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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
आदेश / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM: This appeal of assessee is arising out of the order of the Commissioner of Income Tax (Appeals)]-22, Mumbai [in short CIT(A)] in appeal No. CIT(A)22/IT/420/2015-16, dated 07-12-2017. The Assessment was framed by the Income Tax Officer, Ward 10(2)(1), Mumbai (in short ITO/ AO) for the A.Y. 2008-09 vide order dated 31.12.2010, under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’). The Penalty was levied by the Income Tax Officer, 14(2)(1), Mumbai (in short ITO/ AO) for the A.Y. 2008-09 vide order dated 31-07-2015, under section 271(1)(c) r.w. s 274 of the Income-tax Act, 1961 (hereinafter ‘the Act’).
2. The only issue in this appeal of assessee is against the order of the CIT(A) confirming the levy of penalty imposed u/s. 271(1)( c) r.w. s 274 of the Act on disallowance of interest expenditure of Rs. 15,28,767/-. For this, the Assessee has raised following effective grounds: -
“1. The learned Commissioner of income Tax (Appeals) erred in confirming the levy of penalty of ₹ 4,58,630/- under section 271(1)(c) of the Act.
The learned Commissioner of Income Tax (Appeals) erred in confirming the levy of penalty under section 271(1)(c) of the Act, even though the Assessing Officer has not indicated in his notice issued under section 274 read with section 271(1)(c) of the Act, whether the penalty had been initiated for concealment of income or for furnishing inaccurate particulars.
3. The leaned Commissioner of Income Tax (Appeals) erred in upholding the levy of penalty under section 271(1)(c) of the Act, without considering the fact that the notice under section 274 read with section 271(1)(c) was issued in a mechanical manner and therefore the penalty order passed under section 271(1)(c) is not sustainable in the eyes of law.
4. Without prejudice to ground nos. 1 to 3, the learned Commissioner of Income Tax (Appeals) erred in confirming the levy of penalty under section 271(1)(c) of the Act, even though there was no concealment or furnishing of inaccurate particulars by the Appellant Company.
5. Without prejudice to ground nos. 1 to 4, the learned Commissioner of Income Tax (Appeals) erred in confirming the levy of penalty of Rs.4,58,630/- on the entire amount of disallowance by rejecting the calculation of tax sought to be evaded as submitted by the Appellant Company.”
Brief facts are that the assessee has claimed interest expenses of Rs.15,28,767/-, but the Assessing Officer observed that the subject interest expenses were related to the loan funds utilized for making investments in shares and earning of exempt income. Hence, interest expenses were disallowed by the Assessing Officer u/s. 36(1)(iii) of the Act, 1961. The CIT(A) also dismissed the appeal of assessee and further second appeal filed by the assessee before the ITAT was also dismissed.
Before the Assessing Officer during the penalty proceedings and before the CIT(A) and even before us the assessee claimed expenditure on interest was allowable under section 36(1)(iii) of the Act and assessee was under bonafide belief for this claim. The ld. Ld. Counsel for the assessee stated that in any case no doubt the quantum has been affirmed, but the Assessing Officer has made certain adjustments while computing the total income merely due to difference in opinion on the interpretation of certain provisions of the Act .The Ld. Counsel for the assessee claimed that this adjustment cannot be the subject matter of the penalty proceedings because entire details were disclosed during the course of assessment proceedings or in the return of income. The Ld. Counsel for the assessee stated that this claim at the behest cannot be called wrong claim and not the case of furnishing to inaccurate particulars of income as alleged by the Assessing Officer and affirmed by the CIT(A).
On the other hand, the ld. Sr. DR has heavily relied on the orders of the Assessing Officer/ CIT(A).
In reply, the Ld. Counsel for the assessee also made another submissions even assuming for not conceding that a penalty to be levied, it should be levied on the amount of expenditure of Rs.87,592/- and not the entire expenditure of Rs.15,28,767/- as claimed by the assessee. For this, he filed a calculation of penalty u/s. 271(1)( c) r.w. s 274 of the Act .
We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the assessee company has borrowed funds from one of its directors for its business activities and claimed interest expenditure amounting to Rs.15,28,676/- in the return of income under the provisions of section 36(1)(iii) of the Act. We noted that the assessee company has invested in certain shares of the group company Trent Limited with a view to building long term business prospects for the group as the group company is engaged in the business of advertising and the investee company is engaged in retail sector. The assessee filed complete details and on perusal of share capital and reserves and surplus in its balance sheet as on 31-03-2008, the same amounting to Rs.4,91,17,182/- and share capital amounting to Rs.40,50,600/-. It was claimed that assessee’s own funds of the company aggregating to Rs.5,31,67,782/-. The investment held by the company on which tax free dividend income could possibly receive at the end of the year aggregating to Rs.3,97,02,807/- and is far lower as compared to the capital employed of Rs.5,31,67,782/-. In any case, the assessee has declared all the facts relating to claim of interest expenditure i.e. loan taken from its director. Although, these were invested in shares of Trent Ltd., out of the common pool of the company’s funds, which were mixed funds as well as borrowed funds. We find that the assessee has filed complete particulars of income before the Assessing Officer in the return of income and its audited accounts. For this, the assessee has already placed a reliance on the decision of the Hon’ble Supreme Court in the case of CIT Vs. Reliance Petro- products Ltd reported in 322 ITR 158, wherein it was held that merely because a claim was not accepted by the Assessing Officer, that cannot itself lead to the levy of penalty. The ld. Ld. Counsel for the assessee drew our attention to the following para of the said decision of Hon’ble Supreme Court, which reads as under: -
“It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely ( or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particular s one one’s income as well as furnishing of inaccurate particulars of income.
We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1) ( c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)( c ). That is clearly not the intendment of the Legislature.”
First of all, we are of the view that the assessee has filed complete particulars of income in respect of claim of expenditure and it is not the case of non-disclosure. Further, the assessee filed explanation before the Assessing Officer as well as before the CIT(A). During penalty proceedings the assessee had made investments during the year in shares of Trent Ltd. which is engaged in the business of advertising and the investee company Is engaged in the retail sector with a view to building long term business prospects for the group company, Trent Limited. Even the investments in shares were made out of mixed funds as well as borrowed funds. Hence in our view the explanation seems to be bonafide and assessee is not exigible to levy of penalty u/s. 271(1) (c)