2016 (9) TMI 758 - AT - Income Tax

Addition made on account of investment in FDRs and interest thereupon - Held that - We find that the ld. CIT(A) has verified the claim of the assessee and found that the FDRs disclosed by the family members and as found during the course of survey were not matching. As the numbers as well amount mentioned in the FDRs were different, nor the assessee was able to get verified the same with documentary evidence during the course of appellate proceedings before the ld. CIT(A). Before us also, the ld. Authorized Representative of the assessee could not controvert the findings recorded by the lower authorities. It is also seen from the submission of the assessee that the name of the assessee is also appearing as second and third beneficiaries in respect of these FDRs. The assessee is only active and effective member of his family. In view of these facts and circumstances, we do not find any infirmity in the order of the lower authorities. - Decided against assessee. Penalty levied for non-fulfillment some dealership condition - allowable expenditure u/s 37 - Held that - Since the penalty is levied by HPCL for non-fulfillment of some dealership condition falls within the purview of business expenditure, hence the same is allowable expenditure u/s 37 of the Income-tax Act, 1961. The ld. Authorized Representative of the assessee has also placed reliance in this regard in the case of Gold Crest Capital Markets Limited vs. ITO, (2009 (1) TMI 553 - ITAT, MUMBAI) wherein the Mumbai Tribunal has decided that fine or penalty imposed by NSE to its members is regulated by their in house laws and could not be termed as violation of statutory laws and hence, cannot be disallowed. Respectfully following the above findings of Mumbai, I.T.A.T., we delete the levy of penalty - Decided in favour of assessee.

Summary

Issues:
1. Addition made on account of investment in FDRs and interest thereupon.
2. Disallowance of levy of penalty by M/s. Hindustan Petroleum Corporation Limited.

Issue 1: Addition made on account of investment in FDRs and interest thereupon:

The appeals were filed against the order of the ld. Commissioner of Income-tax (Appeals) concerning assessment years 2001-02, 2002-03, and 2003-04. The appellant contested the addition made on investments in Fixed Deposit Receipts (FDRs) and the interest accrued, arguing that the FDRs were in the name of family members and should not be considered unexplained. However, the Assessing Officer (AO) added the amounts under section 68, stating that the FDRs were not recorded in regular books of accounts. The CIT(A) upheld the additions, noting discrepancies in the FDR details provided by the family members and the appellant's failure to prove proper reflection in returns. The Tribunal affirmed the additions, emphasizing the appellant's active role in the family and lack of verification of FDR details during the appellate proceedings.

Issue 2: Disallowance of levy of penalty by M/s. Hindustan Petroleum Corporation Limited:

Regarding the disallowance of a penalty levied by M/s. Hindustan Petroleum Corporation Limited, the CIT(A) confirmed the addition due to the absence of relevant vouchers. The appellant argued that the penalty was a routine business expense and should be allowed. The Tribunal agreed with the appellant, considering the penalty as a business expenditure under section 37 of the Income-tax Act, 1961. Citing a precedent where fines or penalties imposed by regulatory bodies were allowed as business expenses, the Tribunal deleted the penalty levy of ?5,000. Consequently, the appeal for the assessment year 2003-04 was partly allowed, while the appeals for the other years were dismissed.

This judgment highlights the meticulous scrutiny of investments in FDRs and associated interest, emphasizing the need for proper documentation and verification. It also underscores the distinction between routine business expenses and penalties for statutory violations, ensuring adherence to relevant tax provisions and precedents in determining allowable deductions.