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Income Tax Appellate Tribunal, DELHI BENCH “C”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI L.P. SAHU
Assessee has filed the appeal against the Order dated 18.9.2015 passed by the Ld. Commissioner of Income Tax (Appeals)-20, New Delhi pertaining to assessment year 2006-07 on the following grounds:-
“1. That on the facts and in the circumstances of the appellant company the Ld. CIT(A) has erred in both on facts and in law in confirming the action of the Ld. AO in levying penalty u/s. 271(1)(c) in respect of addition made amounting to Rs. 9,84,375/- allegedly on the ground that excessive interest has been paid u/s. 40A(2)(b) of the Act.
The appellant craves leave to add, alter or amend the grounds of appeal at a later stage.
2. The facts in brief are that assessment was completed vide order dated 30.3.2014 passed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred as the Act) at the assessed income of Rs. 5,18,80,460/- as against income of Rs. 5,06,78,170/- after making the addition on account of disallowance of interest paid Rs. 9,84,375/-; disallowance u/s. 14A Rs. 68,530/- and addition of Rs. 40(a)(ia), STTR and capital exp. of Rs. 84,040/-. Simultaneously, penalty u/s. 271(1)(c) of the Act was initiated for concealing / furnishing inaccurate particulars of income. Show cause notice was issued on 29.12.2008 asking the assessee to explain as to why an order imposing a penalty should not be passed. The assessee reply contending therein that an appeal before CIT(A) has been filed challenging the additions, therefore, the penalty proceedings may be kept in abeyance. Accordingly, the Ld. CIT(A) kept the penalty proceedings in abeyance and thereafter has confirmed the addition of disallowance of interest paid to related party and disallowance u/s. 14A and deleted the other addition of Rs. 84,040 made on account of provision of section 40(a)(ia). AO further observed that assessee company made certain claims by way of business expenditure in the return of income but was not able to substantiate these claims. In view of explanation 1 to section 271(1)(c), where in respect of any fact material to the computation of total income, assessee fails to offer any explanation or fails to substantiate any explanation / claim made by him, then the amount added/disallowed in computing the total income shall be deemed to represent the income under Explanation 1 to Section 271(1)(c) of the Act. Therefore, the AO levied the penalty for furnishing inaccurate particulars of its income and imposed a penalty of Rs. 3,53,776/- @100% of the tax sought to be evaded vide order dated 30.3.2014 passed u/s. 271(1)(c) of the Act.
Aggrieved with the penalty order, the assessee preferred an appeal before the Ld. CIT(A), who vide his impugned order 18.9.2015 has partly allowed the appeal of the assessee and confirmed the penalty of Rs. 9,84,375/-.
At the time of hearing, Ld. Authorised Representative of the Assessee, stated that the quantum addition on which the penalty has been imposed, has already been deleted by the ITAT in (AY 2006-07) & ITA No. 85/Del/2012 (AY 2008-09) vide Order dated 18.05.2017. In this behalf he filed the copy of the Tribunal’s Order dated 18.05.2017 in assessee’s own case and he requested that penalty in dispute may be deleted.
On the other hand, Ld. DR relied upon the orders of the authorities below.
We have carefully considered the submissions and perused the records. We find that AO has levied the penalty u/s. 271(1)© of the Act amounting to Rs. 9,84,375/- on the ground of excessive interest has been paid u/s. 40A(2)(b) of the Act. We further note that in assessee’s own case in (AY 2006-07) & ITA No. 85/Del/2012 (AY 2008-09) vide Order dated 18.05.2017, the Tribunal had adjudicated the issues vide para no. 12 to 17 at pages 5 to 7 and deleted the quantum additions in this regard. For the sake of convenience, we are reproducing the relevant portion of the Tribunal order dated 18.5.2017 as under:-
“12. We have perused submissions advanced by both sides in the light of records placed before us.
It is observed that authorities below have compared borrowing rate with the lending rate.
Section 40A(2)(b) of the Act reads as under:-
Section 40(a)2(b): where the assessee incurs any expenditure in respect of which payment has been made to any person referred to in clause B of the section which in the opinion of assessing officer is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business of profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as deduction….”
A plain reading of the section reveals that it
deals with expenditure incurred in respect of all payments made by assessee to any other person.
In the facts of the present case, assessing officer is attempting to disallow interest paid by assessee to another company by holding that rate of interest is excessive in comparison with the rate at which assessee has advanced money to other companies. Such kind of comparison under this section defeats the basic intent of legislature.
It is further observed that assessing officer
has to base his opinion of excessiveness or unreasonableness in regard to fair market value of goods services or facilities for which payment is made. In the present case, assessing officer do not have any materials on record in respect of existing market rate of interest, that would be applicable in similar circumstances that of assessee.
In a nutshell entire onus lies upon assessing
officer to establish that expenses incurred by assessee is excessive. In the facts of present case assessing officer has neither done any exercise nor has brought any material /evidences on record based on which an opinion could be formed for disallowance of expenses incurred by assessee.
In our considered opinion disallowance
made in this manner will not stand test of law.
Accordingly, we allow this ground of appeal raised by assessee.“
6.1 Keeping in view of the facts and circumstances of the case, we find that the additions on which the penalty in dispute was levied, has already been deleted by the ITAT vide order dated 18.5.2017 passed in (AY 2006-07) and ITA No. 85/Del/2012 (AY 2008-09) in assessee’s own case as aforesaid, hence, the penalty in dispute will not survive. Accordingly, we cancel the orders of the authorities below and delete the penalty in dispute by allowing the Appeal filed by the Assessee.
In the result, the appeal filed by the Assessee stands allowed.
Order pronounced in the Open Court on 04/10/2017.