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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL
Date of Hearing – 07.03.2019 Date of Order – 15.05.2019
O R D E R PER SAKTIJIT DEY. J.M.
The aforesaid appeal has been filed by the assessee challenging the order dated 5th June 2017, passed by the learned Commissioner (Appeals)–37, Mumbai, for the assessment year 2008–09.
There is a delay of 44 days in filing the present appeal. The assessee has filed an application seeking condonation of delay
2 Hemlabh Developers supported by Affidavit. The assessee has also filed a medical certificate in support of its claim that the partner of the firm was suffering from disease and undergoing treatment which prevented it from filing the appeal in time. After considering the submissions of the parties, we are of the view that the delay in filing the appeal is due to reasonable cause. Accordingly, we condone the delay and admit the appeal for adjudication on merit.
Brief facts are, the assessee, a partnership firm, is engaged in the business of builders and developers. For the assessment year under dispute, the assessee filed its return of income on 29th September 2008 declaring total income of ` 58,93,845. In the course of assessment proceedings, the Assessing Officer noticed that the assessee had debited an amount of ` 23,70,477, towards interest paid to the partners @15% on their share capital. He observed, as per the provision contained under section 40(b) of the Income Tax Act, 1961 (for short "the Act"), the interest payable to the partners on their share capital cannot exceed the rate of 12%. Accordingly, excess interest paid amounting to ` 4,74,095, was disallowed. Further, the Assessing Officer added back the amount of ` 16,36,338, on account of interest received on fixed deposit and interest received from other parties. Against the aforesaid additions, the assessee preferred appeal before learned Commissioner (Appeals) and thereafter before the 3 Hemlabh Developers Tribunal. During the pendency of assessee’s appeal before the Tribunal, the Assessing Officer issued a show cause notice for imposition of penalty under section 271(1)(c) of the Act on the couple of additions made by him and ultimately passed an order on 18th March 2013, imposing penalty of ` 6,52,124, under section 271(1)(c) of the Act alleging furnishing of inaccurate particulars of income by the assessee. Against the aforesaid penalty order, the assessee preferred appeal before the first appellate authority.
In the course of hearing of appeal, learned Commissioner (Appeals) found that the addition of interest income of ` 16,36,338, was deleted by the Tribunal while deciding assessee’s appeal in ITA no.5605/Mum./2011, dated 30th April 2013. Accordingly, he deleted the penalty imposed under section 271(1)(c) of the Act on the aforesaid addition. However, he confirmed the penalty imposed under section 271(1)(c) of the Act with regard to the addition made of ` 4,74,095.
The learned Authorised Representative submitted, the claim of deduction on account of interest payment to partners @ 15% was due to a bona fide mistake. She submitted, in other assessment years the assessee had claimed deduction on account of payment of interest to partners as per the statutory provisions. She submitted, all the facts
4 Hemlabh Developers relating to interest payment were submitted before the Assessing Officer and nothing was suppressed. Therefore, the assessee cannot be accused of furnishing inaccurate particulars of income. Further, she submitted, while initiating penalty proceedings in the assessment order, the Assessing Officer has not recorded any satisfaction with regard to the offence committed by the assessee. Thus, she submitted, the penalty imposed should be deleted.
The learned Departmental Representative relied upon the observations of the Assessing Officer and learned Commissioner (Appeals).
We have considered rival submissions and perused the material on record. As could be seen, while completing the assessment the Assessing Officer had made a couple of additions on the basis of which penalty under section 271(1)(c) of the Act was imposed. However, while deciding the quantum appeal of the assessee, the Tribunal has deleted the major addition amounting to ` 16,36,338. Therefore, the only addition on which penalty under section 271(1)(c) of the Act survives is ` 4,74,095. Undisputedly, in the assessment order, while initiating penalty proceedings under section 271(1)(c) of the Act in respect of the aforesaid addition, the Assessing Officer has not recorded any satisfaction with regard to the exact offence committed
5 Hemlabh Developers by the assessee requiring imposition of penalty under section 271(1)(c) of the Act. The Assessing Officer has simply mentioned “initiate penalty u/s 271(1)(c)”. He has not stated whether initiation of penalty proceeding is for furnishing of inaccurate particulars of income or for concealment of income or for both. Only in the penalty order passed under section 271(1)(c) of the Act, he has stated that penalty is imposed for furnishing inaccurate particulars of income. Therefore, it is apparent, while initiating proceedings under section 271(1)(c) of the Act in the assessment order, the Assessing Officer has failed to record any satisfaction with regard to the nature of offence committed by the assessee requiring imposition of penalty under section 271(1)(c) of the Act. For this reason alone, the order imposing penalty under section 271(1)(c) of the Act is unsustainable.
Be that as it may, it is seen that the disputed addition on the basis of which penalty has been imposed is on account of deduction claimed towards interest paid to partners @ 15% as against the admissible rate of interest of 12%. Thus, the addition made is on account of differential interest amounting to 3%. In this regard, the contention of the assessee is that the claim of deduction of interest payment @ 15% is a bona fide error since in no other assessment year the assessee has claimed such deduction at a higher rate. We find the aforesaid explanation of the assessee plausible. Moreover, full
6 Hemlabh Developers particulars regarding the payment of interest were available with the Assessing Officer. It is also not the case of the Assessing Officer that interest payment to partners is inadmissible. In the aforesaid view of the matter, we hold that the assessee cannot be accused of furnishing inaccurate particulars of income so as to attract the provisions of section 271(1)(c) of the Act. Accordingly, we delete the penalty imposed under section 271(1)(c) of the Act with regard to the addition of ` 4,74,095.
In view of our decision herein above, grounds no.2 and 3, are allowed and the issue raised in ground no.1 being of mere academic importance, does not require adjudication.
In the result, appeal is partly allowed. Order pronounced in the open Court on 15.05.2019