OF M/S. TARUN ENTERPRISES. THE ASSESSEE FILED RETURN OF INCOME FOR AY 2008-09 IN QUESTION DECLARING TOTAL INCOME AT RS .52,37,940/-. THE CASE WAS SUBJECTED TO SCRUTINY ASSESSMENT. IN THE COURSE OF THE SCRUTINY ASSESSMENT, THE AO INTER ALIA OBSERVED THAT ASSESSEE HAS GIVEN INTEREST FREE ADVANCES TO CERTAIN PARTIES AGGREGATING TO RS.42,26,366/-. THE ASSESSEE WAS FOUND TO HAVE LEN T THE ADVANCES ITA NOS. 1344 TO 1346/AHD/17 [ABDULHAQ S. IRAKI & INAMULHAQ S. IRAKI VS. DCIT] - 3 - TO THE PARTIES FREE OF INTEREST WHILE IT HAS DEBITE D INTEREST EXPENSES OF RS.22,56,050/- ON MONEY BORROWED BY HIM. THE AO THEREFORE DISALLOWED INTEREST EXPENSES @ 12% ON THE AMOUNT AD VANCED (RS.42,26,366/-) AND WORKED OUT DISALLOWANCE OF INT EREST EXPENSES AT RS.5,07,164/- ON ESTIMATED BASIS. WHILE DOING S O, IT WAS ALLEGED THAT ASSESSEE COULD NOT PROVE THE COMMERCIA L EXPEDIENCY IN SUCH ADVANCES AND ACCORDINGLY TREATED THE INTERE ST EXPENSES TO THE EXTENT OF RS.5,07,164/- TO BE FOR NON-BUSINESS PURPOSES. THE AFORESAID ESTIMATED DISALLOWANCE ALSO INVITED PENA LTY UNDER S.271(1)(C) OF THE ACT @ 100% THEREON. 4. IN THE FIRST APPEAL, THE CIT(A) ALSO CONFIRMED T HE PENALTY SO IMPOSED. 5. FURTHER AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE AUTHORITIES BELOW. THE CONTROVERSY IN VOLVES IMPOSITION OF PENALTY U/S.271(1)(C) OF THE ACT ON D ISALLOWANCE ON ESTIMATED INTEREST EXPENSES IN PROPORTION TO THE CO RRESPONDING INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE. WE S TRAIGHTWAY NOTE THAT IN ORDER TO ATTRACT PENALTY U/S.271(1)(C) OF T HE ACT, IT IS NECESSARY THAT THERE MUST BE CONCEALMENT BY THE ASS ESSEE OF THE PARTICULARS OF HIS INCOME OR FURNISHING OF INACCURA TE PARTICULARS. THE DISALLOWANCE OF CERTAIN EXPENDITURE ON ESTIMATED BASIS ACTUALLY INCURRED ON THE GROUNDS OF LACK OF COMMERCIAL EXPED IENCY IS NEITHER CONCEALMENT OF ANY PARTICULARS OF INCOME PER SE NOR FURNISHING OF INACCURATE PARTICULARS AS SUCH. NEED LESS TO SAY, BEFORE PENALTY CAN BE IMPOSED, THE ENTIRETY OF CIRC UMSTANCES MUST ITA NOS. 1344 TO 1346/AHD/17 [ABDULHAQ S. IRAKI & INAMULHAQ S. IRAKI VS. DCIT] - 4 - REASONABLY POINT TO THE CONCLUSION THAT THE DISPUTE D AMOUNT REPRESENTS INCOME AND THE ASSESSEE HAS CONCEALED TH E PARTICULARS THEREOF OR FURNISHED INACCURATE PARTICULARS. THE A O IN THE INSTANT CASE HAS DISALLOWED A PORTION OF INTEREST EXPENDITU RE ON PROPORTIONATE BASIS ON THE GROUND THAT ASSESSEE HAS LENT MONEY WITHOUT CHARGING INTEREST. IT IS NOT THE CASE OF T HE AO THAT ASSESSEE HAS IN FACT NOT INCURRED ANY INTEREST EXPE NDITURE AS CLAIMED. A CONSPECTUS OF THE EXPLANATION 1 TO SE CTION 271(1)(C) OF THE ACT MAKES IT CLEAR THAT THE STATUT E VISUALIZED THE ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS TO B E WHOLLY DISTINCT AND INDEPENDENT OF EACH OTHER. WHILE THE AO MAY BE JUSTIFIED IN MAKING ESTIMATED DISALLOWANCE IN QUANT UM PROCEEDINGS, SUCH DISALLOWANCE OF EXPENSES, THAT TO O ON ESTIMATED BASIS, COULD NOT AUTOMATICALLY FALL WITHIN MISCHIEF OF SECTION 271(1)(C) OF THE ACT. WHILE A CLAIM TOWARDS EXPEND ITURE MAY NOT FOUND ACCEPTABLE IN QUANTUM PROCEEDINGS, SUCH DISAL LOWANCE CANNOT INVITE BY WAY OF PENALTY. WHEN ALL MATERIAL FACTS RELEVANT TO THE SAID CLAIM WERE PLACED ON RECORD, THE PRESEN CE OR ABSENCE OF COMMERCIAL INSTINCT IN A GIVEN CASE IS A MATTER OF INFERENCE. SUCH ADVERSE INFERENCE AGAINST ASSESSEE WOULD NOT A TTRACT IMPOSITION OF PENALTY. THE CLAIM OF EXPENDITURE TO WARDS INTEREST MADE AT BEST BE TAKEN AS ERRONEOUS CLAIM BY THE ASS ESSEE. SUCH CLAIM MADE IN A BONAFIDE MANNER CANNOT LEAD IMPOSIT ION OF PENALTY. ALTHOUGH SUCH CLAIM MAY NOT BE MAINTAINAB LE FOR THE PURPOSES OF QUANTUM PROCEEDINGS HOWEVER, IN THE ABS ENCE OF ANY FALSITY PER SE IN SUCH CLAIM, MAKING AN INCORRECT CLAIM FOR DEDUCTION IS NOT AT PAR WITH CONCEALMENT OR INACCURATE PARTICULARS OF INCOME. THE PENALTY, IN OUR VIEW, IS CLEARLY NO T MAINTAINABLE IN THE ABSENCE OF ANY CONTUMACIOUS OR DISHONEST CON DUCT. ITA NOS. 1344 TO 1346/AHD/17 [ABDULHAQ S. IRAKI & INAMULHAQ S. IRAKI VS. DCIT] - 5 - CONSEQUENTLY, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO DELETE THE PENALTY ON DISALLOWANCE OF ESTIMAT ED INTEREST EXPENDITURE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . 8. THE OTHER TWO APPEALS OF THE RESPECTIVE ASSESSEE S IN ITA NO. 1345/AHD/2017 (IN CASE OF ABDULHAQ S. IRAKI) & ITA NO. 1346/AHD/2017 (INAMULHAQ S. IRAKI) STAND ON IDENTIC AL FACTS AND RAISES IDENTICAL CONTROVERSY. IN PARITY WITH THE R EASONINGS ADOPTED IN ITA NO.1345/AHD/2017, THE PENALTY ON DIS ALLOWANCE OF ESTIMATED INTEREST EXPENDITURE IS NOT SUSTAINABLE I N LAW. 9. IN THE COMBINED RESULT, ALL THE THREE APPEALS OF RESPECTIVE ASSESSEES ARE ALLOWED. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 30/04/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 30/04/2019