Case Law Details

Case Name : Arun Duggal Vs. DCIT (ITAT Delhi)
Appeal Number : ITA No.740/Del/2014
Date of Judgement/Order : 21.12.2016
Related Assessment Year : 2006-07
Courts : All ITAT (4212) ITAT Delhi (925)

CA Prarthana Jalan

Hon’ble Delhi ITAT in the case of Arun Duggal,v/s DCIT in ITA No.740/Del/2014 has held that Penalty can be imposed only on disproved claim of expenditure and not unproved claim of expenditure.

The facts of the case are that the assessee is in the business of consultancy. A sum of Rs.9,20,445/- was claimed as commission expense. To substantiate the said expenditure assesse stated that he had hired the services of professionals, consultants and some other individuals to help improvement in rendering services. Vide letter dated 18.12.2008, the assessee submitted that he was to provide funds to Shri Ram Group of Companies through M/s Cyrus Capital, USA, which was the lender company. The said lender company appointed some monitoring agents for monitoring these funds provided to Shri Ram Group of Companies and the assessee made payment of commission to these monitoring agents. The assessee furnished the details of those monitoring agents. Briefly stated, the facts of the case are that the assessee is in the business of consultancy. A sum of Rs.9,20,445/- was claimed as commission expense. On being called upon to give the details of such commission, the assessee furnished a reply stating that he had hired the services of professionals, consultants and some other individuals to help improvement in rendering services. Vide letter dated 18.12.2008, the assessee submitted that he was to provide funds to Shri Ram Group of Companies through M/s Cyrus Capital, USA, which was the lender company. The said lender company appointed some monitoring agents for monitoring these funds provided to Shri Ram Group of Companies and the assessee made payment of commission to these monitoring agents. The AO was not convinced and made the disallowance of the said expenses and imposed penalty.

The Hon’ble ITAT observed that names, complete addresses were given of the monitoring agents.Whereas the AO without embarking on any enquiry to examine the genuineness of the commission payment,  simply went on his own logic and rationale in disallowing the amount. This is a case in which the assessee furnished necessary details and the AO made addition by simply rejecting the assessee’s contention without verifying the veracity of the assessee’s explanation.

The Hon’ble ITAT deleted the penalty and  held as under:-

“At the most, the assessee’s claim of deduction can be considered as unproved claim and not a disproved claim of expenditure. The Hon’ble Gujarat High Court in National Textiles vs. CIT (2001) 249 ITR 125 (Guj.), has held that in order to justify levy of penalty for addition of cash credits, the explanation tendered by the assessee must be disproved. Deleting the penalty so imposed, the Hon’ble High court held that it was not a case of imposition of penalty. The Hon’ble Calcutta High Court in Durga Kamal Rice Mills vs. CIT (2004) 265 ITR 25 (Cal), relying on National Textiles 249 ITR 125 (Guj), has held that there is a difference in `Facts not proved’ and `Facts disproved’. It further held that penalty can be levied only for the latter. Similar view has been taken in CIT vs. Vidyagauri Natvarlal & Ors (1999) 153 CTR (Guj) 546. 6. In the light of the foregoing precedents, we are satisfied that it is not a case warranting any imposition of penalty u/s 271(1)(c). We, therefore, set aside the impugned order and order for the deletion of penalty”

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