While deleting a penalty order, the Income Tax Appellate Tribunal ( ITAT ), Chandigarh has held that the amount kept in the impress account cannot be treated as ‘business advance’ for the purpose of section 36(1)(iii) of the Income Tax Act.
The Assessing Officer imposed penalty on the appellant on account of addition made to the income of the assessee by way of disallowance of interest of Rs.20,31,600/- under section 36(1)(iii) of the Income Tax Act on the amounts kept in the imprest account holding that the same was for non-business purpose and borrowed funds had been used in the same.
The Tribunal noted that there was no reason for making any disallowance of interest expenses at all in the first place. Admittedly, the disallowance is in relation to amounts kept in imprest account.
According to the Tribunal, the imprest account means the amounts kept aside and kept ready for use for the business of the assessee. It is not in the nature of any advance given to any person. Therefore, it cannot be termed as non-business advance.
“Imprest account implies amounts kept aside for business use only and are as good as amounts kept in banks in saving account and current account. Therefore, when the amount was kept aside for the purpose of business only, clearly no disallowance u/s 36(1)(iii) of the Act was warranted and the assessee, therefore, cannot be said to have concealed or furnished any inaccurate particulars of income by claiming entire interest expenses as its business expenses. Merely because the disallowance made by the A.O. was not challenged before the CIT(A) did not justify the disallowance and neither the levy of penalty on the same. In view of the above, we hold that since the disallowance of interest on which penalty was levied in the present case was against law and, therefore, the assessee could not be charged with having concealed/furnished inaccurate particulars of income so as to levy penalty u/s 271(1)(c) of the Act,” the Tribunal said.
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