SMT. POOJA JAIN,CHANDIGARH vs. ITO, W-2(3), CHANDIGARH

PER BENCH

Both these appeals have been filed by different assessees assailing the correctness of different orders dated 19.12.2017 of CIT(A)-1 Chandigarh pertaining to 2008-09 assessment year. As the issues raised in the present appeals are identical, accordingly for the sake of convenience, both these appeals are being decided by common order. ITA 286/CHD/2018 2. It is seen that the relevant facts of the case are that the assessee in the year under consideration was a partner in firm M/s S.S.Nath & Company and as per the return, received salary of Rs. 2,40,000/-, interest on capital Rs. 2,31,588/- and net profit of Rs. 17,51,948/-. 2.1 The assessee was found to have not declared an interest income of Rs. 92,710/-. The assessee’s explanation that it is to be set off against the interest paid and received from M/s S.S.Nath was held to be not allowable by the AO of Rs. 92,710/- (Rs.2,31,588/- - Rs.1,38,878/-). As a result of this addition, penalty

ITA 286 & 287/CHD/2018 A.Y. 2008-09 Page 2 of 3

proceedings were initiated and considering the submissions on behalf of the assessee, the penalty stood imposed which was confirmed in appeal by the CIT(A). 3. The ld. AR inviting attention to the submissions advanced before the AO in the penalty proceedings submitted that in the facts of the present case, the tax effect involved was much less and the cost of filing the appeal before the ITAT was Rs. 10,000/-, accordingly simply because the issue has not been agitated in the quantum proceedings, penalty is not automatically exigible. Referring to the facts, it was submitted that the assessee on 05.02.2007 had taken a loan of Rs. 10 lacs from Bank of India which he had invested in the firm M/s S.S.Nath & Co. Supporting documents were filed to show that the amounts stood transferred to the said firm. In view of this fact, it was understood that since the amount had been transferred to the firm, interest paid to the bank could be set off against the same. It was the bonafide belief of the assessee that the claim on facts was correct in law. However, once the addition resulted, the assessee did not agitate the issue further. It was submitted that it is not the case that the assessee either filed inaccurate particulars or concealed the income, at best it could be said that the claim on facts available on record was not allowable. It was submitted that the CIT(A) has upheld the action solely on the ground that the addition was made. The fact that loan was taken for the firm where the assessee was a partner was not disputed by the tax authorities. For ready reference, the relevant extract of para 7.2 is extracted hereunder : “ 7.2 It was pointed out to the ld. Assessing Officer that besides the interest paid to M/s S.S, Nath & Co, the interest was paid to Bank of India on the loan taken by the appellant for investment with M/s S.S. Nath & Co. on 05.02.2007 a loan of Rs. 10,00,000/- was taken from Bank of India by the appellant and she invested this amount with M/s S.S. Nath & Co. Since the loan taken from the bank was invested with M/s S.S.Nath & Co. as such the appellant is entitled to interest paid on this amount, accordingly the appellant has set off the said interest with interest received from M/s S.S. Nath & Co.” 4. Similarly in the case of Aarti Jain in ITA 287/CHD/2018, referring to the record, it was submitted that the assessee herein also was partner in M/s S.S.Nath & Co. and had received salary and interest on capital and net profit. In the facts of the present case also, the assessee had set off the interest paid towards bank against the interest received from the bank, as a result of which addition of Rs. 93,237/- was made in the hands of the assessee. On account of this fact, penalty proceedings were initiated and the penalty was levied. The assessee herein also before the AO in the penalty proceedings and the proceedings before the CIT(A) submitted that tax effect was only Rs.21,000/- while the fee for filing appeal

ITA 286 & 287/CHD/2018 A.Y. 2008-09 Page 3 of 3

before the ITAT was is Rs. 10,000/- beside other expenses. Thus, it was his claim that the penalty may not be confirmed. 4.1 Inviting attention to para 4 of the impugned order, it was his submission that here also, the claim of the assessee was identical ; M/s S.S, Nath & Co. the interest was paid to Bank of India on the loan taken by the appellant for investment with M/s S.S.Nath & Co. On 02.01.2007 a loan of Rs. 24,85,000/- was taken from Bank of India, a sum of Rs. 24,36,000/- was transferred to the account of M/s Aarti Jain in the books of M/s S.S.Nath &Co. Since the loan taken from the bank was invested with M/s S.S.Nath &Co. the appellant is entitled to interest paid on this amount, accordingly the appellant had set off the said interest with interest received from M/s S.S.Nath & Co.” 4.2. In the circumstances, it was his submission that penalty of Rs. 21,080/- was not leviable as it was a bonafide belief of the assessee that the interest has correctly been set off. 5. The ld. Sr.DR relies on the order. 6. We have heard the rival submissions and perused the material on record. Admittedly in the facts of the present case, both the assessees were partners in the firm i.e. M/s S.S.Nath & Co. and took loans from their respective banks and both of them admittedly transferred the loan taken to the firm. Since the assessee was returning income from net profit from the said firm, the assessees did not include the interest received from the bank considering it to be set off against the interest paid. Accordingly, in the facts as they stand, admittedly it is not a case of filing inaccurate particulars or a case of concealment. The explanation offered by the assessee consistently before the tax authorities, on a perusal of the peculiar facts and circumstances of the present case demonstrate that the claim was a bonafide claim. Accordingly, satisfied by the explanation offered, the penalty orders are directed to be quashed. Said order was pronounced in the Open Court at the time of hearing itself. 7. In the result, the appeals of the assessees are allowed. Order pronounced in the Open Court on 08.08. 2018. Sd/- Sd/- (Dr.B.R.R.KUMAR) ( DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ‘Poonam’ Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR Asstt. Registrar ITAT,Chandigarh.