V.N. KARBHATKAR,MUMBAI vs. D.C.I.T.-6(2), MUMBAI

Per Jason P. Boaz, A.M.

This appeal by the Revenue is directed against the order of the CIT(A)- 30, Mumbai dated 20.12.2010 for A.Y. 2006-07. 2. The facts of the case, briefly, are as under: - 2.1 The assessee, proprietor of M/s. Venus Confectioners and M/s. Venus Cakes & Cookies, engaged in the business as a manufacturer of confectionary goods, filed his return of income for A.Y. 2006-07 on 31.10.2006 declaring total income of `4,32,665/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (in short 'the Act') and the case was subsequently taken up for scrutiny. The assessment was completed under section 143(3) of the Act vide order dated 19.12.2008; wherein the income of the assessee was determined at `95,76,400/-. The assessee’s appeal before the CIT(A)-30, Mumbai was partially allowed vide the impugned order dated 20.12.2010.

2 ITA No. 1838/Mum/2011 Shri V.N. Karbhatkar 3. Aggrieved by the order of the CIT(A)-30, Mumbai dated 20.12.2010 for A.Y. 2006-07, the assessee has preferred this appeal raising the following concise grounds: - “1. The Commissioner of Income Tax (Appeals) [hereinafter called the CIT (A)] erred in not admitting additional evidences as submitted by the Appellant. 2. The CIT (A) erred in confirming the disallowing Rs.50000 out of administrative expenses of Rs.684372. 3. The CIT (A) erred in confirming treatment of the compensation of:- a. Rs. 480000 from leave and license of the Appellant's bakery (along with machinery and all amenities required for manufacturing bakery products) b. Rs. 240000 from leave and license of the Appellant's Shop (along with furniture, fixture & Kitchen Equipments required for running the shop for selling bakery products) situated at ground floor of building known as Prabhu Smaran under the head "Income from House Property" instead of income under the head "Income from Business" / "Income from Other Sources". 4. The CIT (A) erred in confirming disallowance of expenditure of Rs. 497486 in respect of Vasai Property [income taxed under the head "Income from House Property" as against the claim of "Income from Other Source"] and car registered at Vasai but used for other business comprising of :- a. Property Tax Rs. 18,349, b. Factory Insurance Rs.15,024, c. Bank Interest & Charges Rs.84,078, d. Car Expenses Rs.40,843 (registered at Vasai address but used for other business carried on at Bandra and Jogeshwari, income from which is taxed under the head "Income from Business"), e. Depreciation of Rs.1,93,515 on premises, f. Depreciation of Rs.75,124 on machinery, equipment and furniture given along with factory and shop, and g. Depreciation of Rs.70,553 on car (registered at Vasai address but used for other business carried on at Bandra and Jogeshwari, income from which is taxed under the head "Income from Business") 5. The CIT (A) erred in confirming taxing of capital gains arising from transfer / relinquishment of tenancy right in Part of Ground Floor and entire first floor in 'Villa Maria' at 7A Rebello Road, Bandra (West), Mumbai 400 050 in AY 2005-06 on substantive basis and

3 ITA No. 1838/Mum/2011 Shri V.N. Karbhatkar in AY 2006-07 on protective basis as against AY 2007-08 claimed by the Appellant. 6. The CIT (A) erred in confirming charging of interest under section 234B of the Income Tax Act, 1961 (the Act) of Rs.6,86,328 and under section 234C of the Act of Rs 820 7. The CIT (A) erred in holding that the ground relating to initiation of the penalty proceedings u/s 271(1) (c) of the Act is premature.” 4. Ground No. 1 – Admission of Additional Evidence 4.1 In this ground, the assessee contends that the learned CIT(A) erred in not admitting or considering the additional evidence put forth. We have heard the rival contentions put forth and perused and carefully considered the material on record. In our view, the averments made by the assessee appear to be unfounded and factually incorrect. It is a matter of record that at para 3.1 of the impugned order, the learned CIT(A) has noted that in the course of appellate proceedings the assessee submitted additional evidence in the form of copies of ledger accounts and vouchers, which were forwarded to the Assessing Officer (AO) under rule 46A of the I.T. Rules, 1962 for making necessary enquiries/verification and report thereon. It is also recorded that the AO submitted the remand report dated 24.06.2010 in the matter. In these circumstances, we find no merit in the assessee’s contentions that the additional evidence put forth was not admitted or considered by the learned CIT(A) and accordingly dismiss ground No. 1. 5. Ground No. 2 – Disallowance out of Administrative Expenditure – `50,000/- 5.1 In this ground, the assessee assails the learned CIT(A) in confirming the disallowance of `50,000/- out of administrative expenses of `6,84,372/-. According to the learned A.R. of the assessee all the administrative expenses were incurred for the purpose of the assessee’s business except for a part of the residential telephone expenses of `32,817/-, donation of `14,000/- and previous year’s expenses of `6,575/- which were already disallowed in the return of income. It is contended that the adhoc disallowance of `50,000/- made and confirmed by the authorities below was excessive and made without any proper reason being

4 ITA No. 1838/Mum/2011 Shri V.N. Karbhatkar assigned for the same and therefore the same should be deleted or substantially reduced. 5.2 Per contra, the learned D.R. for Revenue placed strong reliance on the orders of the authorities below. 5.3.1 We have heard the rival contentions and perused and carefully considered the material on record. It is not disputed that the AO made an adhoc disallowance of `50,000/- observing that the assessee could not produce all the bills and vouchers to support these expenses and also since they would entail some element of expenditure of personal nature. On appeal, we find that the additional evidence put forth by the assessee in this regard was forwarded to the AO under rule 46A of the I.T. Rules for remand report thereon. In our view, a perusal of the relevant portion of the remand report (extracted at para 3.1 of the impugned order) shows that the AO has not pointed out any defect in the additional evidence put forth, but has tried to justify the adhoc addition; which view was endorsed by the learned CIT(A). 5.3.2 Most of the expenses under the head ‘administrative expenses’ incurred for advertisement, audit fees, computer expenses, inspection fees, licence fees, municipal taxes, printing and stationery, property tax, rent, professional and legal fees, sundry expenses for fire extinguisher, office telephone and postage, sales promotion, etc. would appear to us to be expended for the assessee’s business purposes, since admittedly nothing adverse has been reported in respect of any such claim by the AO in remand proceedings. As submitted by the assessee, the element of personal expenditure is admittedly embedded in the telephone expenses for residence (viz. `32,817/-) and charity/donation (`14,000/-). In these factual circumstances of the case, as discussed above, we hold that expenditure on donations of `14,000/- and about 20% of the telephone expenses of residence (approx. `6,500/-) could be justifiably be considered as having been expended for personal or /and non business purposes. We, therefore, sustain the disallowance of administrative expenses to `20,500/- (i.e. `14,000/- on account of donation plus `6,500/- out of residential telephone/postage

5 ITA No. 1838/Mum/2011 Shri V.N. Karbhatkar expenses) as against `50,000/- disallowed by the AO. The AO is accordingly directed. Consequently, ground No. 2 of assessee’s appeal is partly allowed. 6. Ground No. 4 – Income from Letting out of Bakery shop 6.1.1 In this ground, the assessee assails the impugned order of the learned CIT(A) in sustaining the AO’s order in holding that: - the compensation of `4,80,000/- (@ `40,000/-) received by the (i) assessee from leave and licence of his bakery (along with machinery and all amenities required for manufacture of bakery products), and (ii) the compensation of `2,40,000/- (@ `20,000/- p.m.) received from leave and licence of his shop (along with furniture, fixtures and kitchen equipments required for running the shop for sale of bakery products) is to be assessed under the head ‘income from house property’ instead of as ‘income from other sources’/income from business as declared by the assessee. 6.1.2 According to the learned A.R. of the assessee the leave and licence agreements for the aforesaid two properties were dated 04.07.2003. Earlier there was no dispute with Revenue in regard to the assessee’s declaration of this income as ‘income from other sources’ or income from business. It is only in the period under consideration, i.e. A.Y. 2006-07, that Revenue has disputed the assessee’s proposition and assessed the aforesaid income as ‘income from house property’. In the earlier A.Y. 2005-06, the assessee’s declaration of this compensation from letting out of these properties as ‘income from business’ / ‘income from other sources’ has been accepted in scrutiny proceedings under section 143(3) of the Act vide order dated 18.12.2007 (placed at pg. 137 -138 of paper book); for A.Y. 2007-08 under section 143(1) of the Act (details at pg 255 of paper book) and also for A.Y. 2008-09 the assessee’s claim was not disputed by Revenue in order of assessment passed under section 143(3) of the Act vide order dated 08.12.2010 (details placed at pg. 287 to 315 of paper book). It was pleaded that there was no merit or consistency in the Revenue’s stand and therefore the orders of the authorities below on this issue is not sustainable.

6 ITA No. 1838/Mum/2011 Shri V.N. Karbhatkar 6.1.3 The learned A.R. further submitted that in coming to this finding that the income/compensation on letting out the assessee’s bakery and shop premises was to be assessed under the head ‘income from house property’., Revenue placed strong reliance on the decision of the Hon'ble Calcutta High Court in the case of Shambhu Investments Pvt. Ltd. 263 ITR 143 to hold that leave and licence agreements show that the main intention of the assessee for letting out the aforesaid properties was to earn rental income. In this regard, the learned A.R. of the assessee placed reliance on the decision of the Hon'ble Bombay High Court in the case of Dudhsagar Investments (P) Ltd. (2014) 47 taxmann.com 354 (Bombay). It is submitted that in the cited case, which is factually similar to the case on hand, the question before the Hon'ble High Court was ‘whether income received by the assessee towards letting out of a furnished office premises was to be assessed as ‘business income’ or ‘income from out sources’ as claimed by the assessee or as ‘income from house property’ as assessed by Revenue. The Hon'ble High Court, after considering various judicial pronouncements; including Shambhu Investments Pvt. Ltd., had held that income received by the assessee by letting out fully furnished office premises alongwith furniture is required to be assessed as ‘income from other sources’. It was prayed that in view of the above factual and legal position of the case, the assessee’s claim be allowed that the same be assessed as income from other sources/business income. 6.2 Per contra, the learned D.R. placed strong reliance on the decision of the authorities below. 6.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. The facts of the matter as emanate from the record are that the assessee entered into leave and licence agreements dated 04.07.2003 for letting out his bakery premises, alongwith all amenities for manufacture of bakery products @ `40,000/- p.m. and shop premises, alongwith furniture fixtures and kitchen equipments for running and sale of bakery products @ `20,000/- per month. As per the details brought out by the learned A.R. of

7 ITA No. 1838/Mum/2011 Shri V.N. Karbhatkar the assessee and recorded at para 6.1.2 of this order (supra), there has been no dispute between Revenue and the assessee on this issue either before or after this year, i.e. 2006-07. It is only in this year that the assessee’s claim that this income was ‘income from business’/ ‘income from other sources’ was rejected and the authorities below have held that the income earned from letting out or leave and licence the assessee’s bakery and shop was assessable as ‘income from house property; placing reliance on the decision of the Hon'ble Calcutta High Court in Shambhu Investments Pvt. Ltd. (supra). It is not disputed that, both for the earlier A.Y. 2005-06 vide order under section 143(3) of the Act dated 18.12.2007 (at pg. 137-138 of paper book); for A.Y. 2007-08 under section 143(1) of the Act of the Act dated 14.03.2009 (at pg. 255 of paper book-II) and A.Y. 2008-09 vide order under section 143(3) of the Act dated 08.12.2010 (at pg. 287-315 of paper book-II) this income has been assessed as income from other sources/business income as declared by the assessee. 6.3.2 We have carefully perused the decision of the Hon'ble Bombay High Court in the case of Dudhsagar Investments P. Ltd. (supra), which in our considered view is on similar fact situation as the case on hand. The question before the Hon'ble High Court was ‘whether income received by the assessee towards letting out of a furnished office premises was to be assessed as ‘business income’/ ‘income from other sources’ as declared by the assessee or as ‘income from house property’ as assessed by Revenue. The Hon'ble Bombay High Court, after considering, inter alia, the decision of the Hon'ble Calcutta High Court in the case of Shambhu Investments P. Ltd. (supra), at paras 13 to 16 of its order held that income received by the assessee by letting out fully furnished office premises along with furniture is required to be assessed as ‘income from other sources’. The relevant portion is extracted here under: - “13. The Constitution Bench in “Sultan Brothers (P) Ltd.” (supra), had an occasion to consider the provisions of Sections 9, 10 and 22 of Income Tax Act, 1922 which provisions are pari materia with Sections 22, 28 and 56 of the Income Tax Act, 1961. In the said case, the appellant therein was limited a company and was the owner of a building fitted with furniture and fixtures for being run as a Hotel. By

8 ITA No. 1838/Mum/2011 Shri V.N. Karbhatkar the lease dated 30/08/1949, the appellant let out the building fully equipped and furnished to Voyantzis for a term of six years from 1946 for running a Hotel and for certain other ancillary purposes. The agreed monthly rent was Rs. 5,950/- for the building and Rs. 5,000/-for hire of furniture and fixtures. The question which fell for consideration before the Supreme Court was how the income received as a rent on hire is to be assessed i.e. under which section of Income Tax Act, 1922 is it assessable. The appellant in that case also contended that the entire income should be assessed under Section 10 as an income from business or in the alternative income should be assessed under Section 12 as income from residuary sources i.e. income from other sources. The Constitution Bench of Apex Court held that income under the lease cannot be assessed under Section 10 of the Income Tax Act, 1922 as the income from the business. Regarding the question whether income can be assessed under Section 12 as an income from residuary sources or income from other sources, the observations of the Apex Court in paragraphs 13, 15 and 16 are relevant which are reproduced as under : “13. The next question is, does the present letting come within the terms of sub-section (4) of section 12? That provision requires two conditions, namely, that the furniture should be let and also buildings and the letting of the buildings should be inseparable from the letting of the furniture. Now here both furniture and building have no doubt been let. The question is: Are they inseparably let? The High Court does not appear to have answered this question for it was of the view that not only must the two be inseparably let out but also that "the primary letting must be of the machinery, plant or furniture and that together with such letting or along with such letting, there is a letting of buildings". The High Court held that the primary letting in the present case was of the building and, therefore, deprived the appellant of the benefit of section 12(4). We may state here that the Tribunal had thought that by requiring that the letting of one should be inseparable from the letting of the other, the section really meant that the primary letting was of the machinery and the letting of the building was only incidental to the letting of the machinery. It also held that in the present case the primary letting was of the building. 15. What, then, is inseparable letting? It was suggested on behalf of the respondent CIT that the sub-section contemplates a case where the machinery, plant or furniture are by their nature inseparable from a building so that if the machinery, plant or furniture are let, the building has also necessarily to be let along with it. There are two objections to this argument. In the first place, if this was the intention, the section might well have provided that where machinery, plant or furniture are inseparable from a building and both are let, etc. The language however is not that the two must be inseparably connected when let but that the

9 ITA No. 1838/Mum/2011 Shri V.N. Karbhatkar letting of one is to be inseparable from the letting of the other. The next objection is that there can be no case in which one cannot be separated from the other. In every case that we can conceive of, it may be possible to dismantle the machinery or plant or fixtures from where it was implanted or fixed and set it up in a new building. As regards furniture, of course, they simply rest on the floor of the building in which it lies and the two indeed are always separable. We are unable, therefore, to accept the contention that inseparable in the sub-section means that the plant, machinery or furniture are affixed to a building. 16. It seems to us that the inseparability referred to in sub- section (4) is an inseparability arising from the intention of the parties. That intention may be ascertained by framing the following questions: Was it the intention in making the lease and it matters not whether there is one lease or two, that is, separate leases in respect of the furniture and the building that the two should be enjoyed together? Was it the intention to make the letting of the two practically one letting? Would one have been let alone and a lease of it accepted without the other? If the answers to the first two questions are in the affirmative, and the last in the negative then, in our view, it has to be held that it was intended that the lettings would be inseparable. This view also provides a justification for taking the case of the income from the lease of a building out of section 9 and putting it under section 12 as a residuary head of income. It then becomes a new kind of income, not covered by section 9, that is, income not from the ownership of the building alone but an income which though arising from a building would not have arisen if the plant, machinery and furniture had not also been let along with it.” 14. It is abundantly clear from the above observations that the appellant's income is required to be assessed under Section 56 as contended by the assessee. As far as the answers to three questions, which are mentioned in paragraph 16 of the judgment in “Sultan Brothers (P) Ltd.” (supra), quoted above, are concerned, there is no dispute amongst the learned Counsel appearing for the respective parties that answers to first two questions were in affirmative. In the present case, the dispute is regarding answer to the third question, namely would one have been let alone and a lease of it accepted without the other ? In our considered opinion, the answer to this question would be in the negative, considering the intention of the appellant- assessee coupled with clauses of the Agreement. The Agreement, unequivocally, makes the intention of the assessee clear to let out the office premises along with furniture. In our view, letting of the office premises was intended to be inseparable from the letting of the furniture. The ratio of the Constitution Bench is, therefore, perfectly applicable to the present case.

10 ITA No. 1838/Mum/2011 Shri V.N. Karbhatkar 15. In “Smt. P. Andal Ammal” (supra), the Division Bench of Madras High Court, in similar facts, held that the intention of the parties was that though there were two separate leases in respect of furniture and the building, both the species of the properties were enjoyed by payment of one lump sum which also gave indication that letting of the building and letting of the furniture was one letting. The Division Bench found that the assessee would not have let out the building alone without the lease of furniture or other amenities and one did not exist without the other. Consequently, the Division Bench held that the proper head of income would be income from other sources. The decision of the Division Bench of the Calcutta High Court in “Shabhu Investment (P) Ltd” (supra), is confirmed by the Apex Court in Civil Appeal No. 6459 and 6466 of 2001 i.e. “Shabhu Investment (P) Ltd Vs. CIT” reported in (2003) 263 ITR 143 (SC). The Apex Court refused to interfere in the conclusion arrived at by the Calcutta High Court on the question framed under Section 56(2) of the Act and, therefore, Civil Appeals came to be dismissed. The question fell for consideration before the Division Bench of Calcutta High Court was “whether the income derived from the premises in question is rental income or business income ?” The Division Bench, in Calcutta High Court, in the facts of that case, held that the income derived from the property in question is income from the property and should be assessed as such. The decision of this case does not apply to the facts and circumstances of the present case. 16. In the above facts and circumstances of the case and especially, in the light of the decision of the Constitution Bench in “Sultan Brothers (P) Ltd.” (supra), we hold that the income received by the assessee by letting out fully furnished office premises and furniture is required to be assessed under the head income from other sources. The appeals are, accordingly, allowed. Consequently, the impugned order is set aside to that extent. The Assessing Officer is directed to assess the assessee's income accordingly in the light of the above observations.” 6.3.3 Respectfully following the decision of the Hon'ble Bombay High Court in the case of Dudhsagar, which is factually similar to the case on hand and is squarely applicable, we hold that the income earned by the assessee from letting out of bakery alongwith equipments required to manufacture bakery products and shop alongwith furniture, fixture and kitchen equipments for running and sale of bakery products, is to be assessed as ‘income from others sources’/‘business income’ as declared by the assessee and consequently reverse the orders of the authorities below holding the same to be exigible to tax under the head ‘income from house property’. It is accordingly ordered. Therefore, ground No. 3 of the assessee’s appeal is allowed.

11 ITA No. 1838/Mum/2011 Shri V.N. Karbhatkar 7. Ground No. 4 – Claim for Expenditures 7.1 In this ground, the assessee has raised an alternate plea; that if the income of the assessee from letting out on leave and licence its bakery (alongwith equipments for manufacture of bakery products) at Vasai was to be assessed as ‘income from house property’, as against the assessee’s claim that it was to be assessed as ‘income from other sources’, certain expenditures listed therein at (a) to (g) ought to be allowed. In view of our allowing the assessee’s claim in ground No. 3 at paras 6.3.1 to 6.3.3 (supra); that the income from letting out the fully furnished bakery at Vasai was to be assessed as ‘income from other sources’ as claimed by the assessee and not as ‘income from house property; this ground is rendered infructuous and we accordingly dismiss ground No. 4. 8. Ground No. 5 – Capital gains on Relinquishment of Tenancy Rights 8.1 In this ground, the assessee assails the impugned order of the learned CIT(A) in upholding the taxing of capital gains on relinquishment of tenancy rights in part of ground floor and entire first floor in ‘Villa Maria’, Plot No. 54, CTS No. B/337, Rebello Road, Bandra (W) (referred to as ‘Bandra Property’ ) in A.Y. 2005-06 on substantive basis and on protective basis in A.Y. 2006-07, the year under consideration instead of in A.Y. 2007-08 as claimed by the assessee. 8.2.1 We have heard the rival contentions and perused and carefully considered the material on record. The question for consideration is the assessment year in which the capital gains arising on relinquishment of tenancy rights on the Bandra Property is to be assessed. The fact of the matter as emanate from the record are that the assessee is a tenant in the said ‘Bandra Property’. The owner of the property Mrs. Agnes Fernandes entered into an agreement with M/s. Streamline Builders dated 27.05.2004, whereby, inter alia, as per clause 4(a) & (b), the tenant, i.e. the assessee was to be paid `65 lakhs for relinquishing the rights to the said ‘Bandra Property’ as under: -

12 ITA No. 1838/Mum/2011 Shri V.N. Karbhatkar `20 lakhs on 03.11.2003; in period relevant to A.Y. 2005-06 (as per (i) clause 5(a). (ii) `45 lakhs during F.Y. 2005-06; in period relevant to A.Y. 2006-07 (as per clause 5(b). (iii) The possession of the Bandra Property was to be made over to the builder by the assessee tenant on 30.12.2006 (relevant to A.Y. 2007-08 simultaneously to the transfer of ownership of shop NO. 5 by Developer/ Builder to assessee at Chapel Avenue. That the transfer (supra) took place on 30.12.2006 as set out in the development agreement, has been confirmed by M/s. Streamline Builders vide confirmation dated 31.12.2006 (copy placed at page 183 of paper book). Admittedly, the assessee has declared the capital gains on the transaction in A.Y. 2007-08 which has been accepted by Revenue vide order under section 143(1) of the Act dated 14.03.2009. 8.2.2 In the order of assessment for A.Y. 2006-07, the AO has discussed his views on the matter at paras 12 to 26 thereof. He was of the view that the surrender of tenancy rights in question has taken place as per provisions of section 2(47)(v) of the Act r.w.s. 53A of Transfer of Property Act and that the full consideration of `65 lakhs plus shop accrued to the assessee as on 27.05.2004 and is exigible to tax in A.Y. 2005-06. He held that ‘although the LTCG on surrender of tenancy rights pertains to A.Y. 2005-06, to protect the interest of Revenue, the same is being taxed in A.Y. 2006-07, the current year on protective basis. This view of the AO was upheld by the learned CIT(A) in the impugned order. 8.2.3 We have carefully perused the provisions of section 2(47) of the Act and section 53 of the Transfer of Property Act. According to authorities below, in order to attract the provisions of section 53A of the Transfer of Property Act, the following conditions require to be fulfilled: - (i) There should be a contract for consideration; (ii) It should be in writing; (iii) It should be signed by the transferor; (iv) It should pertain to the transfer of immovable property;

13 ITA No. 1838/Mum/2011 Shri V.N. Karbhatkar (v) The transferee should have taken possession of the property; and (vi) The transferee should be ready to perform his part of the contract. Admittedly as per the recitals in the agreement and the confirmation of the builder, possession of the said properties by the assessee and the builder were made over/taken over simultaneously by both parties only on 30.12.2006 and not before that. Therefore, in this factual matrix of the case, in our view, the capital gains arising on relinquishment of tenancy rights by the assessee is not exigible to tax either substantially or protectively in the period under consideration, i.e. A.Y. 2006-07, but in the period relevant to A.Y. 2007-08. The fact that the assessee has declared the capital gains on relinquishment of tenancy rights in the said property in its return of income for A.Y. 2007-08, which has been accepted in order under section 143(1) of the Act dated 14.03.2009 is not disputed by Revenue; and rightly so. In the factual and legal matrix of the case as discussed above, we are of the considered view that the capital gains on relinquishment of tenancy right by the assessee is not exigible to tax in the year under consideration, i.e. A.Y. 2006-07 as held by the authorities below and direct the AO to delete the addition made to the assessee’s income on this account. We hold and direct accordingly. Consequently, ground No. 5 of the assessee’s appeal is allowed. 9. Ground No. 6 – Charging of Interest under sections 234B and 234C 9.1 In this ground, the assessee denies itself liable to be charged interest under sections 234B and 234C of the Act. The charging of interest is consequent and mandatory and the AO has no discretion in the matter. This principle has been upheld by the Hon'ble Apex Court in the case of Anjum H. Ghaswala 252 ITR 1), and we therefore uphold the action of the AO in levying interest under the aforesaid sections. The AO is, however, directed to recompute the interest chargeable under sections 234B and 234C of the Act, if any, while giving effect to this order. 10. Ground No. 7 10.1 In this ground, the assessee challenges the initiation of penalty proceedings under section 271(1)(c) of the Act. This ground being

14 ITA No. 1838/Mum/2011 Shri V.N. Karbhatkar premature as no cause of action arising to the assessee by mere initiation of penalty proceedings under section 271(1)(c) of the Act, this ground No. 7 is not maintainable and is accordingly dismissed as infructuous. 11. In the result, the assessee’s appeal for A.Y. 2006-07 is partly allowed. Order pronounced in the open court on 1st December, 2016. Sd/- Sd/- (Sandeep Gosain) (Jason P. Boaz) Judicial Member Accountant Member

Mumbai, Dated: 1st December, 2016

Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) -30, Mumbai 4. The CIT - 19, Mumbai 5. The DR, “F” Bench, ITAT, Mumbai By Order

//True Copy// Assistant Registrar ITAT, Mumbai Benches, Mumbai n.p.