M/s. S.K.R. Food Products, Uttrakhand V. ITO, Uttrakhand

ITA 4241/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53318 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 22-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 21-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MONGA
• Assessee Lawyers: PRAKASH NARAIN
• Keywords: Source of fund
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 4241/DEL/2011 ASSESSMENT YEAR: 2006-07 S.K.R. FOOD PRODUCTS, VS. INCOME-TAX OFFICER, KASHIPUR ROAD, POST GADARPUR, WARD 3, DIST. U.S. NAGAR, US NAGAR, (UTTRAKHAND) (UTTRAKHAND) (PAN: AAZFS2916E) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PRAKASH NA RAIN, ADV. RESPONDENT BY: SHRI AK MONGA, SR .DR DATE OF HEARING : 22.11.2011 DATE OF PRONOUNCEMENT : 30.11.2011 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE O RDER OF LEARNED CIT(APPEALS) DATED 05.07.2011 PASSED FOR ASSESSMENT YEAR 2006-07. THE SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMING THE PENALTY LEVIED UNDER SEC. 271(1)(C) OF THE INCOME-TAX ACT, 1961. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SAL E OF RICE. IT HAS FILED ITS RETURN OF INCOME ON 31.10.2006 DECLARING TOTAL INCO ME OF RS.3,340. ON 2 SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE ASSESS ING OFFICER THAT ASSESSEE HAD MADE ADVANCES OF RS.21,35,000 TO DIFFERENT INDI VIDUALS. IT HAS NOT SHOWN ANY INTEREST INCOME ON THESE ADVANCES. LEARNE D ASSESSING OFFICER CALLED FOR THE EXPLANATION OF THE ASSESSEE AS TO WH Y INTEREST INCOME @ 12% SHOULD NOT BE ESTIMATED AND AN ADDITION BE NOT MADE IN THE INCOME OF THE ASSESSEE. IT WAS CONTENDED BY THE ASSESSEE THAT THE SE ADVANCES WERE GIVEN TO THE FARMERS WHO WILL SUPPLY PADDY TO THE ASSESSEE A T THE TIME OF CROPS. ASSESSING OFFICER DIRECTED THE ASSESSEE TO PRODUCE FARMERS. ACCORDING TO THE ASSESSING OFFICER, ONLY TWO FARMERS WERE PRODUCED B Y THE ASSESSEE, NAMELY, SHRI SURJIT SINGH AND SHRI PALWINDER SINGH. THEY CO ULD NOT GIVE SATISFACTORY REPLY TO THE QUESTIONS PUT BY HIM. ACCORDINGLY, ASS ESSING OFFICER HAS MADE AN ADDITION OF RS.1,60,187 ON THE GROUND THAT ASSES SEE HAD PAID INTEREST ON THE BORROWED FUNDS FROM THE BANK AS WELL AS ON THE CAPITALS OF THE PARTNERS. HE ESTIMATED THE INTEREST INCOME ON THESE INTEREST FREE LOANS AT 12% AND AN ADDITION OF RS.1,60,187 HAS BEEN MADE. 3. APPEAL TO THE LEARNED CIT(APPEALS) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 3 4. AGGRIEVED WITH THE ORDER OF THE LEARNED CIT(APPE ALS), ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE ITAT. ITAT VIDE ITS ORDER DATED 12.11.2010 HAS OBSERVED THAT THE ASSESSING OFFICER HAD TAKEN AN EXTREME VIEW OF MAKING DISALLOWANCE OF INTEREST EXPENSES TO THE EXTENT THE ASSESSEE HAS GIVEN INTEREST FREE LOANS TO THE FARMERS. ACCOR DING TO THE ITAT, ON THE BASIS OF STATEMENTS OF TWO FARMERS, THE TOTAL LOAN PROVIDED BY THE ASSESSEE TO MORE THAN 35 FARMERS CANNOT BE CONSTRUED AS LOAN HA VE NOT BEEN USED FOR BUSINESS PURPOSE. THE ITAT RESTRICTED THE ESTIMATED DISALLOWANCE AT 50% OF THE TOTAL AMOUNT DISALLOWED BY THE ASSESSING OFFICE R. 5. ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS. IN RESPONSE TO THE NOTICE ISSUED BY THE ASSESSING OFFICER, IT WAS CONT ENDED BY THE ASSESSEE THAT IT HAS NOT CONCEALED THE PARTICULARS OF INCOME. IT HAS DISCLOSED ALL THE PARTICULARS. THE FUNDS WERE GIVEN TO THE FARMERS FO R SUPPLY OF PADDY. THE FUNDS WERE GIVEN FOR BUSINESS EXIGENCIES. IT IS A D IFFERENT MATTER THAT ASSESSEE COULD NOT PRODUCE THE FARMERS AND, THEREFO RE, ASSESSING OFFICER TOOK THE VIEW THAT ASSESSEE OUGHT TO HAVE CHARGED T HE INTEREST FROM THESE FARMERS. LEARNED ASSESSING OFFICER WAS NOT SATISFIE D WITH THE EXPLANATION OF THE ASSESSEE AND IMPOSED A PENALTY OF RS.55,000 UPO N THE ASSESSEE. 4 6. ON APPEAL, LEARNED CIT(APPEALS) CONFIRMED THE IM POSITION OF PENALTY IN PRINCIPLE BUT DIRECTED THE ASSESSING OFF ICER TO RECALCULATE THE PENALTY BECAUSE 50% OF THE ADDITION OF RS.1,60,187 HAS BEEN DELETED BY THE ITAT, THEREFORE, THE PENALTY HAS TO BE RESTRICTED T O THE AMOUNT CONFIRMED BY THE ITAT. IN OTHER WORDS, 50% OF THE PENALTY HAS BE EN DELETED BY THE LEARNED CIT(APPEALS). 7. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT LEARNED FIRST A PPELLATE AUTHORITY HAS OBSERVED THAT EXPLANATION SUBMITTED BY THE ASSESSEE HAS BEEN FOUND TO BE DEMONSTRATIVELY FALSE AND, THEREFORE, IT DESERVES T O BE VISITED WITH PENALTY. IN OUR OPINION, IT IS NOT A CASE OF PENALTY BECAUSE AS SESSING OFFICER DID NOT DOUBT THE SOURCE OF FUND FROM WHICH ASSESSEE HAS GI VEN THE LOANS. THE AREA OF DISPUTE BETWEEN THE ASSESSEE AND THE ASSESSING O FFICER IS WHETHER SUCH LOANS WERE GIVEN FOR THE PURPOSE OF THE BUSINESS OR NOT. ASSESSING OFFICER WANTED THAT ASSESSEE SHOULD PRODUCE ALL THE FARMERS , IN ORDER TO PROVE BUSINESS EXIGENCIES FOR ADVANCING SUCH LOANS. THE A SSESSEE FAILED TO PRODUCE THOSE FARMERS AND, THEREFORE, INTEREST EXPENSES ON THE BORROWED CAPITAL QUA ITS UTILIZATION FOR MAKING SUCH ADVANCE HAS BEEN DI SALLOWED ON THE GROUND THAT FUNDS TO THAT EXTENT WERE NOT USED FOR THE PUR POSE OF THE BUSINESS. THE 5 ITAT HAS OBSERVED THAT THE ASSESSEE HAS FILED AFFID AVIT OF THE FARMERS AS WELL AS THE DETAILS EXHIBITING THE PURCHASE OF PADDY IN NEXT YEAR. THESE PLEAS HAVE BEEN REPRODUCED BY THE LEARNED CIT(APPEALS) IN THE QUANTUM ORDER. THEREFORE, IN THE OPINION OF THE ITAT, TOTAL DISALL OWANCE WAS A HARSH STAND AT THE END OF THE ASSESSING OFFICER . IN ORDER TO M EET THE ENDS OF JUSTICE, ITAT RESTRICTED THE DISALLOWANCE TO 50%. ALL THESE INDICATE THAT EXPLANATION OF THE ASSESSEE WAS NOT FALSE RATHER, IT COULD NOT SUBSTANTIATE THE EXPLANATION WITH THE EVIDENCE EXPECTED BY THE ASSESSING OFFICER . IN SUCH SITUATION, IT CANNOT BE HELD THAT THE ASSESSEE HAS MADE DELIBERAT E ATTEMPT FOR FURNISHING INACCURATE PARTICULARS OR CONCEALING THE PARTICULAR S OF INCOME. THUS, WE FIND FORCE IN THE APPEAL OF THE ASSESSEE. IT IS ALLOWED AND THE PENALTY IS DELETED. DECISION PRONOUNCED IN THE OPEN COURT ON 30.11.201 1 SD/- SD/- ( K.G. BANSAL ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30/11/2011 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR