M/s. Murlidhar Ginning & Pressing, Sabarkantha v. The Income tax Officer,S.K.Ward-2,, Himatnagar

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH (BEFORE S/SHRI G.D. AGARWAL VICE-PRESIDENT AND MUKUL KUMAR SHRAWAT JUDICIAL MEMBER) ITA NO.2006/AHD/2010 [ASSTT. YEAR : 2005-2006] MURLIDHAR GINNING & PROCESSING OPP: SODATPURA BUS STAND TAL: IDAR DIST. SABARKANTHA. PAN : AAGFM 7911 C VS. ITO SK WARD-2 HIMATNAGAR. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.R. SHAH REVENUE BY : DR. RAJA RAM SAH O R D E R PER BENCH: THIS APPEAL IS AT THE BEHEST OF THE ASSESSEE WHICH HAS EMANATED FROM THE ORDER OF THE CIT(A)-VII AHMEDABA D DATED 25.02.2010. THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF PEN ALTY LEVIED UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT 1961 AT RS.1 09 28 8/-. 2. THE FACTS IN BRIEF AS EMERGED FROM THE CORRESPON DING PENALTY ORDER PASSED UNDER SECTION 271(1)(C) DATED 1-7-2009 WERE THAT THE PENALTY WAS LEVIED IN RESPECT OF THE ADDITION PERTAINING TO THE INTERE ST ON DEPOSIT. THE AO HAS OBSERVED THAT THE ASSESSEE FIRM HAD ADVANCED LOANS TO VARIOUS PARTIES AND NO INTEREST WAS CHARGED. ON THAT GROUND THE AO HAS CA LCULATED THE INTEREST AT THE RATE OF 12% ON THE SAID AMOUNT AND WORKED-OUT THE I NTEREST AMOUNT OF RS.2 80 263/-. THERE WAS ONE MORE ADDITION PERTAIN ING TO VARIOUS EXPENSES AMOUNTING TO RS.46 835/- FOR THE PURPOSE OF LEVY OF PENALTY. THE ACTION OF THE AO WAS CHALLENGED BEFORE THE LEARNED CIT(A). THE L EARNED CIT(A) HAS NOTED THAT PENALTY WAS LEVIED BY THE AO BECAUSE OF THE PR IMARY REASON THAT THE ASSESSEE HAS NOT PROPERLY COMPLIED WITH THE SHOW CA USE NOTICE. FURTHER THE LEARNED CIT(A) HAS MENTIONED THAT IN THE ABSENCE OF EXPLANATION THE AO HAD NO OPTION BUT TO LEVY PENALTY. BY REFERRING FEW CAS E LAWS THE ACTION OF THE AO WAS CONFIRMED. ITA NO.2006/AHD/2010 -2- 3. WITH THIS BRIEF BACKGROUND WE HAVE HEARD BOTH T HE SIDES. AS FAR AS THE QUESTION OF LEVY OF PENALTY ON AN ESTIMATED PERCENT AGE OF INTEREST INCOME ON THE IMPUGNED DEPOSITS WE ARE OF THE VIEW THAT THE FACTS IN RESPECT OF ADVANCES TO VARIOUS PARTIES HAVE NOT BEEN CONCEALED BY THE A SSESSEE. THE ARGUMENT IN THIS REGARD WAS THAT THE DECISION OF NOT CHARGING I NTEREST WAS A COMMERCIAL DECISION AND THE AO HAS MADE AN ESTIMATED ADDITION BY APPLYING 12% INTEREST THOUGH NO SUCH INTEREST WAS EVER EARNED BY THE ASSE SSEE. IT HAS ALSO BEEN ARGUED THAT SINCE IT WAS A CALCULATION OF NOTIONAL INTEREST WHICH WAS TAXED IN THE HANDS OF THE ASSESSEE THEREFORE NO PENALTY SHOULD HAVE BEEN LEVIED ON SUCH A NOTIONAL ADDITION. IN SUPPORT OF THIS CONTENTION RELIANCE WAS PLACED ON THE DECISION IN THE CASE OF CIT VS. RELIANCE PETROPRODU CTS LTD. 322 ITR 158 (SC). WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE ADDITIONS IN QUESTION WERE NOT BECAUSE OF CONCEALMENT OF FACT OR FURNISHING SOME INACCURATE PARTICULARS. IT IS A MATTER OF FACT THA T WHETHER TO CHARGE INTEREST OR NOT TO CHARGE INTEREST AND CONSEQUENT ADDITION IN THIS REGARD DEPENDS UPON CASE TO CASE. LIKEWISE THE ADDITIONS IN RESPECT OF CER TAIN MISCELLANEOUS EXPENDITURE WHICH WERE ALSO THE BASIS FOR LEVY OF PENALTY COULD NOT BE SAID TO BE FOR FURNISHING OF INACCURATE PARTICULARS OF INCO ME BECAUSE THOSE EXPENDITURE WERE OTHERWISE WERE NOT FOUND TO BE FALSE OR BOGUS EXPENDITURE. FROM THE SIDE OF THE ASSESSEE AN EXPLANATION WAS OFFERED AND THAT EXPLANATION WAS NOT FOUND TO BE UNTRUE OR FALSE. THUS THE TOTALITY OF THE C IRCUMSTANCES WARRANTS TO DELETE THE PENALTY. WE ORDER ACCORDINGLY AND ALLOW THE GR OUND. 4. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 4 TH FEBRUARY 2011. SD/- SD/- (G.D. AGARWAL) VICE-PRESIDENT (MUKUL KR. SHRAWAT) JUDICIAL MEMBER PLACE : AHMEDABAD DATE : 04-02-2011 ITA NO.2006/AHD/2010 -3- COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR ITAT. BY ORDER DR/AR ITAT AHMEDABAD