M/S. LIFETIME REALTY PVT. LTD,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-10(2)(1), MUMBAI, MUMBAI

The registry informed that the assessee filed an appeal with a delay of 3264 days. The Ld. AR submitted the petition for seeking the condonation of delay and along with the notarized affidavit duly sworn by the Director of the assessee-company, Shri Sheel Dhar Pandya, on dated 02.05.2026. The relevant part of the statement in affidavit is reproduced as below: “1) That, the appellant above named had filed an appeal before Learned CIT(A) being aggrieved by the Penalty order passed u/s.271(1)(c) of the Income Tax Act 1961 by the Assistant Commissioner of Income Tax, Company Circle-10(2)(1), Mumbai, relevant to the assessment year 2012-13. The Hon'ble CIT(A), vide order dated 30.03.2017 partly allowed the appeal of the appellant.

The Ld. DR argued and made the objection on the inordinate delay for filing appeal of the assessee.

We have heard the rival submissions and carefully considered the petition for condonation of delay along with the notarized affidavit sworn by the Director of the assessee-company, Shri Sheel Dhar Pandya, on 02.05.2026. The Registry has reported a delay of 3264 days in filing the present appeal. The assessee has explained that there was no substantial business activity in the company and there was no regular staff available to look after its tax matters. It has further been explained that the order of the Ld. CIT(A) did not reach the management of the assessee-company and that the Director responsible for handling the tax matters was suffering from serious health issues and had undergone heart surgery. The other Director had also resigned. According to the assessee, the matter came to its attention upon receipt of a notice relating to prosecution proceedings, whereupon legal advice was obtained and the present appeal was filed.

The Ld. DR objected to the condonation primarily considering the extraordinary length of the delay. However, the Ld. DR was unable to point out any specific lacuna or material contradiction in the explanation furnished by the assessee in the affidavit, nor was any material brought before us to controvert the facts stated therein.

It is settled that while considering an application for condonation of delay, the length of the delay is not, by itself, conclusive and what is required to be examined is whether sufficient cause has been demonstrated for the delay. The Hon'ble Supreme Court in Collector, Land Acquisition, Anantnag & Anr. v. Mst. Katiji & Ors. [1987] 167 ITR 471 (SC) has emphasized that the expression “sufficient cause” should receive a liberal construction so as to advance substantial justice. At the same time, the explanation for the delay has to be considered on the facts and circumstances of each case.

Considering the explanation supported by the affidavit, the circumstances stated therein, and the fact that no specific infirmity in such explanation has been demonstrated before us by the Revenue, we are satisfied that sufficient cause has been shown for not filing the appeal within the prescribed period. Accordingly, in the interest of substantial justice, the delay of 3264 days, as reported by the Registry, is condoned and the appeal is admitted for adjudication on merits.

The brief facts of the case are that the assessee was engaged in the business of buying and selling properties. The return was filed by declaring total income, Rs. 1,02,34,440/-. The assessee's case was selected for scrutiny and finally the assessment was completed u/s. 143(3) with the following additions: a. Disallowance of interest expenditure u/s. 36(1)(iii) of Rs. 1,02,79,039/-; b. Disallowance u/s. 14A amounting to Rs. 91,365/-; c. Addition on account of unexplained cash credit u/s. 68 amounting to Rs. 21,90,000/-; d. Disallowance of depreciation on motor car amounting to Rs. 12,19,579/-; e. Disallowance of depreciation of computer Rs. 3,758/-; f. Disallowance of donation, Rs. 25,000/-.

After the assessment order u/s. 143(3), the Ld. AO had initiated proceedings u/s. 271(1)(c) of the Act and the notice was duly issued u/s. 274 of the Act. Finally, the penalty order was framed and the penalty was levied amounting to Rs. 40,45,580/- only on three additions. The aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) had adjudicated the penalty related to the three additions i.e. disallowance of interest expenditure, addition on account of unexplained cash credit and disallowance of depreciation on motor car. After due consideration of the assessee's submission, the Ld. CIT(A) had considered that the penalty on disallowance of depreciation on motor car should not to be levied. So accordingly, the additions on account of disallowance u/s. 36(1)(iii) and the unexplained cash credit u/s. 68, in both the additions are liable for penalty. Accordingly, the appeal of the assessee was partly allowed. Being aggrieved, the assessee filed an appeal before us by challenging the order of the Ld. CIT(A).

The Ld. AR argued and filed a paper book comprising pages 1 to 42. The Ld. AR contended that the assessee had not challenged the quantum against the order u/s. 143(3) of the Act. So, the quantum appeal was never challenged in any higher judicial forum. But the assessee has contested the penalty for impugned assessment year. The Ld. AR had advanced his argument in two folds related to the two additions confirmed by the Ld. AO, which are as follows: The Addition On Account of Section 36(1)(iii). The Ld. AR invited our attention in the balance sheet, page number 8 of the APB which is reproduced as below:-

On perusal of the said Balance sheet of the assessee we find that the assessee has a sufficient capital balance amount to Rs. 11,55,39,551/-. From this free fund the assessee had made the advance to the subsidiaries amount to Rs. 8,56,58,662/-. From the said balance sheet it is contemplated that the assessee had sufficient fund to advance to the subsidiaries. On the other hand, the assessee had taken the short-term borrowings amounting to Rs. 32,41,93,185/-, and cash and bank balance was Rs. 32,16,68,856/-.

The Ld. AR respectfully relied on the orders of Hon'ble Bombay High Court in the case of PCIT versus Shapoorji Pallonji Company Limited, reported at (2020) 117 taxmann.com 625 (Bom), where both the interest-free and interest-bearing funds were available with the assessee. It is to be presumed that the investment was brought out of interest-free funds.

The Ld. AR further respectfully relied on the order of Hon'ble Supreme Court in the case of CIT versus Reliance Industries Limited, reported in (2019) 410 ITR 466 (SC), held that where the assessing officer rejected assessee's claim u/s. 36(1)(iii), taking view that interest would not have been payable to banks if funds were not provided to subsidiaries, in view of the fact that the interest-free funds were available to the assessee, which were sufficient to make its investment in subsidiaries, the appellate authorities were justified in allowing assessee's claim for deduction.

The Ld. AR contended that the entire interest added by the Ld. AO is entirely from wrong assumption that the assessee had mobilized the borrowed fund to advance the subsidiaries. The assessee had sufficient capital which is an interest-free fund, and the assessee had advanced the subsidiaries out of his interest-free fund. So the addition cannot be sustained u/s. 36(1)(iii) of the Act. So, the penalty should be deleted.

The Ld. DR argued and relied on the order of revenue authorities. The Ld. DR contended that the Ld. CIT(A) had duly adjudicated the issue & part relief was granted to assessee. But the quantum appeal was never challenged by the assessee in any of the authority. So, the additions were confirmed and duly sustained. So the penalty will be in any case be levied to the assessee on sustaining additions. The Ld. DR relied on the order of Ld. CIT(A). The relevant para numbers 7.1 and 7.2 are reproduced as below: “7.1 Penalty of disallowance of Section 36(1)(iii) of the Act:- The penalty has been levied on the issue of furnishing of inaccurate particulars leading to disallowance of interest u/s. 36(1)(iii) of the Act. Under the facts and circumstances of the assessee's case, Explanation 1 to Section 271(1)(c) of the Act is automatically attracted. The Explanation 1 to Section 271(1)(c) creates a deeming fiction of concealment of income under specified conditions. The cursory look at the mandate of this Explanation transpires that the following elements must be present in order to bring a case within the charge of concealment. a) A person fails to offer an explanation or b) He offers the explanations which is found by the concerned authority to be false, or c) The person offers the explanation, which he is not able to substantiate and further fails to prove that such explanation is valid and that all the facts relating to the same have been disclosed by him. If the facts of the case fall in any of the three category, then deeming provision is activated. In this case the appellant company has not filed any explanation before the AO during the penalty proceedings. During this appellate proceeding certain sketchy submissions have been filed but that too are not substantiated. The concocted story of destruction of books of accounts and computerized data are false and thus the explanation filed in support of interest and cash deposit are not bonafide. The relevant facts are not fully disclosed in the return of income. Thus, under the deeming provisions of Section 271(1)(c) of the Act, penalty imposed by the AO on the issue is disallowance of interest u/s. 36(1)(iii) of the Act is confirmed and a ground raised by the appellant on this issue is dismissed. 7.2 Penalty imposed on unexplained cash credit u/s. 68 of the Act:- This is a classical case where cash has been deposited and no explanation has been filed neither during the course of assessment proceedings nor during the course of penalty proceedings. A bald statement, that the cash deposits have been made out of cash withdrawn from the bank accounts of the appellant company, has been made during the appellate proceedings. Again this is without any corroborative evidence or re-conciliation. Thus, considering all the facts in totality, it is held that the AO is justified in imposing penalty on the issue of unexplained cash deposit. The order of the AO on the issue is confirmed and a ground of the appellant is dismissed.”

We have heard the rival submissions and carefully considered the documents available on record. The penalty which survives for our consideration relates to the disallowance of interest expenditure under section 36(1)(iii) and the addition of unexplained cash credit under section 68 of the Act. The Ld. DR has principally contended that since the assessee did not challenge the quantum additions and the same attained finality, the consequential penalty under section 271(1)(c) is liable to be sustained. We are unable to accept this proposition. The assessment proceedings and penalty proceedings are distinct, and mere acceptance or non-challenge of an addition in quantum proceedings, by itself, cannot automatically establish concealment of income or furnishing of inaccurate particulars for the purpose of section 271(1)(c) of the Act.

As regards the disallowance under section 36(1)(iii), we have specifically examined the Balance Sheet placed at page 8 of the APB. The Balance Sheet reflects capital/free funds of Rs.11,55,39,551/-, whereas the advances made to the subsidiaries were Rs.8,56,58,662/-. It further reflects short-term borrowings of Rs.32,41,93,185/- and cash and bank balances of Rs.32,16,68,856/-. Thus, the financial statements themselves disclose the availability of interest-free funds substantially exceeding the advances made to the subsidiaries. The assessee's claim, therefore, cannot be characterised as a claim made without any factual foundation or as furnishing of inaccurate particulars merely because the Ld. AO made a disallowance under section 36(1)(iii).

The Ld. AR has also relied upon PCIT v. Shapoorji Pallonji & Co. Ltd. (supra) and Reliance Industries Ltd.(supra) for the proposition concerning availability of sufficient interest-free funds. The authorities and propositions relied upon are recorded in the draft order. In the penalty proceedings, the relevant consideration is whether the assessee concealed any material particulars or furnished particulars which were factually inaccurate. Here, the Balance Sheet itself contained the relevant financial position. Therefore, even though the quantum disallowance was not challenged by the assessee, that circumstance, standing alone, does not convert the claim into furnishing of inaccurate particulars warranting penalty under section 271(1)(c).

With regard to the addition under section 68, the Revenue's case is that cash deposits aggregating to Rs.21,90,000/- remained unexplained and that the assessee had not furnished an explanation during the assessment or penalty proceedings. The Ld. CIT(A) proceeded on the premise that the assessee's explanation regarding withdrawal and redeposit from its own bank accounts was a bald statement unsupported by reconciliation. However, for the purpose of penalty, confirmation of an addition by itself is not conclusive. The Revenue must establish the statutory ingredients of section 271(1)(c). The appellate order itself records the governing principle that where the particulars furnished are not demonstrated to be incorrect, erroneous or false, a mere claim which is not sustainable in law does not, by itself, amount to furnishing inaccurate particulars.

Accordingly, the contention of the Ld. DR that the penalty must necessarily survive merely because the assessee did not challenge the quantum additions cannot be accepted. On consideration of the Balance Sheet, the explanation furnished by the assessee and the material placed on record, we find that the circumstances do not justify sustaining the penalty under section 271(1)(c) merely on the basis of the additions made in the assessment. We, therefore, set aside the impugned order of the Ld. CIT(A) to the extent it sustains the penalty on the disallowance under section 36(1)(iii) and the addition under section 68 and direct the Ld. AO to delete the penalty amount to Rs. 40,45,680/-.

In the result, the appeal of the assessee bearing ITA No. 5547/Mum/2026 is allowed. Order pronounced in the open court on 15th day of September 2026.