UPPAL MOTORS (P) LTD.,NEW DELHI vs. DCIT, NEW DELHI

Briefly stated, the facts of the case are that the assessee is a company, an authorized dealer of Hero Honda Motorcycles. It raised a housing loan from ICICI Bank during the year whose outstanding balance stood at the end of the year at Rs.90,46,574/-. With this loan, the company purchased a residential flat worth Rs.1,11,16,696/-. On a perusal of the Buyer’s agreement of this flat, the AO observed that the assessee purchased a residential flat which could not be used for commercial purpose. He, therefore, refused to treat such flat as `Fixed asset’ and also made disallowance of interest on loan amounting to Rs.4,87,410/-. Pursuant to this disallowance, penalty was imposed u/s 271(1)(c), which came to be affirmed in the first appeal.

I have heard the rival submissions and perused the relevant material available on record. The disallowance of interest, leading to imposition of penalty, is on account of purchase of flat by the assessee company. A copy of resolution passed by the Board of Directors is available on page 56 of the paper book as per which the flat was purchased for company’s staff. A copy of the Buyer’s agreement is available on page 46 of the paper book which evidences that it was the company who purchased the said flat. I am unable to comprehend as to how any penalty can be imposed or confirmed u/s 271(1)(c) in the given circumstances, when the assessee company purchased a flat for its staff, whose investment was duly reflected in the books of account. There is no bar on a company providing residential accommodation to its employees. When the Buyer’s agreement disclosed the assessee as purchaser of flat which was duly reflected in the books of account of the assessee, in my considered opinion, no penalty could have been imposed u/s 271(1)(c) towards disallowance of interest paid by the assessee company on loan taken for purchasing the flat. I order for the deletion of the penalty.

In the result, the appeal is allowed.