By this order, we shall dispose of this appeal of Revenue filed against order of CIT(A), Jalandhar, for asst. yr. 2001-02. first ground of appeal relates to deletion of addition of Rs. 2,84,425 made by AO on account of cash credits. facts of case are that during course of assessment proceedings, AO found from balance sheet credits in names of five persons standing in books of account of assessee. l l these were old credits brought from year 1995-96 onwards. AO issued summons under s. 131 to confirm whether such credits were genuine. One Sh. Arjan Dass in whose name amount of Rs. 50,000 was shown outstanding appeared before AO and stated that he has not given any loan to anybody during and before financial year 2000-01. Summons issued to Sh. Vipan Kumar and Smt. Kanchan Gupta were returned unserved . AO, therefore, held that such credits standing in names of these persons for more than three years were not genuine and accordingly, made addition. In case of one Sh. Ashok Mahajan, summons issued by AO had not been returned unserved , but none appeared before AO on date fixed for hearing. AO, therefore, treated amount of Rs. 56,948 standing in his name for more than three years as income of assessee. As regards Sh. Dharamvir Gupta, summons issued by AO could not be served for want of complete address. Here also, AO treated amount as unexplained. Aggrieved, assessee filed appeal before CIT(A). It was submitted before CIT(A) that AO had made addition without allowing proper opportunity to assessee. It was submitted before CIT(A) that these were old credits which appeared in books of account of assessee for year 1995-96 and, therefore, no addition was called for under s. 68 of IT Act. It was further submitted that these amounts were outstanding for more than 3 years did not mean that liability had seized to exist and, therefore, no addition under s. 41(1) could also be made. Reliance was also placed on several judgments noted by CIT(A) on p. 3 of impugned order which also included judgment of Supreme Court in case of CIT vs. Sugauli Sugar Works (P) Ltd. (1999) 152 CTR (SC) 46: (1999) 236 ITR 518 (SC). learned CIT(A) considered these submissions and observed that liability does not cease to exist even if debt is old for more than 3 years. It was submitted that in accounting year under reference, assessee had not received any benefit in form of cessation of liability and, therefore, no addition under s. 41(1) of Act could be made. It was also submitted that judgment of Supreme Court in case of CIT vs. T.V. Sundram Itengar & Sons Ltd. (1996) 136 CTR (SC) 444: (1996) 222 ITR 344 (SC) was not applicable because assessee received deposits from customers which were unclaimed and assessee had transferred same to P&L a/c. However, these were not included in total income. But, in this case, assessee had not transferred these amounts to P&L a/c. Further, it was submitted that provisions of s. 41(1) were not applicable to facts of this case because no deduction in respect of such amounts by way of loss, expenses or trading liability was allowed in earlier assessment years and in subsequent years also. assessee had not obtained any benefit by way of remission or cessation of liability. Accepting contentions of assessee, learned CIT(A) deleted addition. Revenue has now come up in appeal before us. learned Departmental Representative relied on order of AO. learned counsel for assessee, on other hand, relied on order of CIT(A). We have heard both parties and carefully considered rival contentions, examined facts, evidence and material placed on record. It is admitted position that these were old credit balances brought forward from year 1995-96. No addition under s. 68 could be made because such credits did not appear in books of account of assessee for assessment year under consideration. Similarly, addition under s. 41(1) could also not be made because no deduction or allowance in respect of expenses, loss or trading liability had been allowed in earlier assessment years. Thus, we are of considered opinion that learned CIT(A) was justified in deleting impugned addition. We confirm his order and reject this ground of appeal of Revenue. next ground of appeal relates to deletion of disallowance of interest of Rs. 2,46,977 being excess interest paid to depositors covered under s. 40A(2)(b) of Act. facts of case are that AO observed that assessee had paid interest @ 24 per cent to 16 persons covered under s. 40A(2)(b) of Act. AO, therefore, restricted deduction of interest to 18 per cent and thereby made disallowance of Rs. 2,46,977. Aggrieved, assessee impugned disallowance in appeal before CIT(A). It was submitted before CIT(A) that effective rate of interest in respect of loans borrowed from bank comes to 20 per cent per annum. bank loan could be availed of only to extent of limit sanctioned and that too after providing necessary security whereas loans taken from relatives were unsecured for which prevailing rates of interest varied from 24 per cent to 30 per cent. Accepting contentions of assessee and by relying on decision of Tribunal, Amritsar Bench, learned CIT(A) deleted addition. Revenue is aggrieved with order of CIT(A). Hence, this appeal before us. learned Departmental Representative simply relied on order of AO. learned counsel for assessee, on other hand, relied on order of Tribunal, (SMC) Amritsar Bench, in case of M/s. H.S. Sales Corporation, Jalandhar vs. ITO, in ITA No. 395/Asr/2005 for asst. yr. 2001-02 (a copy placed at pp. 106 and 107 of paper book). We have heard both parties and carefully considered rival contentions, examined facts, evidence and material placed on record. We have referred to decision of Tribunal (SMC), Amritsar Bench, in case of H.S. Sales Corpn. vs. ITO (supra), where Tribunal by referring to earlier order of Tribunal, Amritsar Bench, in case of AIM Forgings, Jalandhar vs. Asstt. CIT, has held that interest paid @ 24 per cent was fair and reasonable and did not warrant any disallowance. While doing so, Tribunal further relied on decision of Tribunal (SMC), Amritsar Bench, in case of Parmod Kumar Raj Kumar, Phagwara vs. Asstt. CIT in ITA No. 267/Asr/2005 for asst. yr. 2001-02, where it was held as under: "5. I have heard both parties and considered rival contentions, examined facts, evidence and material on record and gone through orders of authorities below. undisputed facts of case are that assessee has paid interest @ 24 per cent to persons covered under s. 40A(2)(b) i.e. at same rate at which interest was claimed and allowed in past i.e. asst. yr. 2000-01. There is also no disputed about fact that borrowed amounts were utilized for purpose of business. Similar issue came up before Tribunal, (SMC) Amritsar Bench, in case of M/s. Parmod Kumar Raj Kumar vs. Asstt. CIT, in ITA No. 267/Asr/2005 for asst. yr. 2001-02, dt. 2nd Sept., 2005 and Tribunal decided same in favour of assessee and against Revenue by recording following findings in para 6 of order: 6. I have heard both parties and carefully considered rival contentions with reference to facts, evidence and material on record. fact that assessee had claimed interest @ 24 per cent and was allowed by Revenue in asst. yr. 2000-01 has not been disputed by Revenue. Therefore, principle of consistency demanded that no addition in respect of same should have been made for assessment year under reference. Besides, this issue is squarely covered by decision of Tribunal (SMC), Amritsar Bench, in case of M/s. Rimpy Processors (P) Ltd; vs. Asstt. CIT, Cir.5, Amritsar (supra) where it was held in para 4 as under: 4. Having heard rival submissions and perused relevant material on record, it is noted that assessee was paying interest to these persons @ 24 per cent in preceding assessment years as well. Page 173 of paper book is chart showing interest to these persons @ 24 per cent in preceding and succeeding years which was accepted by Revenue. Even assessment for immediately preceding year was made in scrutiny under s. 143(3) by accepting payment of interest @ 24 per cent. Assessment order for said year has been placed at p. 49 of paper book. These facts indicate that assessee had paid interest to these persons @ 24 per cent in preceding as well as succeeding years and same was accepted by Revenue. That being position, there was no reason to disturb finality given to these transactions by Department itself. Principle of consistency requires that in absence of any change in factual or legal position, view taken should not be altered. This view has been recently reiterated by taken should not be altered. This view has been recently reiterated by Hon ble Delhi High Court in case of Director of IT (Exemption) vs. Guru Nanak Vidya Bhandar Trust (2004) 187 CTR (Del) 558: (2005) 272 ITR 379 (Del). In view of these facts, I am satisfied that addition made and sustained by allowing interest to such specified persons at 18 per cent only was not justified. By reversing impugned order on this score, I direct deletion of this addition. facts of present case are similar to facts of abovementioned case. Therefore, respectfully following order of Tribunal, I set aside order of CIT(A) and delete impugned disallowance. Accordingly, grounds of appeal of assessee are allowed. This order was followed by Tribunal, Amritsar Bench, in case of AIM Forgings vs. Asstt. CIT (supra) for asst. yr. 2001-02. facts of present case are similar to facts of cases already decided by Tribunal. Respectfully following same, order of CIT(A) is set aside and AO is directed to allow interest claimed by assessee. This ground of appeal is accordingly allowed." facts of present case are similar to facts of aforesaid case. Therefore, respectfully following same, we confirm order of CIT(A) and reject this ground of appeal of Revenue. next ground of appeal relates to deletion of trading addition of Rs. 20,000. facts of case are that assessee had shown GP rate of 13.58 per cent on sales of Rs. 1,20,72,293 as against GP rate of last year shown at 13.33 per cent. However, AO observed that assessee had not maintained any stock register. Further, even auditors had mentioned in audit report that details of closing stock have not been produced for verification. Thus, AO observed that value of closing stock could not be correctly worked out in absence of day-to-day quantitative details. Accordingly, AO made ad hoc trading addition of Rs. 20,000 to cover possible leakage. Aggrieved, assessee impugned addition in appeal before CIT(A). It was submitted that gross profit shown by assessee at 13.58 per cent was better than gross profit shown of last year at 13.33 per cent. All purchases and sales were vouched and expenses were also supported by bills and vouchers. Thus, it was submitted that no addition was called for. Accepting submissions of assessee, learned CIT(A) deleted impugned addition. Revenue is aggrieved by order of CIT(A). Hence, this appeal before us. learned Departmental Representative heavily relied on order of AO. learned counsel for assessee, on other hand, relied on order of CIT(A). We have heard both parties and considered rival contentions, examined facts, evidence and material placed on record. We find that trading addition made by AO on ad hoc basis was without any justification. It is not denied that gross profit shown by assessee at 13.58 per cent was better than gross profit shown at 13.33 per cent of last year. None other defects in books of account which could show either suppression of sales or inflation of expenses have been pointed out by AO. No doubt, assessee had not produced or maintained stock register. This itself could not be ground for making ad hoc addition of Rs. 20,000 without pointing out any specific defect or undervaluation of closing stock. No such enquiry was made by AO. Thus, we do not find any justification to interfere with order of CIT(A). same is upheld and this ground of appeal is rejected. next two grounds of appeal relate to reducing disallowance out of telephone and travelling expenses. Briefly stated, facts of case are that assessee had claimed postage, telephone and telegram expenses aggregating to Rs. 96,198. AO disallowed expenses of Rs. 15,000 i.e. about 1/6th for personal use of telephone. Similarly, AO disallowed expenses of Rs. 8,000 out of travelling and conveyance expenses of Rs. 60,934. On appeal, learned CIT(A) reduced disallowance to 1/10th out of telephone and travelling and conveyance expenses. Revenue is aggrieved by order of CIT(A). Hence, this appeal before us. learned Departmental Representative stated that learned CIT(A) has reduced disallowance on ad hoc basis and without any justification. He, therefore, submitted that order of CIT(A) may be set aside and that of AO restored. learned counsel for assessee, on other hand, relied on order of CIT(A). We have heard both parties and considered rival contentions. We f i n d that AO has disallowed expenses of Rs. 15,000 out of postage, telephone and telegram expenses of Rs. 96,198. While personal use of telephone could not be denied, but there is no justification for making any disallowance out of postage and telegram expenses. At same time, we do not find any justification for CIT(A) to reduce disallowance to 1/10th. Thus, we modify order of CIT(A) and direct AO to disallow 1/7th out of telephone expenses alone. Similarly, disallowance out of travelling and conveyance expenses @ 1/7th not exceeding disallowance made by AO would meet ends of justice. We modify order of CIT(A) and direct AO to restrict disallowance to 1/7th. These two grounds of appeal are treated as partly allowed. next ground relates to direction given by CIT(A) to drop penalty proceedings under s. 271(1)(c) of Act. facts of case are that in course of assessment proceedings, AO found amount of Rs. 90,000 being fresh credit in capital account of partners. It was submitted before CIT(A) that amount of Rs. 50,000 was withdrawn from Saving bank account and Rs. 40,000 was amount surrendered as income in IT returns as miscellaneous income. However, AO observed that assessee could not explain source of miscellaneous income of Rs. 40,000. Accordingly, AO treated amount of Rs. 40,000 as income from undisclosed sources and initiated penalty proceedings under s. 271(1)(c) of Act. assessee filed appeal against assessment order and challenged action of AO for initiation of penalty proceedings in assessment order. learned CIT(A) directed AO to drop penalty proceedings for reason that amount of Rs. 40,000 was disclosed in return of income filed by assessee. Revenue is aggrieved by order of CIT(A). Hence, this appeal before us. learned Departmental Representative submitted that direction given by CIT(A) for dropping penalty proceedings was invalid because initiation of penalty proceedings is not appealable order. He submitted that order of CIT(A) may be set aside and that of AO restored. learned counsel for assessee, on other hand, relied on order of CIT(A). We have heard both parties and considered rival submissions with reference to facts, evidence and material placed on record. From facts discussed above, it is obvious that assessee had himself disclosed income of Rs. 40,000 in return without there being any enquiry or detection by AO. It is, therefore, not understood as to how AO was justified in initiating penalty proceedings under s. 271(1)(c) as assessee had neither concealed particulars of income nor furnished inaccurate particulars thereof when income was included in return voluntarily. Therefore, action of AO does not appear to be in conformity with provisions of Act. Be that as it may, AO had only initiated penalty proceedings. assessee is free to submit his reply and AO after considering his reply may drop penalty proceedings. It is settled law that both penalty proceedings and assessment proceedings are separate and independent proceedings. very fact that penalty proceedings have been initiated does not mean that it would automatically lead to levy of penalty under s. 271(1)(c). Even if penalty is levied, there is provision for filing appeal against said order. We are, therefore, of opinion that direction given by CIT(A) to drop proceedings initiated under s. 271(1)(c) was not correct. Accordingly, we set aside order of CIT(A) and restore that of AO. This ground of appeal is partly allowed. In result, appeal of Revenue is partly allowed. *** INCOME TAX OFFICER v. BANSI LAL GUPTA