SMT. GAYATHRI BALASUBRAMANIAM,CHENNAI vs. ACIT, CHENNAI

आदेश / O R D E R

PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER

1.0 This is an appeal filed by the assessee against the order dated 21.09.2016 of Commissioner of Income Tax (Appeals)-2, Chennai, in ITA No.157/CIT(A)-2/2015-16 for Assessment Year 2015-16 passed u/s.143(3) of the IT Act, 1961.

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2.0 The assessee filed return of income admitting total income of

Rs.NIL on 29.09.2012. The case was selected for scrutiny and during the

course of assessment proceedings, the AO found that the assessee has

admitted rental income of Rs.54,74,833/- from two house properties.

One of the properties is commercial space situated in Spencer Plaza, let

out to Music world, Nestle and Aircel. The total rent received was

Rs.5234891/- and the assessee claimed deduction of Rs.33,15,105/-

towards interest paid u/s.24(b) of the Act. The A.O asked the evidence

for the loan taken or the purpose of acquiring the asset and payment of

interest thereon. The assessee could not furnish evidence before the AO

to substantiate that the loans were taken for the purpose of acquiring

assets and used for acquiring the assets. Therefore, the disallowed the

sum of Rs.33,15,099/- claimed u/s.24(b) of the Act and initiated the

penalty proceedings u/s.271(1)(c) of the IT Act.

3.0 During the penalty proceedings, the assessee explained that there

was a mistake in claiming deduction u/s24(b) under a wrong impression

and is no intention for concealment and the assessee has not furnished

any inadequate particulars warranting the levy of penalty. The AR of the

assessee has stated that the assessee has cooperated with the

department and paid the taxes and did not file appeal. Therefore a

lenient view may be taken for the purpose of penalty u/s. 271(1)(c) of

the IT Act. The A.O not convinced with the explanation offered by the

assessee and held that the transaction would not have come to the

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notice of the department without collecting the details from the assessee

after selection of the case for scrutiny. The assessee had made such

claims in subsequent years also. Had the department has not selected

the case for scrutiny, this would never have been come to the notice and

continued to escape from the taxable income. Thus the AO held that it is

a clear case of furnishing of inaccurate particulars and levied penalty of

Rs.10 lakhs against the maximum penalty Rs.29.83 lakhs.

4.0 Aggrieved by the order of the AO, the assessee went on appeal

before the CIT(A).The Ld. CIT(A) observed that the Appellant filed his

return of income by arriving at the total income after deducting of

interest of Rs.33,15,105/- from the house property income. Knowing

fully well that it has not utilized the loan funds for acquisition of the

property and had the case of the assessee not been subjected to scrutiny

this fact could not have come to the notice of department and this would

have resulted in evasion of tax and accordingly confirmed the penalty.

5.0 Aggrieved by the order of the CIT appeals, the assessee filed

appeal before us.

5.1 The Ld.AR submitted that the assessee originally availed loan from

ICICI bank for purchase of property in Spencer Plaza property and the

rental income was correctly admitted and assessed. Subsequently the

first loan was closed by obtaining top up loan from ICICI Bank but the

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balance was utilized for investment in group company viz Brookfields

estates and part funding the business operation. The chartered

Accountants without verifying the facts claimed the interest paid to ICICI

bank under the house property. Mr.V.Chandra Sekharan, the Chartered

Accountant has also given affidavit confiming the facts. The A.R argued

that there was no intention to assessee to make a false claim under the

income from house property. The assessee made claim for deduction of

interest u/s24(b) of the Act by mistake under the wrong impression that,

the interest was on earlier loan which was which was availed for

purchase of property. The Ld.AR also relied on the decision of Hon’ble

Supreme Court in the case of Price Waterhouse Coopers Private Ltd. Vs.

CIT 348 ITR 306 (SC) and also the coordinate bench of ITAT “B” in ITA

No.1229/Mds/2016 in the case of ACIT vs. M/s.FL Smidh Ltd., Chennai.

5.2 On the other hand, the Ld.DR argued that it was a deliberate

attempt on the part of the assessee to make a false claim u/s.24(b) of

the Act. The Ld.DR argued that during the course of assessment

proceedings the assessee has not proved that the assessee has borrowed

the funds and used for the purpose of acquiring the assets on which the

income was received. The assessee is aware that the borrowed funds

were not used for the purpose of acquiring assets and still claiming the

deduction u/s.24(b) of the Act. In this case, the assessee has not filed

any revised return of income and the AO made addition after thorough

enquiry and collection of the details and concluding that the loan funds

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were not used for the purpose of acquiring assets. The Ld.DR further

argued that the Affidavit filed by the assessee is from Chartered

Accountant is nothing but an afterthought and the case laws relied upon

by the assessee are not applicable and distinguished by the Ld.CIT(A) in

her order.

6.0 We heard the rival submission and perused the material placed

before us. The assessee has made a claim of payment of interest of

Rs.3315105/- u/s 24(b) of income tax act. As per the provisions of

Income tax act the deduction u/s 24(b) is allowed if the assessee

satisfies the following conditions;

i. The assessee should acquire the property. ii. The assessee should have borrowed the capital for the purpose of acquiring the property. iii. The assessee should have paid the interest/interest should be payable on the borrowed capital. 6.1 In the instant case, the assessee stated that she has borrowed the

loan originally from the ICICI bank and foreclosed the same.

Subsequently she has taken the top up loan and used the balance

amount for investment in group companies. But the assessee has not

furnished any evidence to prove that the original loan was availed for

purchase of property and used the same for acquiring the property. As

per the assessment order ICICI Bank has sanctioned loan of Rs.90.00

lacs 03/10/2003 and pre-closed on 19/11/2009 where as the property

was purchased on 18/02/2004. The A.O did not believe the assessee’s

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explanation since the dates of loan and the purchase dates were not

matching and the assessee could not furnish relevant evidences. The

assessee has borrowed funds from the ICICI Bank as under:

Nature of loan Amount in Rs. Taken on Nestle Loan 90,00,000-00 03.10.2003 Nestle & Aircel Loan 1,50,00,000-00 06.10.2007 Music World Loan 1,02,97,000-00 19.11.2009

6.2 The date of borrowal and the date of purchase of property were not

matching to explain the application of funds. Though the loan of Rs.90.00

lacs seems to be possible application of funds the assessee did not

furnish any evidence and the loan was closed on19/11/2009 itself. In the

affidavit though the Chartered Accountant it has taken top up loan, as

per the assessment order the loan was foreclosed and there was

inconsistency. The affidavit was filed by Mr. V.Chandrasekharan who filed

the return of income as well as represented the case before the

Assessing officer but he did not explain the transaction to the assessing

officer with complete documentary evidence. He did not substantiate the

mismatching dates before the AO with necessary details and relevant

evidences. The assessee has fore closed the loan on 19/11/2009 and

relevant A.Y. was 2010-11. The A.R did not explain the treatment of

payment of interest on ICICI loan for the income tax purpose for the

intervening period of 20110-11 and 2011-12. The CA also did not make

any clarification on how the claim was made. Therefore, we cannot rely

on the Affidavit of the Chartered Accountant and the same is rejected.

The assessee has purchased the property on 18.02.2004 and the

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assessee has not produced any evidence before us to show that the

funds were borrowed for the purpose of acquiring house property. The

assessee was aware of the fact that the borrowed funds were used for

the purpose of investment in group companies as a part of funding

business operations. Knowing fully well that the assessee has invested

the funds in group companies and claimed the deduction u/s.24(b) of the

Act which is incorrect/false claim and same has come to the notice of

the department only after selecting the case for scrutiny and verification

of the details. The assessee did not file any revised return of income.

Though the assessee claimed that the assessee has taken loans for the

purpose of purchase of house property, the relevant evidence was not

placed before us. The assessee has re-paid the entire loan on

19.11.2009 relevant to the assessment year 2009-10 and did not furnish

the of returns of income for the assessment year 2010-11 and 2011-12

showing claim of interest during the intervening of period. Similarly,

assessee is having the assistance of Chartered Accountant who is

regularly filing the income tax returns and can detect the wrong claim at

the time of verification. The payment of taxes and refund issued by the

department do not substantiate the assessee’s claim that it was an

erroneous mistake. Therefore, we are unable to accept the contention of

the assessee that the claim made u/s.24(b) of the Act is un-intentional

and erroneous mistake. The Affidavit filed by Shri V.Chandrasekaran

also do not support the chronology of events of the taxes paid and

refunds claimed in the return of income. We are of the considered

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opinion that the Affidavit filed by Shri V.Chandrasekaran, who is a

qualified Chartered Accountant is an afterthought to defeat the penalty

proceedings u/s.271(1)(c) of the IT Act. The assessee relied on the

decision of Hon’ble High Court in the case of Price Waterhouse Coopers

Private Ltd. Vs. CIT 348 ITR 306 (SC). In the cited case, the assessee in

tax audit report indicated that the provision towards payment of gratuity

was not allowable but it failed to add the provision to its total income.

On realizing the mistake, the assessee filed a revised return of income

admitting the provisions. Since, the audit report document clearly shows

that this is an assessee’s intention, Hon’ble Supreme Court held that no

penalty could be imposed on such mistake. In ITA No.1229/Mds/2016

dated 30/09/2016 FL Smidth relied on by the assessee related to the

deduction u/s 80HHB, Chapter VIA deduction. The assessee has claimed

50% of deduction instead of 30% on the basis of CA certificate for the

amount transferred to foreign purchase reserve account. In this case,

the assessee has eligible for deduction u/s.80HHB and deductions are

relating to Chapter-IVA claim on the basis of CA Certificate. Therefore,

Hon’ble ITAT cancelled the penalty for making the claim which is not

sustainable in law. Therefore, we hold the facts of the Hon’ble ITAT are

also not applicable in the assessee’s case. This is a clear case of

Sec.271(c) and the case the law in the Hon’ble Supreme Court in the

case of MAK Data Ltd reported in 2013] 38 taxmann.com 448 (SC) and

Union of India v. Dharamendra Textile Processors reported in [2008] 174

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Taxman 571 (SC) are squarely applicable in the assessee’s case and we uphold the order of Ld.CIT(A) and dismiss the assessee’s appeal.

Order pronounced in the open court on 23rd December, 2016, at Chennai.

Sd/- Sd/- (�ड.एस. सु�दर �संह) (एन.आर.एस. गणेशन) (N.R.S. GANESAN) (D.S.SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

चे�नई/Chennai �दनांक/Dated: 23rd December, 2016 tln

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु�त/CIT 2. ��यथ�/Respondent 5. �वभागीय ��त�न�ध/DR 3. आयकर आयु�त (अपील)/CIT(A) 6. गाड� फाईल/GF