IN INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JM AND SHRI RAJESH KUMAR, AM I.T.A. No.1640/Mum/2011 (Assessment Years : 2005-06) Shri D N Dalal, HUF, Asstt. Commissioner of 120/123 Arun Chamber, Income Tax. 16(1), Tardeo Road, Vs. Matru Mandir, Tardeo Road, Mumbai-400 034 Mumbai-400 007 PAN :AAAHD1795F Assessee by Shri Vijay Mehta Revenue by Shri Vijay Kumar Bora Date of Hearing : 8.9.2016 Date of Pronouncement : 14.10.2016 O R D E R PER RAJESH KUMAR, AM This is appeal filed by assessee challenging order dated 6.12.2010 passed by ld.CIT(A)-27, Mumbai confirming action of AO in imposing penalty u/s 271(1)( c) of Income Tax Act, 1961 which pertains to assessment year 2005-06. 2. issue raised in grounds of appeal no.1 and 2 is with respect to confirmation of penalty as imposed by AO under section 271(1)( c ) of Act. 2 ITA No.1640/Mum/2011 3. Facts of case are that assessee filed his return of income on 29.3.2007 admitting total income of Rs.72,00,439/-. assessment was completed u/s 143(3) vide order dated 18.12.2007 assessing total income at Rs.73,65,265/- by making addition of Rs.2,22,581/- on account of interest receivable from Shri Budhawani on amount advanced for IPO issues M/s Gateway Distriparks and Punjab National Bank on mercantile system of accounting which was not accounted by assessee and added by AO to income of assessee accordingly. In penalty proceedings, AO issues show cause notice to assessee as to why penalty should not be imposed for concealment of income which was received by assessee letter dated 24.6.2008 by submitting that assessee had transactions with Mr.Bhudhwani and interest received is accounted for as income as and when actually received. assessee fairly admitted at time of finalization of account that interest component escaped attention of assessee and was not provided for due to pre-occupation of assessee in attending various authorities as such during survey proceedings u/s 133A by IT Department in month of October, 2005 which was followed by SEBI and CBI in month of December,2005. assessee also submitted that he was not aware whether TDS was deducted by Mr.Bhudhwani and under these circumstances income could not be offered for taxation. AO came to conclusion that assessee has concealed particulars of income by not showing interest 3 ITA No.1640/Mum/2011 income received as income which came to light of department only during course of survey conducted u/s 133A of Act by Investigation Wing on 24.10.2005 and accordingly levied penalty of Rs.74,898/- u/s 271(1)( c) of Act at rate of 100% of tax sought to be evaded for concealment of income. Before First Appellate Authority (FAA), ld. CIT(A) also dismissed appeal of assessee by observing and holding as under: 4. I have carefully considered submissions made by appellant and also contents of penalty order. It is fact that survey u/s.133A was conducted in appellant's premises in October, 2005, followed by action of SEBI and CBI. Nevertheless for year under consideration appellant got his accounts audited on 27.3.2007 and filed return of income on 29.3.2007. In other words, ample time of 17 months was available to appellant from date of survey to collect information and to provide for interest receivable from Mr. Purshottam Budhwani. very fact that survey u/s.133A was conducted by department followed by action of SEBI and CBI should have made appellant more vigilant while finalizing accounts and to collect all relevant details, especially when appellant had taken 17 months time to get his accounts audited. Having regard to fact that appellant had been consistently following mercantile system of accounting and advanced amounts to Mr. Budhwani in normal course of his business activities, explanation of appellant that omission to offer said income to tax was inadvertent is not acceptable. In view of above discussion, I hold that AO has come to correct conclusion that there was no valid explanation from appellant to his penalty notice u/s 271(1)( c ). Accordingly, I hold uphold penalty levied by AO. 4. We have considered rival contentions and perused material placed before us including orders of authorities below. We find that assessee has not accounted for interest receivable from Mr.Bhudhwani on loan advanced to him to tune of Rs. Rs.2,22,581/- which was not received and 4 ITA No.1640/Mum/2011 could not be provided for. reasons stated was pre-occupation of appellant in attending various government authorities in income tax matter during survey proceedings u/s 133A in month of October, 2005 and SEBI and CBI inquiries in month of December, 2005. assessee submitted that he was under tremendous pressure and therefore, at time of finanalistion of account, interest received from Mr.Bhudhwani could not be provided for and he had no intention to evade or conceal said income. 5. ld. Counsel also produced letter dated 7.9.2016 received from Mr.P Budhawani in which it has been stated that interest has been provided in books of account of Mr. Budhawani for financial year ended on 31.3.2005 was not paid subsequently and ultimately said interest was written back in FY 2011-12 by crediting same to profit and loss account. Close analysis of submissions of ld.AR before AO and letter of Mr.Budhwani, we find that interest was not received in subsequent year also and could not be provided due to reasons stated above. In our opinion, this constitutes reasonable cause for which penalty could not be imposed. stand of assessee is further fortified and re-inforced that loanee did pay interest to loaner which was to be paid and wrote back said amount in financial year 2011-12. In our considered opinion, penalty imposed by AO is not correct and ld. CIT(A) has also wrongly sustained same as income which was never received could not be said to have been accrued to 5 ITA No.1640/Mum/2011 assessee may be by reasons of facts which arose subsequent to closing of financial year. In view of above discussion, we set aside order of ld. CIT(A) and direct AO to delete penalty. 6. In result, appeal of assessee is allowed. Order pronounced in open court on 14.10.2016. Sd sd (MAHAVIR SINGH ) (RAJESH KUMAR) Judicial Member Accountant Member Mumbai; Dated :14.10.2016 Sr.PS:SRL: Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER, True copy (Dy./Asstt. Registrar) ITAT, Mumbai D N Dalal, HUF v. Asstt. Commissioner of Income Tax. 16(1), Mumbai