Kamal Khanna, New Delhi vs Department Of Income Tax

ITO, Vs. Kamal Khanna, Ward-29(2), E-18, East of Kailash, New Delhi. New Delhi.

PAN: AASPK0283H

(Appellant) (Respondent)

Assessee By : None Department By : Shri Amrit Lal, JCIT

Date of Hearing : 16.06.2015 Date of Pronouncement : 16.06.2015

ORDER

This appeal by the Revenue arises out of the order passed by the

CIT (A) on 20.11.2013 deleting the penalty of Rs.5,77,816/- imposed by

the AO u/s 271(1)(c) of the Income-tax Act, 1961 (hereinafter also

called 'the Act') in relation to the assessment year 2003-04. ITA No.543/Del/2014

2. Briefly stated, the facts of the case are that the AO made

disallowance of interest amounting to Rs.3,92,882/- and a further

disallowance of interest amounting to Rs.4,49,953/-. A still further

disallowance of Rs.9,91,502/- was made by disallowing 75% of the

expenses claimed by the assessee. Considering these additions totaling

to Rs.18.34 lac, the AO imposed penalty amounting to Rs.5,77,816/-.

The ld. CIT(A) deleted the penalty.

3. I have heard the ld. DR and perused the relevant material available

on record. There is no appearance from the side of the assessee despite

notice. As such, I am proceeding to dispose of this appeal ex parte qua

the assessee. It is observed that the first two additions are on account of

disallowance of interest, which in the opinion of the AO ought to have

been charged by the assessee on interest free advances and on account of

debit balance of the proprietor. But, for that, there is nothing to show as

to how the assessee concealed income or furnished inaccurate particulars

of income. The assessee claimed expenditure on payment of interest to

2 ITA No.543/Del/2014

banks and others, a part of which was disallowed by the AO on the

ground that the assessee had not charged interest on interest free loans

and advances to related parties. Similarly, other disallowance of interest

amounting to Rs.4.49 lac is towards notional interest on debit balance of

the assessee in his proprietorship concern, M/s Coco Plus Dry Fruits (I)

Company. Such type of disallowances of interest, more so when the

assessee has given complete narration and details of such expenses,

cannot call for an imposition of penalty. The Hon'ble Supreme Court in

the case of CIT Vs. Reliance Petro Products Pvt. Ltd. (2010) 322 ITR

158 (SC), has held that a mere making of a claim which is not

sustainable in law, by itself will not attract penalty u/s 271(1)(c). It

further observed that when the assessee furnished all the particulars in

the return which were not found to be inaccurate, it was upto the

authorities to accept the claim of the assessee in the return or not, but, it

cannot be a case for imposition of penalty. As regards the third amount

of disallowance @ 75% of the total expenses claimed, I find that the AO

has made this disallowance by observing that the sales of the assessee

has come down and, accordingly, the expenses have not reduced. Under 3 ITA No.543/Del/2014

no circumstances, such type of disallowance of expenses and, that too,

on a mere estimate basis, can not be a reason for imposing penalty u/s

271(1)(c). The Hon'ble Delhi High Court in CIT vs. Aero Traders Pvt.

Ltd., (2010) 322 ITR 316 (Del), has held that no penalty u/s 271(1)(c)

can be imposed when income is determined on estimate basis. Similar

view has been taken by the Hon'ble P&H High Court in Harigopal

Singh vs. CIT (2002) 258 ITR 85 (P&H) and the Hon'ble Gujarat High

Court in CIT vs. Subhash Trading Company, 221 ITR 110 (Guj). Under

such circumstances, I am inclined to approve the view taken by the ld.

CIT(A) in deleting the penalty.

4. In the result, the appeal is dismissed.

The order pronounced in the open court on 16.06.2015.

Sd/-

[R.S. SYAL] ACCOUNTANT MEMBER Dated, 16th June, 2015.

dk

4 ITA No.543/Del/2014

Copy forwarded to:

1. Appellant

2. Respondent

3. CIT

4. CIT (A)

5. DR, ITAT

AR, ITAT, NEW DELHI.

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