SMT. JASMINDER KAUR,,AMRITSAR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-IV AMRITSAR

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR (SMC) BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER I.T.A. No. 314/Asr/2017 Assessment Year: 2005-06

Jasminder Kaur, vs. The Assistant Commissioner Prop. Narula Nets, of Income Tax Circle-IV, Batala Road, Amritsar Amritsar [PAN: ABSPK 4385K] (Appellant) (Respondent)

Appellant by : Sh. Nimish Nagpal (C.A.) Respondent by: Sh. Charan Dass (D.R.) Date of Hearing: 06.03.2019 Date of Pronouncement: 29.03.2019

ORDER Per Sanjay Arora, AM: This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-2, Amritsar ('CIT(A)' for short) dated 03.03.2017, confirming the levy of penalty imposed u/s. 271(1)(c) of the Income Tax Act, 1961 ('the Act' hereinafter) for the Assessment Year (AY) 2005-06 vide order dated 06.07.2012.

2 ITA No. 314/Asr/2017 (AY 2005-06) Jasminder Kaur v. Asstt. CIT executed on 12.8.2005, was however in the name of her son, Raunaq Singh. A gift deed was executed by the assessee in his favour on 31.3.2006 and, accordingly, the amount debited to the assessee’s capital account on that date. The assessee was, in this view of the matter, considered to have misrepresented the facts during the relevant year, i.e., by reflecting the investment as the fixed asset of her business. The assesee having claimed interest on borrowed funds, interest on the said capital was disallowed u/s. 36(1)(iii), at Rs.87,868/-. The assessee was unsuccessful in appeal up to the Tribunal. In penalty proceedings, commenced after the order by the tribunal, it was held that there was a clear admission on the part of the assessee to disguise the advance (to son) inasmuch as the payment was made for and on his behalf, by showing it as an addition to fixed asset. It was, according to Revenue, a clear case of furnishing inaccurate particular of income, and the decision in CIT vs. Reliance Petro Products Pvt. Ltd. [2010] 322 ITR 158 (SC), relied upon by the assessee, had no application. Penalty was levied in the sum of Rs.27,000/-, and confirmed on the same basis. Aggrieved, the assesee is in second appeal.

3 ITA No. 314/Asr/2017 (AY 2005-06) Jasminder Kaur v. Asstt. CIT Sh. Kanwalpreet Singh, confirming to be an allottee of the said land by PSIEC and, further, of having executed the GPA in favour of the assessee. The assessee’s explanation, as per Sh. Nagpal, had not been accepted for no valid reason. The assessee, whichever way one may look at the matter, has no case, i.e., in principle. To begin with, as also found in the quantum proceedings, the investment in the focal point plot is out of borrowed funds, for which I have examined the assessee’s balance-sheet as on 31.03.2005. Now, even considering that the land was purchased bona fide by the assessee, who later found it as not possible to run two projects, i.e., as stated, and, accordingly, transferred the land to another, the land was admittedly purchased for a different (new) project; the interest cost could, at best, be capitalized, and not regarded as the expenditure of the assessee’s existing (or running) business (refer proviso to s. 36(1)(iii) and Explanation 8 to s. 43(1)). As regard bona fides, it may be clarified that it is not a case of land being allotted to the assessee by PSIEC Ltd., as sought to be conveyed during hearing, which would have lend some credence to her explanation and, thus, case. This is as the assessee would in that case have applied for land, which is itself generally much earlier to the actual allotment, and was accordingly bound to accept the same, though (presumably) the later conditions made it unviable for her to undertake two projects. It is, on the other hand, a case of transfer from one to another, conscious of the fact that a unit had to be set up on the said leasehold plot within a reasonable time, or else the plot may be resumed. The assessee had neither the funds to purchase, being financed by diversion of borrowed capital of her existing business, nor the inclination and capacity to execute and manage two projects (businesses) simultaneously. The assessee, already running a business, engaging her time and resources, thus, would be as apprehensive of acquiring the property on 18.10.2004, as in the following year (12.8.2005), when the registration

4 ITA No. 314/Asr/2017 (AY 2005-06) Jasminder Kaur v. Asstt. CIT of the sale deed was done in the favour of her son, Sh. Raunaq Singh. No change in the circumstances between October, 2004 and August, 2005, has been stated. Why, she did not have sufficient funds to buy the land, deploying borrowed capital for the purpose, much less to set-up an industrial unit? Why, the document executed in her favour in October, 2004, i.e., the GPA along with the affidavit, as admitted, itself prevented the assessee from registering the land in her name, a fact of which she would not but be aware of while making the investment, clearly indicting the assessee’s explanation. Further still, the assessee being short of funds and other resources, including time, yet does not transfer the land to her son for a consideration, but without it. The recoupment of cost from her son by the assessee would not have attracted any additional stamp duty nor any gain in the assessee’s hands. The aspect of it being for a new project, so that the interest expense was not admissible, would in any case obtain. The levy of penalty for furnishing inaccurate particulars of income is, in principle, valid. At the same time, I observe two major inconsistencies in the penalty as levied, also pointed out during the hearing. Firstly, the investment by the assessee is in October, 2004, i.e., midway during the current year, though the interest disallowed is for the full year. The interest disallowed has necessarily to be for the period during the relevant year for which the investment obtains. Two, the assessee has repeatedly, both in the quantum and penalty proceedings, stated that the interest allowed on unsecured loans is at 9% per annum, while the interest disallowed has been worked out @ 12% per annum. The AO is accordingly directed to, after verifying the assessee’s claim as to the rate of interest, modify the penalty, working out the same at the same rate of tax at which it stands levied, i.e., after making adjustment for the two factors afore-stated, i.e., period of investment

5 ITA No. 314/Asr/2017 (AY 2005-06) Jasminder Kaur v. Asstt. CIT and the rate of interest, for which reasonable opportunity of hearing shall be allowed to the assessee. I decide accordingly.