M/s. K M Enterprise, Unjha V. The ITO, Ward-4, Patan

ITA 28/AHD/2021

AI Insights

The case involves M/s. K. M. Enterprise, a partnership firm engaged in trading, which appealed against a penalty imposed by the AO for alleged furnishing of inaccurate particulars of income. The penalty was confirmed by the Commissioner of Income Tax (Appeals), Gandhinagar. The primary contention was regarding the non-charging of interest on certain loans, which the assessee argued was notional and not recoverable, thus not warranting recognition as income. The Tribunal, after considering the submissions and the lack of any disallowance on interest expenses, concluded that the penalty under section 271(1)(c) was not justified.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127140 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-01-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 22-03-2021
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 271(1)(c)

Judgement Text

आयकर अपील य अ धकरण, अहमदाबाद यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ A’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And MS. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./ITA No. 28/AHD/2021 नधा रण वष /Asstt. Year: 2013-2014 M/s. K. M. Enterprise Patel Building, Opp. Unjha Pharmacy Station Road, Unjha PAN: AAEFK9506H Vs. ITO Ward-4, Patan (Applicant) (Respondent) Assessee by : None (Written Submission) Revenue by : Shri Dileep Kumar, Sr. D.R. स ु नवाई क तार ख/Date of Hearing : 31/01/2023 घोषणा क तार ख /Date of Pronouncement: 19/04/2023 आदेश/O R D E R PER WASEEM AHMED ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the assessee against the order of the Learned Commissioner of Income Tax-(Appeals), Gandhinagar, Ahmedabad (in short “Ld. CIT(A)”) arising in the matter of penalty order passed under s. 271(1)(c) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2013-2014. 2. At the outset, we note that there was a delay in filing the appeal by the assessee of 357 days. The assessee has explained the reason of filing the appeal with the delay of 357 days by stating that the assessee has applied VSV Scheme 2020 but the same was rejected as the appeal was filed by the assessee belatedly before the ITAT. ITA no.28/AHD/2021 Asstt. Year 2013-14 2 2.1 Once the declaration filed under the VSV Scheme was rejected, thereafter the appeal was preferred before the ITAT. Accordingly, it was contended by the assessee that the appeal was not filed within the time under the bona-fide belief that the issue on hand shall get settled in the VSV Scheme. Therefore, the same (delay) deserve to be condoned. 2.2 On the other hand, the Ld. DR considering the reason cited by the Ld. AR for the assessee did not object on the condonation petition for the delay in filing the appeal of the assessee. 2.3 Heard the ld. DR and perused the materials available on record. Considering the reason explained by the assessee for the delay in filing the appeal and concession extended by the Ld. DR, we condone the delay occurred in filing the appeal of the assessee and proceed to adjudicate the issue on merit. 3. The only issue raised by the assessee is that the Ld.CIT(A), erred in confirming the penalty levied by the AO for Rs. 1,52,356.00 under the provision of section 271(1)(c) of the Act. 4. Briefly stated facts are that the assessee in the present case is a partnership firm and engaged in the business of trading in jeera soaf etc. The AO during the assessment proceedings found that the assessee on one hand is incurring interest cost on the borrowed fund and on the other hand, the assessee has made interest free advances to the tune of Rs. 51,19,233/- only. Accordingly, the AO was of the view that the interest-bearing fund has been diverted for non- commercial purposes. Thus, he worked out the amount of interest of Rs. 5,07,854.00 being 12% of the amount of interest free loans and advances and added to the total income of the assessee. 5. The AO also initiated proceedings under section 271(1)(c) of the Act on account of furnishing inaccurate particulars of income which came to be confirmed ITA no.28/AHD/2021 Asstt. Year 2013-14 3 for an amount of Rs. 1,52,356.00 being 100% of the amount of tax sought to be evaded. 6. Aggrieved assessee preferred an appeal before the Ld.CIT(A), who confirmed the order of the AO by observing as under: “6. Even in present case, appellant has failed to provide bona fide explanations regarding non charging of interest on certain loans and claim of appellant is not supported by legal judicial pronouncements. It is held that AO was justified in levying penalty u/s 271(1)(c) of the Act for Rs. 1,52,356. On these facts, related grounds of appeal are dismissed.” 7. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us. 8. The assessee before us filed a written submission running from pages 1 to 5 wherein it was contended that there cannot be any penalty because of notional income determined by the revenue. It was also contended by the assessee in the written submission that the penalty can be levied either on concealment of income or furnishing inaccurate particulars of income but the assessee in the given case was not hopeful in getting recovery of loan and advances to the parties. Therefore, once the principal amount of loan was in doubt, there was no reason to recognize interest income as per the prudential principle in the books of accounts. 9. On the other hand, the Ld. DR vehemently supported the order of the authorities below. 10. We have heard the ld. DR and perused the materials available on record. In the present case, the addition was made by the revenue for interest attributable on the diversion interest bearing loan for non-commercial purposes. Admittedly, the interest expense was not in doubt and no disallowance qua the same has been made by the authorities below. The addition has been made by the revenue on the interest free loans and advances provided by the assessee. It is also significant to note that there is no allegation of the revenue that the assessee has charged ITA no.28/AHD/2021 Asstt. Year 2013-14 4 interest from the party which was not disclosed in the income tax return or interest income from such parties has been shown at lesser amount than charged. Thus, in such a situation, we are of the view that the question of concealment of income or furnishing inaccurate particulars of income does not arise. Accordingly, we are of the view that the penalty provision u/s 271(1)(c) of the Act cannot be attracted in the given facts and circumstances. Hence, we set aside the finding of the Ld.CIT(A) and direct the AO to delete the penalty levied by him. 11. In the result, the appeal filed by the assessee is allowed. Order pronounced in the Court on 19/04/2023 at Ahmedabad Sd/- Sd/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 19/04/2023 Tanmay आदेश क त ल प !े षत/Copy of the Order forwarded to : आदेशान ु सार/BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation : 17/04/2023(Dictated in his dragon software by Ho’ble Member) 2. Date on which the typed draft is placed before the Dictating Member 17/04/2023 3. Date on which the approved draft comes to the Sr.P.S./P.S. - /04/2023 4. Date on which the fair order is placed before the Dictating Member for Pronouncement /04/2023 5. Date on which the file goes to the Bench Clerk .. : 19/04/2023 6. Date on which the file goes to the Head Clerk.................................. 7. The date on which the file goes to the Assistant Registrar for signature on the order.......................... Date of Despatch of the Order.................. 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A) 5. !वभागीय $त$न ध, आयकर अपील य अ धकरण / DR, ITAT, 6. गाड& फाईल / Guard file.