Shri Praveen B. Gada (HUF) P/o. Modern Paper Products, Indore V. The Dy. CIT, Indore

ITA 74/IND/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3088 (ITAT-INDORE)
• Duration Of Justice: 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 17-03-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 15-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Assessee Lawyers: S S DESHPANDE
• Keywords: Depreciation; Wrong claim; Revenue expenditure; Capital expenditure
• Section: 143(3); 11A; 27; 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, SMC BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER ITA NO. 74/IND/2010 A.YS. 2004-05 SHRI PRAVEEN B. GADA(HUF) INDORE PAN AAGHP-5484F APPELLANT VS DY. COMMR. OF INCOME TAX 4(2) INDORE RESPONDENT APPELLANT BY : SHRI S.S. DESHPANDE RESPONDENT BY : SMT. APARNA KARAN, SR. DR O R D E R THIS APPEAL IS BY THE ASSESSEES AGAINST THE ORDER O F THE LEARNED CIT(A) DATED 16.11.2009 ON THE GROUND THAT THE LD. FIRST APPELLATE AUTHORITY ERRED IN MAINTAINING THE PENALTY OF RS.4, 50,000/- U/S 271(1)(C) OF THE ACT. 2. DURING HEARING OF THIS APPEAL, I HAVE HEARD SHRI S.S. DESHPANDE, LD. COUNSEL FOR THE ASSESSEE AND SMT. APARNA KARAN, SR. DR. THE CRUX OF ARGUMENTS ON BEHALF OF THE ASSESSEE IS THAT THE ASSESSEE WAS A PARTNER IN THE FIRM M/S MODERN PAPER PRODUCTS AND C LAIMED BUSINESS LOSS OF RS.15,40,818/-, BEING THE DAMAGES DEBITED T O HIS ACCOUNT BY THE 2 FIRM IN WHICH HE WAS A PARTNER AGAINST THE ALLEGED BREACH OF TERMS OF THE PARTNERSHIP AGREEMENT. IT WAS EXPLAINED THAT THE D AMAGES WERE DEBITED BY THE FIRM TO HIS ACCOUNT DURING REGULAR COURSE OF BUSINESS FOR WHICH THE ASSESSEE WAS UNDER A GENUINE BELIEF THAT THE LOSS I NCURRED BY THE ASSESSEE, DURING THE COURSE OF BUSINESS, IS ALLOWAB LE AGAINST OTHER INCOME. IT WAS PLEADED THAT THE ASSESSEE NEITHER CO NCEALED ITS INCOME NOR FURNISHED INACCURATE PARTICULARS OF INCOME AS T HE FACTS WERE TRULY DISCLOSED TO THE DEPARTMENT IN THE RETURN AND THE C LAIM OF DEDUCTION HAS BEEN MADE ON ACCOUNT OF INTERPRETATION OF LAW. IT W AS FURTHER CLAIMED THAT NOTHING WAS DIVULGED BY THE ASSESSEE AND THESE WERE THE MERE ALLEGATION OF THE FIRM. THE LD. COUNSEL FOR THE ASS ESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS :- CEMENT MARKETING CO. LTD. V. ACST, 124 ITR P. 15 ( SC) CIT V. HARSHVARDHAN CHEMICALS; 259 ITR P. 212 (RA J. CIT V. SHIVNAND STEELS; 256 ITR P. 683 (MAD .) SURUMCHAND SHARADCHAND V. UOI; 286 ITR P. 370 (M.P .) PANDIT GOVIND MISHRA V. UOI; 238 ITR P. 338 (ALL. ) CIT V. HMA UDYOG PVT. LTD.; 159 TAXMAN 394 (DEL) CIT V. SHIVANAND STEELS LTD.; 256 ITR 683 (MAD.) CIT V. SPK STEELS PVT. LTD. (270 ITR 156) (M.P.) UNION OF INDIA V. RAJASTHAN SPINNING & WEAVING MI LLS; (2009) 13 ITJ 109 (SC) ON THE OTHER HAND, THE LEARNED SENIOR DR DEFENDED THE IMPUGNED ORDER BY CONTENDING THAT FIRSTLY THE TRIBUNAL HAS AFFIRME D THE DECISION OF THE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON QUA NTUM PROCEEDINGS AND SECONDLY THE ONUS IS ON THE ASSESSE E TO PROVE ITS 3 CLAIM. THE PENALTY WAS STRONGLY DEFENDED. THE LEARN ED SR. DR CONTENDED THAT THE CASES RELIED UPON BY THE ASSESSE E ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT APPEAL AND PLACED RELIA NCE ON THE DECISION IN DDIT V. CHIRAG METAL ROLLING MILLS LIMITED (2008) 3 05 ITR 29 (M.P.). 3. I HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. R EPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON RE CORD. BRIEF FACTS ARE THAT THE ASSESSEE HUF DERIVED INCOME FROM RENT AND INTEREST AND WAS A PARTNER IN THE FIRM M/S MODERN PAPER PRODUCTS, CLAI MED BUSINESS LOSS OF RS.15,40,818/-, BEING THE DAMAGES DEBITED TO HIS AC COUNT BY THE FIRM WHERE HE WAS A PARTNER AGAINST ALLEGED BREACH OF TE RMS OF PARTNERSHIP AGREEMENT. IN ITS RETURN THE ASSESSEE SHOWED NET LO SS OF RS.12,72,152/-. THE ASSESSEE WAS A PARTNER IN THE SAID FIRM FOR TH E LAST SO MANY YEARS AND THE REMAINING PARTNERS ALLEGED THAT THE ASSESSE E BECAME A DIRECTOR IN A COMPETITIVE COMPANY I.E. M/S NEET ENGG. PVT. L TD., MUMBAI, AND ALSO WAS A PARTNER IN M/S SAI ENTERPRISES, INDORE, AND DIVULGED THE INFORMATION ABOUT THE WORKING AND DESIGNS OF MACHIN ERY AND MANUFACTURING PROCESS. THUS, THE COMPANY DEBITED R S.15 LACS IN THE ACCOUNT OF THE ASSESSEE AND CREDITED IN THE PROFIT AND LOSS ACCOUNT BY THE FIRM M/S MODERN PAPER PRODUCTS. ON ITS PART, T HE ASSESSEE CLAIMED IT AS A BUSINESS LOSS. THE ASSESSING OFFICER LEVIED PENALTY OF RS.4,50,000/- ON ACCOUNT OF DISALLOWANCE OF RS.15,4 0,818/- CLAIMED BY THE ASSESSEE. THE PENALTY WAS UNSUCCESSFULLY CARRI ED IN APPEAL BEFORE 4 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WH ICH IS UNDER CHALLENGE BEFORE THE TRIBUNAL. BEFORE COMING TO ANY CONCLUSION, I AM REPRODUCING HEREUNDER THE RELEVANT PROVISIONS OF TH E ACT :- 271. (1) IF THE 5 [ASSESSING] OFFICER OR THE 6 [***] 7 [COMMISSIONER (APPEALS)] 8 [OR THE COMMISSIONER] IN THE COURSE OF ANY PROCEEDI NGS UNDER THIS ACT, IS SATISFIED THAT ANY PERSON XX XX ( C ) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR 13 [* * *] FURNISHED INACCURATE PARTICULARS OF 14 [SUCH INCOME, OR] 15 IF THE AFORESAID SECTION IS ANALYSED, IT CAN BE SAI D THAT FOR IMPOSING PENALTY U/S 271(1) OF THE ACT, EITHER THERE SHOULD BE CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF S UCH INCOME. IF THIS PROVISION IS KEPT IN JUXTRA POSITION, WITH THE FACT S OF THE PRESENT APPEAL, ONE CLEAR FACTS IS OOZING OUT THAT THE ASSESSEE HAS NOT DEBITED THE IMPUGNED AMOUNT, RATHER THE FIRM DEBITED THE AMOUNT , THEREFORE, WHAT PAPERS COULD BE FILED BY THE ASSESSEE SINCE THE AMO UNT WAS DEBITED BY THE FIRM. EVEN IF THERE IS ANY ALLEGATION BY THE E RSTWHILE REMAINING PARTNERS OF THE FIRM M/S MODERN PAPER PRODUCTS, THA T ITSELF MAY NOT BE A GOOD GROUND FOR IMPOSING PENALTY ON THE ASSESSEE BE CAUSE FOR THAT SEPARATE LEGAL REMEDY IS AVAILABLE WITH THE FIRM/RE MAINING PARTNERS AND UNLESS AND UNTIL THE ALLEGATIONS ARE AFFIRMED BY TH E COMPETENT COURT, WHICH IS HAVING A JURISDICTION TO DEAL WITH THAT MA TTER, SUO MOTO, THESE CANNOT BE MADE A GROUND FOR IMPOSING PENALTY. IN TH E PRESENT APPEAL, THE LEARNED ASSESSING OFFICER HAS LEVIED THE PENALT Y ON ACCOUNT OF 5 DISALLOWANCE OF LOSS OF RS.15,40,818/-, CLAIMED BY THE ASSESSEE, ON THE GROUND THAT WRONG CLAIM OF EXPENDITURE, STATING THE SAME TO BE IN THE NATURE OF EXPENDITURE, HAS BEEN MADE. EVEN VIDE LE TTER DATED 27.4.2009 (PAGE 3 OF THE PAPER BOOK), ADDRESSED TO THE LEARNE D DCIT THE ASSESSEE EXPLAINED THE FACTS AND AT PAGE 4 OF THE P APER BOOK (COMPUTATION OF INCOME) THE AMOUNT OF RS.15 LACS WA S CLAIMED TO BE DAMAGES CLAIMED BY THE ASSESSEE FIRM. AS PER STATEM ENT OF ACCOUNT (PAGE 6 OF THE PAPER BOOK OF M/S MODERN PAPER PRODU CTS), THE AMOUNT OF RS. 15 LACS HAS BEEN SHOWN AS CIVIL DAMAGES. IN ITS PROFIT AND LOSS ACCOUNT ENDED ON 31 ST MARCH, 2004 (PAGE 10 OF THE PAPER BOOK) FILED BY M/S MODERN PAPER PRODUCTS RS. 15 LACS HAVE BEEN DEB ITED AS CHARGES DEBITED TO A PARTNER. THE CRUX OF DISCUSSION IS TH AT THE ASSESSEE CLAIMED IT AS BUSINESS LOSS WHEREAS THE REVENUE TRE ATED IT AS CAPITAL LOSS. NOW THE QUESTION ARISES WHETHER THE PENALTY C AN BE IMPOSED U/S 271(1) OF THE ACT ON THE ASSESSEE. THE OBVIOUS RE PLY IS NO BECAUSE IT IS MERELY THE INTERPRETATION OF LAW AND SECONDLY TH E IMPUGNED AMOUNT WAS DEBITED BY THE FIRM AND NOT BY THE ASSESSEE. F OR IMPOSING PENALTY U/S 271(1) OF THE ACT EITHER THERE SHOULD BE CONCE ALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME . BOTH THESE CONDITIONS ARE ABSENT IN THIS CASE. AS FAR AS THE CONTENTION OF THE LEARNED SR. DR THAT QUANTUM PROCEEDINGS WERE DECIDE D AGAINST THE ASSESSEE, I AM MERELY OF THE VIEW THAT QUANTUM PROC EEDINGS THOUGH 6 VERY RELEVANT BUT AT THE SAME TIME BOTH ARE DISTINC T PROCEEDINGS AND THE PRESENT APPEAL HAS TO BE DECIDED IN THE LIGHT OF VI OLATION, IF ANY, OF SECTION 271(1) OF THE ACT. 4. IF THIS ISSUE IS ANALYSED WITH THE HELP OF JUDI CIAL DECISIONS, THE RATIO LAID DOWN IN THE CASES CITED ABOVE, SUPPORTS THE CASE OF THE ASSESSEE AS WELL AS MY VIEW. IN THE CASE OF SHIVANA ND STEELS LIMITED (SUPRA), THE CLAIM WAS MADE FOR DEPRECIATION AND IN VESTMENT ALLOWANCE ON NEWLY INSTALLED MACHINERY. THE CLAIM WAS BASED O N HIGH COURT DECISION THAT USER OF MACHINERY IN TEST PRODUCTION IS ALSO USER FOR PURPOSE OF BUSINESS OF THE ASSESSEE WHICH WAS WITHD RAWN SUBSEQUENTLY. PENALTY WAS LEVIED ON THE GROUND OF DELIBERATE FURNISHING OF INACCURATE PARTICULARS IN THE ORIGINAL RETURN. THERE WAS NO FINDING THAT THE CLAIM WAS MALAFIDE. THE TRIBUNAL WAS HELD TO BE JUSTIFIED IN CANCELLING THE PENALTY BY THE HONBLE MADRAS HIGH C OURT. WHILE COMING TO THIS CONCLUSION , THE HONBLE COURT CONSIDERED T HE DECISION IN V. RAMAKRISHNA & SONS LIMITED V. CIT; 149 ITR 559 (MAD ). IN THE CASE OF HMA UDYOG PVT. LTD.(SUPRA) THE QUESTION WAS WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IS A REVENUE EXPENDITURE O R CAPITAL EXPENDITURE IS A DEBATABLE ISSUE EVEN IF IT IS ULTI MATELY DECIDED AGAINST THE ASSESSEE, IT CANNOT BE SAID THAT THE ASSESSEE C ONCEALED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTI CULARS. THE HONBLE DELHI HIGH COURT HELD THAT THE PROVISIONS OF SECTIO N 271(1) ARE NOT 7 ATTRACTED. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SPK STEELS PRIVATE LIMITED (SUPRA) HELD THAT THE PENALT Y WAS RIGHTLY CANCELLED. WHILE COMING TO THIS CONCLUSION, THE HON BLE HIGH COURT PLACED RELIANCE IN CEMENT MARKETING OF INDIA LIMITE D V. ASSTT. CST; 124 ITR 15 (SC); 45 STC 197 (SC). IN A LATER DECISION T HE HONBLE APEX COURT IN THE CASE OF UNION OF INDIA V. RAJASTHAN SP INNING & WEAVING MILLS AND OTHERS (SUPRA), AFTER CONSIDERING THE DEC ISION IN UNION OF INDIA V. DHARMENDRA TEXTILES PROCESSORS (2009) 12 ITJ 40 (SC), COSMIC DYE CHEMICAL V. CCE; 75 ELT 721; CONTINENTAL FOUNDATION JOINT VENTURE V. CCE; (2007) (216) ELT 177 (SC); DILIP AND SHROFF V. JCIT (2007); 291ITR 519; 210 CTR 228 (SC) AND CHAIRMAN SEBI V. S HRIRAM MUTUAL FUND & OTHERS (2006) 5 SCC 361 (PARA 20) DECIDED IN FAVOUR OF THE ASSESSEE. AS FAR AS THE RELIANCE OF THE LEARNED SR . DR UPON THE DECISION IN DHARMENDRA TEXTILES (SUPRA) IS CONCERNE D, THE HONBLE COURT IN PARA 23 HELD AS UNDER :- 23. THE DECISION INDHARAMENDRA TEXTILE (SUPRA) MUST, THEREFORE, BE UNDERSTOOD TO MEAN THAT THOUGH THE APPLICATION OF SECTION 11AC WOULD DEPEND UPON THE EXISTENCE OR OTHERWISE OF THE CONDITIONS EXPRESSLY STATED IN THE SECTION, ONCE THE SECTION I S APPLICABLE IN A CASE THE CONCERNED AUTHORITY WOULD HAVE NO DISCRETION IN QUANTIFYING THE AMOUNT AND PENALTY MUST BE IMPOSED EQUAL TO THE DUTY DETERMINED UNDER SUB-SECTION (2) OF SECTION 11A. THAT IS WHAT DHARAMENDRA TEXTILE (SUPRA) DECIDES. 8 5. THE DIVISION BENCH OF THE HONBLE BENCH REFERRE D THE CONTROVERSY INVOLVED IN THE APPEALS TO A LARGER BEN CH DOUBTING THE CORRECTNESS OF THE VIEW EXPRESSED IN DILIP & SHROF F V. JCIT AND OTHERS. THE QUESTION WHICH AROSE FOR DETERMINATION WAS WHET HER SECTION 11AC OF THE CENTRAL EXCISE ACT, 1944, INSERTED BY THE FI NANCE ACT, 1966, WITH THE INTENTION OF IMPOSING MANDATORY PENALTY ON PERS ONS WHO EVADED PAYMENT OF TAX, SHOULD BE READ TO CONTAIN MENS REA AS AN ESSENTIAL INGREDIENT AND WHETHER THERE IS A SCOPE FOR LEVYING PENALTY BELOW THE PRESCRIBED MINIMUM. BEFORE THE DIVISION BENCH, THE STAND OF THE REVENUE WAS THAT THE SAID SECTION SHOULD BE READ AS PENALTY FOR STATUTORY OFFENCE AND THE AUTHORITY IMPOSING PENALTY HAS NO D ISCRETION IN THE MATTER OF IMPOSING PENALTY AND THE ADJUDICATING AUT HORITY IN SUCH CASES WAS DUTY BOUND TO IMPOSE PENALTY EQUAL TO THE DUTY SO DETERMINED. THE ASSESSEE, ON THE OTHER HAND, REFERRED TO SECTION 27 1(1) OF THE INCOMETAX ACT, 1961, TAKING THE STAND THAT SECTION 11AC OF THE CENTRAL EXCISE ACT IS IDENTICALLY WORDED AND IN A GIVEN CAS E IT WAS OPEN TO THE ASSESSING OFFICER NOT TO IMPOSE ANY PENALTY. THE HO NBLE DIVISION BENCH MADE REFERENCE TO R. 96ZQ AND R. 96ZO OF THE CENTRAL EXCISE RULES, 1944 AND A DECISION IN CHAIRMAN SEBI V. SHRI RAM MUTUAL FUND & OTHERS (SUPRA) AND WAS OF THE VIEW THAT THE BASIC S CHEME FOR IMPOSING PENALTY U/S 271(1) OF THE INCOMETAX ACT AND SECTIO N 11 OF THE CENTRAL EXCISE ACT IS COMMON. ACCORDING TO DIVISION BENCH, THE CORRECT POSITION 9 WAS LAID DOWN IN CHAIRMAN SEBIS CASE (SUPRA) AND N OT IN DILIP & SHROFF (SUPRA), THEREFORE, THE MATTER WAS REFERRED TO A LA RGER BENCH. IF THE TOTALITY OF FACTS IS ANALYSED, IT CAN BE SAID THAT IT IS NOT CORRECT TO SAY THERE CAN BE A SUPPRESSION OF MIS-STATEMENT OF FACT S, WHICH IS NOT FULFILLED AND YET CONSTITUTE A PERMISSIBLE GROUND F OR THE PURPOSE OF THE PROVISO TO SECTION 11A. MIS-STATEMENT OF SUPPRESSI ON OF FACT MUST BE WILFUL. THE SAME POSITION WAS REITERATED IN CONTIN ENTAL FOUNDATION JOINT VENTURE V. CCE (SUPRA). THE EXPRESSION SUPPRESSIO N HAS BEEN USED IN THE PROVISO TO SECTION 11A OF THE CENTRAL EXCISE ACT ACCOMPANIED BY VERY STRONG WORDS AS FRAUD OR COLLUSION AND, THER EFORE, HAS TO BE CONSTRUED STRICTLY. MERE OMISSION TO GIVE CORRECT INFORMATION MAY NOT BE SAID TO BE SUPPRESSION OF FACTS UNLESS IT WAS DELIB ERATE TO STOP THE PAYMENT OF DUTY. AN INCORRECT STATEMENT CANNOT BE EQUATED WITH A WILLFUL MIS-STATEMENT. THE LATTER IMPLIES MAKING OF AN INC ORRECT STATEMENT WITH THE KNOWLEDGE THAT THE STATEMENT WAS NOT CORRECT. T HE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SKYLINE AU TO PRODUCTS PRIVATE LIMITED (271 ITR 335); 142 TAXMAN 558 (M.P.) WHERE THE ASSESSEE CLAIMED DEPRECIATION FOR THE FULL YEAR IN THE FIRST YEAR OF STARTING OF PRODUCTION THOUGH HE WAS ENTITLED TO FRACTIONAL DEP RECIATION, IT WAS HELD THAT IT WAS A CASE OF BONA FIDE MISTAKE RATHER A DE LIBERATE MISTAKE, THEREFORE, CANNOT BE A GOOD GROUND FOR IMPOSING PEN ALTY U/S 271(1) OF THE ACT. 10 6. IN THE PRESENT APPEAL, SINCE THE ASSESSEE CLAIM ED THE IMPUGNED AMOUNT AS BUSINESS LOSS AND THE ASSESSING OFFICER T REATED THE SAME AS CAPITAL LOSS AND ALSO THE FACT THAT THE IMPUGNED AM OUNT WAS DEBITED BY THE FIRM ITSELF, THEREFORE, IT CANNOT BE SAID TO BE A CASE OF EITHER CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS. THEREFORE, THE DECISION IN DDIT V. CHIRAG METAL ROLLING MILLS (SUPRA), RELIED UPON BY THE LEARNED SR. DR, MAY NOT HELP THE REVENUE BECAUS E VIDE ORDER DATED 31 ST MARCH, 2006 THE HONBLE COURT DECIDED THE ISSUE ON THE BASIS OF MENS REA WHERE THE INCOME WAS SURRENDERED BY THE AS SESSEE AND THE ISSUE WAS ELABORATELY DISCUSSED BY THE HONBLE APEX COURT VIDE ORDER DATED 12 TH MAY, 2009 IN THE CASE OF RAJASTHAN SPINNING & WEAV ING MILLS AND OTHERS (SUPRTA) WHEREIN OFF QUOTED DECISION OF DILIP & SHROFF & DHARMENDRA TEXTILE PROCESSORS (SUPRA) HAVE ALREADY BEEN CONSIDERED, THEREFORE, IN MY HUMBLE OPINION, THE AFORESAID DECI SION IN CHIRAG ROLLING METAL MILLS (SUPRA) MAY NOT HELP THE REVENUE. EVEN OTHERWISE, IF THE ASSESSMENT FRAMED U/S 143(3) OF THE ACT (PAGES 16 A ND 17 OF THE PAPER BOOK), IS ANALYSED, THE TOTAL INCOME HAS BEEN COMPU TED AS UNDER :- TOTAL INCOME AS PER RETURN (-) 12,72,190 DEDUCT DEBITED BY THE FIRM IN THE CAPITAL A/C (+) 1 5,00,000 DEDUCT INTEREST PAID TO FIRM (+) 40,818 TOTAL = (+) 2,68,628/- 11 IF THE AFORESAID COMPUTATION MADE BY THE ASSESSING OFFICER IS ANALYSED ITSELF SAYS THAT THE AMOUNT OF RS. 15 LACS WAS DEBI TED BY THE FIRM IN THE CAPITAL ACCOUNT AND NOT BY THE ASSESSEE. EVEN OTHER WISE, IT WAS A CASE OF LOSS RETURNED BUT THE ASSESSING OFFICER MADE IT A POSITIVE FIGURE OF RS.2,68,628/- ON WHICH THE APPROXIMATELY TAX COMES TO RS.80,000/-. HOWEVER, THE ASSESSING OFFICER CALCULATED THE PENAL TY AT RS.4,50,000/-. THE CONCLUDING PARA FROM THE ASSESSMENT ORDER IS WO RTH MENTIONING HERE :- FROM THE ABOVE IT IS CONCLUDED THAT THE ASSESSEE WAS PENALIZED BY HIS FIRM FOR BREACH OF FAITH THEREFORE, THE ADJU ST MADE BY THE FIRM IN THE CAPITAL ACCOUNT OF THE ASSESSEE BY WAY OF DA MAGES DEBITED AND INTEREST CHARGED CANNOT BE ALLOWED AS A REVENUE LOSS OR EXPENDITURE IN THE HANDS OF ASSESSEE, THEREFORE, TH E CALM OF THE ASSESSEE IN THIS REGARD IS REJECTED. PENALTY PROCEE DINGS U/S 271(1) ARE BEING INITIATED ON THIS POINT. IF THE ABOVE PARA IS ANALYSED, IT IS VERY STRANGE T HAT THE PENALTY IS BEING IMPOSED ON THE ALLEGATION OF THE FIRM FOR BREACH OF FAITH AND ADJUSTMENT MADE BY THE FIRM IN DEBITING THE AMOUNT IN THE CAPI TAL ACCOUNT OF THE ASSESSEE. THERE IS NO INDEPENDENT FINDING BY THE A SSESSING OFFICER THAT THE ASSESSEE EITHER CONCEALED ITS INCOME OR FURNISH ED INACCURATE PARTICULARS OF INCOME. IN MY VIEW, THE ASSESSEE MAY NOT BE PENALIZED MERELY ON THE BASIS OF ENTRY DEBITED BY THE FIRM IN THE CAPITAL ACCOUNT OF THE ASSESSEE. IT IS BETWEEN THE ASSESSEE AND THE F IRM TO SETTLE THEIR SCORES BEFORE THE COMPETENT COURT OF LAW AND NOT FO R THE ASSESSING 12 OFFICER TO COME TO A NEGATIVE FINDING AGAINST THE A SSESSEE ON THE BASIS OF ENTRY MADE BY THE FIRM. IT IS A CASE OF APPRECIA TION OF FACTS AND INTERPRETATION OF LAW, CONSEQUENTLY, I AM OF THE CO NSIDERED OPINION THAT IT IS A FIT CASE WHERE PENALTY HAS TO BE DELETED. I O RDER ACCORDINGLY. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN OPEN COURT ON 6 TH APRIL, 2010. SD (JOGINDER SINGH) JUDICIAL MEMBER 6 TH APRIL, 2010 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, G UARD FILE *DBN/