Harihar Finance Corporation, V. Asst.CIT, Cir.1(1), Pune,

ITA 587/PUN/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3114 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 13-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES, B PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JM AND SHRI G.S. PANNU, AM I.T.A. NO. 587/PN/2009: A.Y. 2005-06 HARIHAR FINANCE CORPN. 1436 KASBA PETH, PUNE-411 011 PAN AAAFH 7353 P APPELLANT VS. ASSTT. CIT CIR. 1(1) PUNE RESPONDENT APPELLANT BY : SMT. DEEPA KHARE RESPONDENT BY: SHRI SANTOSH KUMAR ORDER PER G.S. PANNU, AM THIS APPEAL OF THE ASSESSEE PERTAINING TO A.Y. 200 5-06 IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-I PUNE DAT ED 30-3-2009 LEVYING THE PENALTY U/S 271(1)(C) AMOUNTI NG TO RS. 1,53,959/-. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FIRM IS IN THE BUSINESS OF FINANCE AND INVESTMENT A ND IT HAD ADVANCED A SUM OF RS. 50 LAKHS TO SHRI YOGES H SHAH IN A.Y. 2001-01. INTEREST INCOME ON THIS SUM WAS ACCOUNTED FOR BY THE ASSESSEE ON ACCRUAL BASIS UPTO THE A.Y. 2004-05. IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE DID NOT ACCOUNT FOR INTEREST INCOME ON SUCH LOAN. WHEN ASKED TO EXPLAI N, ITA NO. 587 AND 588/PN/09 HARHAR FINANCE CORPN. A.Y. 2005-06 2 THE ASSESSEE SUBMITTED THAT NEITHER IT HAD RECEIVED ANY AMOUNT OF INTEREST NOR WAS IT HOPEFUL OF RECOVE RING THE OUTSTANDING PRINCIPAL AND INTEREST, THEREFORE, IT HAD NOT PROVIDED FOR INTEREST INCOME ON THIS LOAN. THE A.O HOWEVER, DID NOT ACCEPT THIS EXPLANATION OF THE ASSESSEE. ACCORDING TO A.O., NON-CHARGING OF INTERE ST ON LOAN TO SHRI YOGESH SHAH SHOWED THAT INTEREST BEARING LOANS WERE NOT USED FOR EARNING OF INTEREST INCOME AND THEREFORE THE PROPORTIONATE INTEREST PAI D BY THE ASSESSEE WAS NOT AN ALLOWABLE EXPENDITURE U/ S 36(1)(III) OF THE ACT. THE A.O THEREFORE, WORKED OU T THE AVERAGE INTEREST COST AND COMPUTED A SUM OF RS. 3,18,145/- AS REPRESENTING INTEREST EXPENDITURE ON THE AMOUNT ADVANCED TO SHRI YOGESH SHAH. SUCH AN AMOUNT HAS BEEN DISALLOWED OUT OF THE TOTAL INTERES T EXPENDITURE DEBITED IN THE PROFIT AND LOSS ACCOUNT IN TERMS OF SECTION 36(1)(III) OF THE ACT. WHEN THE ASSESSEE CARRIED THE MATTER BEFORE FIRST APPELLATE AUTHORITY, THE CIT(A) WAS OF THE OPINION THAT THE A .O MISDIRECTED HIMSELF IN DISALLOWING INTEREST EXPENDI TURE CLAIMED BY THE ASSESSEE. INSTEAD, ACCORDING TO HIM, INTEREST INCOME ON LOAN ADVANCED TO SHRI YOGESH SHA H HAD ACCRUED AS PER THE MERCANTILE SYSTEM OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE AND MERE FOREGOING OF SUCH INCOME BY THE ASSESSEE WOULD NOT ITA NO. 587 AND 588/PN/09 HARHAR FINANCE CORPN. A.Y. 2005-06 3 AFFECT THE TAXABILITY OF THE SAME. AS PER THE CIT(A ) INTEREST CHARGEABLE ON AMOUNT OUTSTANDING FROM SHRI YOGESH SHAH WAS RS. 5,13,195/- WHICH HAS BEEN HELD TAXABLE BY HIM. IN THE RESULT, THE CIT(A) ENHANCED THE ADDITION TO A SUM OF RS. 5,13,195/- INSTEAD OF RS. 3,18,145/- MADE BY THE A.O. THE ASSESSEE CARRIED TH E MATTER IN APPEAL BEFORE THE TRIBUNAL AND THE IMPUGN ED ADDITION WAS DIRECTED TO BE DELETED BY THE TRIBUNAL VIDE ITS ORDER DATED 19-11-2010 IN ITA NO. 602/PN/2008. 3. REVERTING BACK TO THE FACTS OF THE PRESENT CASE, THE CIT(A) INITIATED PENALTY PROCEEDINGS U/S 271(1) (C) ON THE GROUND THAT THE ASSESSEE HAS CONCEALED PARTICULARS OF INCOME AND FURNISHED INACCURATE PARTICULARS OF INCOME WITHIN THE MEANING OF SECTION 271(1)(C) OF THE ACT IN RESPECT OF THE AMOUNT OF RS . 5,13,195/-. SAME HAS BEEN CONFIRMED BY THE CIT(A) HOLDING THAT IT IS A FIT CASE FOR IMPOSITION OF PEN ALTY U/S 271(1)(C) OF THE ACT FOR CONCEALMENT OF INCOME AS WELL AS FURNISHING INACCURATE PARTICULARS OF INCOME . UNDER THESE CIRCUMSTANCES, THE CIT(A) IMPOSED A MINIMUM PENALTY @ 100% OF THE TAX ON THE ENHANCED INCOME. ITA NO. 587 AND 588/PN/09 HARHAR FINANCE CORPN. A.Y. 2005-06 4 4. THE LEARNED AR POINTED OUT THAT THE VERY BASIS O F LEVYING THE PENALTY IS THE ENHANCEMENT OF INCOME WHICH HAS BEEN THE SUBJECT MATTER OF APPEAL BEFORE THE TRIBUNAL AND THIS BENCH OF THE TRIBUNAL VIDE ITS OR DER DATED 19-11-2010 IN ITA NO. 602/PN/2008 HAS DELETED THE ENHANCEMENT OF INCOME WHILE SETTING ASIDE THE ORDER OF THE CIT(A). THE LEARNED DR HAS NOT DISPUTE D THIS FACTUAL POSITION. 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE VERY BASIS FOR IMPOSING THE IMPUGNED PENALTY IS THE ENHANCEMENT OF INCOME WHICH HAS BEEN DELETED BY THE TRIBUNAL VIDE ITS ORDER DATED 19-11-2010 IN ITA NO. 602/PN/2008. SINCE THE ISSUE ON ENHANCEMENT OF INCOME HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE VIDE ITS ORDER CI TED SUPRA, WE ARE OF THE CONSIDERED VIEW THAT IN THE FA CTS AND CIRCUMSTANCES OF THE CASE, PENALTY IS NOT LEVIA BLE ON ENHANCED INCOME WHICH HAS SINCE BEEN DELETED BY THE TRIBUNAL AS STATED ABOVE. WE THEREFORE, DIRECT THE AUTHORITIES BELOW TO DELETE THE IMPUGNED PENALTY. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 587 AND 588/PN/09 HARHAR FINANCE CORPN. A.Y. 2005-06 5 DECISION PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF THE HEARING ON 30-11-2010. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED THE 30 TH NOVEMBER, 2010 ANKAM COPY FORWARDED TO: (1) ASSESSEE (2) DEPARTMENT (3) CIT (A) -I PUNE (4) CIT I PUNE (5) THE D.R. ITAT 'A' PUNE BENCH, PUNE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL, PUNE BENCHES, PUNE