SHEETAL RESTAURANT & BAR,MUMBAI vs. ITO WD 19(1)(2), MUMBAI

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ITA 7511/MUM/2012Status: DisposedITAT Mumbai31 January 2018AY 2008-094 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that since the addition of interest income was made on a notional basis without proof of actual receipt, the assessee cannot be said to have concealed income. Therefore, the penalty under Section 271(1)(c) cannot be imposed.

What were the facts?

The assessee claimed interest deduction on loans taken but advanced interest-free loans to private parties. The Assessing Officer added notional interest income and imposed a penalty under Section 271(1)(c). The Commissioner (Appeals) confirmed the penalty.

What were the issues?

Whether penalty under Section 271(1)(c) can be imposed based on notional interest income addition without proof of actual receipt.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “E” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY & SHRI G. MANJUNATHA

For Respondent: Shri V. Justin

This is an appeal by the assessee against order dated 3rd September 2012, passed by the learned Commissioner (Appeals)–30, Mumbai, confirming penalty imposed of ` 2,00,587 under section 271(1)(c) of the Income Tax Act, 1961 (for short “the Act”).

2.

Brief facts are, the assessee a partnership firm filed its return of income for the impugned assessment year on 30th September 2008,

2 M/s. Sheetal Restaurant & Bar declaring total income of ` 1,49,270. During the assessment proceedings, the Assessing Officer while examining the financial statements of the assessee found that, though, the assessee has taken secured and unsecured loan of ` 88,99,582 and claimed interest payment on such loan, however, it has shown loans and advances of ` 1,00,58,022 to private parties without charging any interest. He, therefore, called upon the assessee to explain why deduction claimed on account of interest expenditure should not be disallowed. The Assessing Officer observed that the assessee has claimed interest payment of ` 5,74,382 on total loan taken of ` 88,99,582 from bank and others. He was of the view that the bank and other parties must have charged interest at the average rate of 6.454%. By applying the same rate to interest free loans and advances given by the assessee to private parties, the Assessing Officer worked out the interest at ` 6,49,148 and added back to the income of the assessee. On the basis of addition so made, the Assessing Officer initiated proceedings for imposition of penalty under section 271(1)(c) of the Act and ultimately passed an order imposing penalty of ` 2,00,587 alleging concealment of income.

3.

Though, the assessee challenged the order passed imposing penalty before the first appellate authority, however, the learned

3 M/s. Sheetal Restaurant & Bar Commissioner (Appeals) confirmed the penalty imposed by the Assessing Officer.

4.

When the appeal was called for hearing no one was present for the assessee. On a perusal of record, it is noticed that on earlier occasions also, none appeared on behalf of the assessee. In view of the above, we proceed to dispose off the appeal ex parte qua the assessee after hearing the learned Departmental Representative.

5.

Heard the learned Departmental Representative and perused material on record. As could be seen from the facts on record, the Assessing Officer added ` 6,49,148 on notional basis taking note of the fact that the assessee while claiming deduction of interest expenditure on loan taken has advanced loan to private parties without charging interest. No material has been brought on record by the Assessing Officer to demonstrate that the assessee has actually received interest on the interest free loan advanced to private parties. Therefore, when the addition of interest income was made on notional basis without establishing the fact that the assessee has actually received any interest income on the interest free loan advanced, it cannot be said that the assessee has concealed the interest income. Therefore, in our view, on the basis of addition made on account of notional interest,

4 M/s. Sheetal Restaurant & Bar penalty under section 271(1)(c) of the Act cannot be imposed. Accordingly, we delete the penalty imposed of ` 2,00,587.

6.

In the result, assessee’s appeal is allowed. Order pronounced in the open Court on 31.01.2018

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