ITO 7(1)(1), MUMBAI vs. NAMAN ESTATE P. LTD, MUMBAI

Per Ashwani Taneja, AM:- These appeals pertain to same assessee involving identical issue for different assessment years filed by the Revenue, therefore these appeals were heard together and being disposed of by this common order, for the sake of convenience.

4. During the course of hearing none appeared before us on behalf of the assessee. Learned DR made arguments on behalf of the Revenue.

5. The solitary issue in this appeal is about levy of penalty u/s 271(1)(c) of the Act. The penalty was levied by the AO on the amount of disallowance made by him u/s 36(1)(iii) of the Act on account of interest expenditure. It has been brought to our notice that similar disallowance was made in assesse’s own case in assessment year 2001-02 and the penalty was also levied upon the same. The matter reached before the tribunal wherein the penalty order was upheld by the Tribunal vide its order passed in I.T.A.No. 863/Mum/2008 by observing as under:- "The question as to when funds are borrowed for the purpose of business and where such borrowed funds are deployed and yields income which does not form part of the total income still disallowance can be made u/s 36(l)(iii) of the Act was debatable issue. In fact a special bench was constituted to decide the question where share traders borrow funds for purpose of business but where the shares purchased yielded dividend income whether the claim for deduction of interest on borrowings can be allowed as deduction u/s 36(I)(iii). The question whether motive for borrowings fund on which interest is paid is relevant or not is still a debatable issue being agitated by the assessee before the Hon'ble High Courts. Besides the above, we find that the assessee in the present case has duly clarified in the Notes to the computation of income the method of computation of interest that can be disallowed u/s 14A of the Act. There has therefore been a complete disclosure of all facts before the assessing officer. The explanation offered by the assessee regarding its claim for interest expenses in our view is bona fide explanation. The assessee has disclosed all facts material for computation of its total income. Even the burden that lays on the assesse under Explanation 1 to section 271(1)(c) in our view has been discharged. On the facts and circumstances of the case we are of the view that learned CIT(A) erred in confirming the order of AO imposing penalty. We are of the view that this is not a fit case for imposing penalty on the assessee.”

6. In the year before us Ld. CIT(A) has rightly considered aforesaid judgment of the Tribunal while deleting the penalty levied in this year, by observing as under:- “3.3 I have duly considered the facts and submissions. It is undisputed that for both these cases disallowances were made u/s 3 6 (1) (iii) as per provisions of section for the reason that assessee had no business activity and then had exempt income in form of dividend. However it is not the case of A.0 that the appellant filed wrong particulars or gave inaccurate particulars or concealed the facts or particulars at all. In a case like this where disallowances were made and upheld also; however there is no case of filing inaccurate/ wrong particulars filed by the appellant and then material facts were duly disclosed, it cannot be said that appellant has concealed or filed wrong particulars and hence provisions of penalty under section. 271(1)(c) are not attracted in such a case. Appellant have further relied upon decision given by Hon’ble ITAT, Mumbai in their own case in ITA

No.863/Mum/08 for A.Y 2001-02 where in on these facts penalty levied u/s 271(1)(c) was deleted. After going through the same and having found that facts are identical in this, I am of the considered view for the disallowance made u/s 36(1)(iii) penalty u/s 271(1)(c) is not attracted. It s also as per the ration of the decision given in the case of Reliance Petro products Ltd.322 ITR 158(SC) and hence penalty levied for both the A.Ys being not sustainable are deleted herewith. The ground taken in both these appeals bearing number 212/13-14 are allowed”.