SHRI JIGNESH JAYANTILAL SHAH,,BHAVNAGAR vs. THE DY. CIT, CIRCLE-1,, BHAVNAGAR

आदेश / O R D E R

PER WASEEM AHMED, ACCOUNTANT MEMBER:

The learned CIT(A)-6, Ahmedabad has erred in law and on facts in –

Jignesh Jayantilal Shah vs. DCIT Asst.Year - 2013-14 - 2 -

2. Confirming the action of the AO in levying penalty of Rs.3,50,025/- under section 271(1)(c) even though the penalty order is served after the limitation period prescribed under section 275 of the Act. 3. Confirming the action of the AO in levying penalty of Rs.3,50,025/- under section 271(1)(c) by misinterpreting true sense of judgement delivered by the Hon’ble Apex Court in the case of Reliance Petroproducts. The assessee craves leave to add, amend, delete or alter one or more grounds of appeal.

2. The aforesaid appeal has been filled by the assessee against the confirmation of penalty u/s 271(1)(c) by the Learned CIT (A).

3. Briefly stated fact is that, the assessee is an individual and earning income under the head salary & house property. The assessee during the year under consideration i.e. A.Y. 2013-14, has acquired immovable property which was converted into stock in trade in next A.Y i.e. A.Y. 2014-15. For the purpose of acquiring such property the assessee taken unsecured loan and paid interest of Rs. 11,31,987/- which was claimed as deduction u/s 57 of the Act. Subsequently the AO disallowed the same by holding the impugned interest expenditure as capital in nature. Accordingly, the AO initiated the penalty proceedings under section 271(1)(c) on account of such addition and further issued notice under section 274 r.w.s 271(1)(c) dated 29-03-2016 and subsequent & final notice dated 08-08-2016 was issued upon the assessee. But the assessee failed to offer any explanation or submission.

3.1. Therefore, the AO in absence of any reply from assessee, held that if any particular of the return found to be inaccurate or false which has an impact on the total income is subject to penalty u/s 271(1)(c) of the Act. In Jignesh Jayantilal Shah vs. DCIT Asst.Year - 2013-14 - 3 - this regard the AO relied upon various case laws, the AO especially emphasize on the decision of Hon’ble Supreme Court in case of Dharmendra Textiles Processors 306 ITR 277 where it was held that “ penalty u/s 271(1)(c) is ‘civil liability’ and ‘means era’ need not to be proved for the levy of penalty. Mere establishing of inaccuracy in particulars of income would be adequate for attracting ‘civil liability’ of penalty.”

3.2 The AO further observed that the books of accounts of the assessee were subject to regular audit. Hence it is not possible that that the Auditor has not brought the fact to the notice of the assessee. But still assessee takes a chance to claim a capital expenditure as revenue expenditure u/s 57 of the Act.

3.3. The AO also observed that assessee did not file any appeal against the assessment order and also not furnished any explanation with respect to proceedings u/s 271(1)(c) of the Act. Accordingly the AO levied penalty of Rs. 3,50,025/- being 100% of tax evaded on Rs. 11,3 31,987/- for furnishing inaccurate particulars of income.

Being aggrieved by the order of the AO the assessee preferred an appeal before learned CIT (A).

4.1. The assessee also submitted that the penalty order was served beyond the time limit prescribed under the provision of section 275 of the Act.

4.2. The assessee further submitted that the AO has failed to understand that the assessment proceedings and penalty proceedings are different and finding of assessment proceeding is irrelevant unless other corroborative evidence brought in order to prove concealment of income or furnishing inaccurate particulars of income. The assessee in this regard relied upon the decision of Hon’ble Supreme Court in case of CIT vs. Reliance Petroproducts (2010) 189 taxman 322.

4.3. However, the learned CIT (A) after considering the submission of the assessee and the AO finding observed as under: (i) From the submission of the assessee before the AO during assessment proceeding, it clear that the he was known to the wrong claim made in the return and on question from authority he shifted the burden of wrong claim on consultant.

(ii) The assessee did not submit any documentary evidence in support of his claim that the notice of penalty proceeding issued without any specification. However the AO in penalty order clearly mentioned that the penalty has been levied for furnishing inaccurate particular of income. (iii) The assessee has deliberately attempt to claim capital expenditure as revenue. It is very much in the knowledge of the assessee that interest expenses incurred with respect to acquiring capital asset is capital in nature.

Jignesh Jayantilal Shah vs. DCIT Asst.Year - 2013-14 - 5 -

(iv) The assessee did not make any explanation before AO as required under explanation 1 to section 271(1)(c) of the Act. Therefore for in absence of any explanation the AO has rightly levied penalty.

4.4. In view of the above, the learned CIT(A) confirmed the penalty order of the AO.

Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us.

7.1. Admittedly, the assessee has made disclosure of all the particulars of interest expenses charged against the income in the profit and loss account. Now the question arises before us to adjudicate whether the wrong claim of interest expense amounts to concealment or furnishing inaccurate particulars of income in the given facts and circumstances.

7.2. In this regard, we note that the assessee instead of capitalizing the interest expense, has claimed deduction as revenue expense. Thus, in our considered view, the claim was made under the wrong head of income which was not false. Accordingly, we conclude that the assessee has made a wrong claim, but that does not mean that the assessee has furnished inaccurate particulars of income. In this regard, we find support and guidance from the judgment of Reliance Petro Product Pvt. Ltd. (supra) wherein, it was held as under:

“The word 'particulars' must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c). A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars.”

Jignesh Jayantilal Shah vs. DCIT Asst.Year - 2013-14 - 7 - 7.3. We also find support and guidance from the decision of coordinate bench of this ITAT in case of Dholu Construction & Projects Ltd. reported in 17 taxmann.com 176. Where it was held as under; “Merely because the claim made by the assessee is not found acceptable cannot lead to the interference that claim was rather false or particulars furnished in support of the claim were inaccurate. Non-acceptance of the claim is different from false claim or inaccurate particulars having been filed in support of the claim. The case of the Assessing Officer and the Commissioner (Appeals) does not fall in the main proviso of section 271(1)(c) as there is no evidence to this effect. Whatever finding is given about furnishing inaccurate particulars is not in accordance with the law. [Para 9] 7.4. From the above, it is transpired that a wrong claim by the assessee cannot be equated with inaccurate particular of income. As such the assessee has actually incurred the amount of interest expenses for the purchase of the land /property which was to be capitalized but he wrongly claimed the deduction under section 57 of the Act. It is also pertinent to note that the assessee has claimed total interest expenses amounting to ₹13,65,484/- against the income under the head other sources. As such the claim of the assessee was accepted by the AO for an amount of Rs. 2,33,497/- out of the total claim of Rs. 1365484/- only. Accordingly the balance amount of ₹11,31,987 was disallowed by the AO. This fact can be verified from the statement of income filed by the assessee and the relevant extract is reproduced as under: “INCOME FROM OTHER SOURCES 28524 BANK INTEREST 17982 OTHER INCOME 35229 INTEREST ON BANK FDR 233497 INTEREST FROM OTHER PARTIES -1365484 -1131987 LESS: EXPENSES TOTAL -1050252”

7.5. Thus, from the above, we note that part of the claim of the assessee was admitted by the revenue and part of the claim of the assessee was denied by the revenue as discussed above. Accordingly, we hold that part of Jignesh Jayantilal Shah vs. DCIT Asst.Year - 2013-14 - 8 - the expenses disallowed by the AO represents the inaccurate claim by the assessee which cannot be equated with the inaccurate particulars of income. Accordingly, we are of the view that there cannot be any penalty under the provisions of section 271(1)(c) of the Act in the given facts and circumstances. Hence, the order of the learned CIT (A) is set aside and we further direct the AO to delete the addition made by him. Thus, the ground of appeal of the assessee is allowed.