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 for Assessment Year 2015-16 passed u/s.143(3) of the IT Act, 1961.

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 :- 3 -: ITA No.2972/Mds./2016 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 :- 4 -: ITA No.2972/Mds./2016 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 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

:- 5 -: ITA No.2972/Mds./2016 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

:- 6 -: ITA No.2972/Mds./2016 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 :- 7 -: ITA No.2972/Mds./2016 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

:- 8 -: ITA No.2972/Mds./2016 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 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

:- 9 -: ITA No.2972/Mds./2016 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.