Penalty only on Disproved claim of expenditure & not unproved

Arun Duggal Vs. DCIT (ITAT Delhi)

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:-

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