N H SECURITIES LTD,MUMBAI vs. ASST CIT CEN CIR 40, MUMBAI

We heard the parties and perused the record. The assessee filed return of income for the year under consideration declaring total loss of ` 17.32 crores. The Assessing Officer made following disallowances:- a) disallowance of shares trading loss : ` 90,87,575/- b) disallowance of interest expenditure : ` 4,80,00,000/- Total : ` 5,70,87,575/- Both disallowances were confirmed by the learned CIT(A) and hence the Assessing Officer has passed the order u/s. 271(1)(c) of the Act levying penalty

Learned AR submitted that the addition relating to share trading loss of ` 90,87,575/- has since been restored back by the Tribunal, vide its order dated 2.8.2013 passed in ITA No. 2784/Mum/2008. Learned AR also furnished a copy of the order passed by the Coordinate Bench in the quantum proceedings.

We heard learned Departmental Representative and perused the record. We noticed that the issue relating to disallowance of ` 90,87,575/- relating to share trading loss has been discussed by the Tribunal in para 3 to 5 of its order and said issue has been restored to the file of the Assessing Officer. Since the addition has been restored back to the learned CIT(A), penalty levied thereon shall not survive. However, the Assessing Officer is at liberty to decide about the penalty, if any, leviable thereon in the set aside proceedings.

Next issue relates to penalty levied on disallowance of interest expenditure of ` 4.80 crores. The assessee claimed interest expenditure of ` 1565.26 lakhs and ` 8.58 lakhs in respect of loans obtained from Madhavpura Mercantile Cooperative Bank Ltd., Centurian Bank Ltd. & Sousa Holdings. The assessee had taken these loans in the earlier years. When the Assessing Officer questioned as to why the interest expenditure should not be disallowed, the assessee submitted that these loans were used for the purpose of business except a sum of ` 30 crores. The interest on the above said sum of ` 30 crores was worked out to ` 4.80 crores and the assessee submitted that the same may be disallowed. Accordingly, the Assessing Officer disallowed a sum of ` 4.80 crores out of interest expenditure claimed by the assessee. The Assessing Officer levied penalty u/s. 271(1)(c) of the Act on the above said disallowance. Since the assessee agreed for this disallowance, it did not prefer an appeal on this issue before the learned CIT(A).

However, in the impugned order passed by the learned CIT(A), the first appellate authority has confirmed the penalty levied thereon on the reasoning that the said addition has been confirmed by him in the quantum proceedings, while the fact remains that the assessee did not contest the above said addition in the appeal filed before him. In this view of the matter, we noticed that the learned CIT(A) has not properly appreciated the facts and accordingly failed to adjudicate the issue relating to levy of penalty on the interest disallowance of ` 4.80 crores. Hence, we are of the view that this issue needs to be restored to the file of the learned CIT(A) for adjudicating the same. Accordingly, we set aside the order passed by the learned CIT(A) on the issue of penalty levied on the interest disallowance, referred above, and restore the same to his file for adjudicating the same afresh after affording adequate opportunity of being heard to the assessee.

In the result, appeal filed by the assessee is treated as allowed for statistical purposes. Order has been pronounced in the Court on 2.6.2017.