Jainsons Woven Art vs ACIT, Panipat: Appeal on Penalty Confirmation for AY 2012-13

Jainsons Woven Art vs ACIT, Panipat: Appeal on Penalty Confirmation for AY 2012-13

Case Number: ITA 5751/DEL/2019

Appellant: Jainsons Woven Art, Panipat

Respondent: ACIT, Panipat

Assessment Year: 2012-13

Case Filed on: 2019-07-01

Order Type: Final Tribunal Order

Date of Order: 2022-06-01

Pronounced on: 2022-06-01

Introduction

This appeal by Jainsons Woven Art, Panipat, pertains to the assessment year 2012-13. The case involves the confirmation of a penalty under Section 271(1)(c) by the Learned Commissioner of Income Tax (Appeals) [CIT(A)], Karnal. The penalty amount in question is Rs. 1,40,900.

Background

The Assessing Officer (AO) levied the penalty on Jainsons Woven Art for the following reasons:

1. Disallowance of Proportionate Interest: The AO observed that the assessee had shown building under construction at Rs. 14,56,465 and flat (under construction) at Rs. 7,70,000. The assessee claimed that no borrowed funds were used for these investments. However, the AO disallowed a sum of Rs. 1,00,000 out of the interest claimed in the Profit and Loss account, as funds invested in assets not put to use cannot be allowed as revenue expenditure.
2. Disallowance of Interest in respect of Advance to Ms. Neeti Jain: The AO noted that Ms. Neeti Jain, a partner of the firm, received an interest-free advance. The AO disallowed Rs. 3,38,251, reasoning that the advance could have been debited to her capital account instead of being shown separately.
3. Addition of Loss on Sale of Investments: The assessee claimed Rs. 17,728 as a loss on the sale of investments. The AO disallowed this amount, citing the lack of a proper explanation from the assessee.

Penalty under Section 271(1)(c)

The penalty was levied on the grounds of concealment of income. The CIT(A) confirmed the penalty, leading to the present appeal before the Income Tax Appellate Tribunal (ITAT).

Tribunal Proceedings

The ITAT heard the appeal on 25th May 2022, with Ms. Anupama Singla representing the revenue. No one appeared on behalf of the assessee.

Tribunal Findings

Upon careful consideration of the records and arguments, the ITAT made the following observations:

1. Proportionate Interest Disallowance: The assessee claimed that no borrowed funds were used for the investments. The ITAT noted that the disallowance and penalty were subjects of debate. The rejection of the assessee’s claim was not ex-facie bogus, thus not warranting a penalty.
2. Interest Disallowance on Advance to Ms. Neeti Jain: The ITAT found the AO’s reasoning to be fragile and insufficient to justify the penalty. The advance could have been debited to her capital account, but the decision to show it separately did not indicate contumacious conduct.
3. Loss on Sale of Investments: The ITAT observed that the authorities disallowed the claim due to a lack of explanation from the assessee. However, this alone did not justify the penalty.

Conclusion

The ITAT concluded that the disallowance of the assessee’s claims did not automatically lead to the imposition of a penalty under Section 271(1)(c). The ITAT referred to the decision in the case of Reliance Petro Products [2010] 322 ITR 158 (SC), which supports the view that mere disallowance of a claim does not justify a penalty. Furthermore, the ITAT cited the case of Hindustan Steel Forgings vs State of Orissa (82 ITR 26), emphasizing that penalty should not be imposed if the conduct of the assessee is not found to be contumacious.

Judgment

In light of the above observations, the ITAT set aside the orders of the authorities below and deleted the penalty imposed on Jainsons Woven Art.

Final Order

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 1st June 2022.

Sd/-
[ASTHA CHANDRA]
JUDICIAL MEMBER

Sd/-
[SHAMIM YAHYA]
ACCOUNTANT MEMBER

Delhi; Dated: 1st June 2022.

Copy forwarded to:

1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR

Assistant Registrar, ITAT, New Delhi

Jainsons Woven Art vs ACIT, Panipat: Appeal on Penalty Confirmation for AY 2012-13