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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI SAKTIJIT DEY & ASHWANI TANEJA
O R D E R PER ASHWANI TANEJA, AM: This appeal has been filed by the Assessee against the order of CIT(A)- 9, Mumbai dated 11.11.2013 passed against the penalty order u/s 271(1)(c) of the Act dated 28.03.2012 for AY-2009-10 on the following grounds:
1. The order imposing penalty U/s. 271(1)(c) of the Act is contrary to the facts of the case and prejudicial to the Law. 02. On appreciation of the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) ought not to have confirmed the action of the Learned Assessing Officer imposing the penalty of Rs. 55,14,546/-. The appellant has neither concealed her income nor submitted any inaccurate particulars of income. The action of the Learned Commissioner of Income Tax (Appeals) is contrary to the facts of the case and deserves to be deleted. 03. Alternatively and without prejudice to ground no. 2, on appreciation of the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) ought to have accepted the alternate contention of the appellant that the learned Assessing Officer has erred in levying maximum penalty @300%. The action of the Learned Commissioner of Income Tax (Appeals) is contrary to the facts of the case and deserves to be deleted.
During the course of hearing, arguments were made by Shri R.S.Singhvi, Advocate on behalf of the assessee-company and Dr. Pramod Nikalje, CIT(DR) on behalf of the Revenue.
The brief facts of the case are that the assessee-company was engaged in the business of renting of commercial properties. The assessee furnished its return of income for the AY 2009-10 on 07/12/2011 declaring total loss at Rs.58,36,019/-. The AO completed the assessment u/s 143(3) determining total income at Rs.6,28,080/- on 07.12.2011. During the course of assessment proceedings, the A.O had made disallowance of Rs.3,51,783/ - u/s 37(1) on the ground that since the income of assessee was taxable under the head ‘house property’ it could not have claimed any business expenditure except the deductions available under the head ‘income from house property’.
Further, the A.O. also disallowed a sum of Rs.55,97,027/- u/s 24 (b) read with u/s 36(1)(iii) of the Act on the ground that a part of borrowed fund was not used in acquiring house property, so corresponding interest was not deductible. Penalty proceedings u/s 271(1)(c) of the Act were also initiated at the time of assessment. During the penalty proceedings, it was contended by the assessee that penalty u/s 271(1)(c) was not leviable on the disallowance made by the A.O since the assessee had not furnished any inaccurate particulars of income.
The contention of the assessee was not accepted by the AO on the ground that the assessee was not entitled to claim of Rs.3,51,783/- against income from House Property and the assessee had wrongfully claimed expenses against "Income from House Property" to the tune of Rs.3,51,783/-. He further observed that the assessee had claimed deduction of interest expenses of Rs 1,72,79,082/- u/s 24(b) for secured loans of Rs 14,87,94,217/- but the assessee had invested only Rs 10,05,96,235/- out of Rs 14,81,93,217/- in the property. Therefore, against income from House Property, the assessee could have claimed interest u/s 24(b) only to the extent of capital invested/ used for such property. Thus, AO did not agree with the contentions of the assessee and held that the assessee had furnished inaccurate particulars of income in respect of both the above referred additions. Accordingly, penalty was levied by the AO at the rate of 300% of the tax sought to be evaded being the maximum amount that could have been levied as prescribed under the law.
Being aggrieved, the assessee filed an appeal before the CIT(A), wherein detailed submissions were made by the assessee challenging levy of penalty by the AO. Relevant portion of written submissions of the assessee is reproduced below for the sake of ready reference:
"The appellant is a company deriving rental income from its property at Bangalore. The appellant filed its return of income declaring loss of Rs. 58,36,019/- The assessment was completed on the basis of the following additions a) Disallowance of Business Expenses - Rs. 3,51,783/- u/s 371(1) of the Income Tax Act. b) Disallowance out of interest on loan for Rs, 55,97,027/- u/s 24(b) as well as u/s 36(I)(iii) of the Income Tax Act.
2. The appellant has disclosed income under the head "income from business" but the Learned Assessing Officer has computed the same under the head "income from house property".
3. The appellant company had not preferred any appeal against the assessment order and paid the due taxes on the income assessed.
4. The Learned Assessing Officer thereafter levied penalty @300% on the quantum addition. Against this order levying penalty the appellant company is in appeal before 5. At the outset we would like to submit before your good self that the penalty has been levied on account of disallowance of claim of the following expenses:- a) Disallowance of Business Expenses - Rs. 3,51,783/- U/S 371(1) of the Income Tax Act. b) Disallowance out of interest on loan for Rs. 55,97,027/- U/S 24(b) as well as u/s 36(1)(iii) of the Income Tax Act. 6. Regarding the disallowance of business expenses amounting to Rs.3,51,783/-,it is submitted that these expenses were the normal business expenses to maintain the basic existence of the assessee company and were of routine nature. However, the Learned Assessing Officer has disallowed the same on the ground of absence of business activity during the year. Please note that these routine expenses were duly claimed as per Audited Accounts and were in the normal course of existence of the company. The Learned Assessing Officer has computed the income under the head "income from house property" and accordingly as per provisions of law the aforesaid expenditure was disallowed and instead 30% of total rental income was allowed as a deduction U/s.24A of the Act. The disallowance is only technical in nature and do not result in reduction of tax. 7. Regarding interest paid on loans from M/s Dewan Housing Finance Corp, it is submitted that the part of loan was utilized for acquisition of the property which was let out to M/s Hewlett Packard India Sales (P) Ltd. and part of these borrowed funds were used for making advances to various parties for acquisition of facilities on joint venture basis. However, the Learned Assessing Officer completed the assessment by making disallowance out of interest paid on borrowed funds U/S 24(b) read with Sec.36(1)(iii) of the Income Tax Act. It is submitted that the total particulars of claim of interest and utilization of borrowed funds were duly reflected in the audited accounts filed with the Assessing Officer. 8. The appellant company has originally considered his activity as a business activity. On that basis claimed the full amount of interest from the income. Only because the Learned Assessing Officer has completed the assessment by considering the same as "income from house property" the interest was re-calculated and disallowed as per the view of the Learned Assessing Officer. Since the property let out was a commercial building to a, company in Bangalore the appellant was having a bonafide belief that the activity of letting out the property to a company carrying its commercial activity from that place amounts to income' from business. Accordingly as per the provision of 28 to 44 the company had claimed various expenses including interest and all the particulars of interest has been disclosed to the Learned Assessing Officer during the course of assessment proceedings itself. The particulars of income have not been disputed by the Learned Assessing Officer at any stage of the proceedings.
9. We would like to humbly submit before your honor the findings of the Learned Assessing Officer while imposing the penalty along with our comments thereto.- 9.1 The Learned Assessing Officer has distinguished the decision of Honorable Apex Court in the case of Dharmendra textile processors 306 ITR 277 and observed as under: "The Apex Court held that object behind enactment of section 271(1)(c), read with the Explanation thereto, indicates that the said section has been enacted to provide for a remedy for loss for "loss of revenue. The penalty under that provision is a civil liability." (extract from the order levying penalty emphasis supplied)
9.1.1 In this regard we would like to humbly bring forth before your honor the decision of the Honorable SC in the case of Rajasthan Spinning and Weaving Mills reported in 180 Taxmann 609 which has been pronounced after the decision in the case of Dharmendra textile processors has been delivered. The Honorable Apex Court has very clearly laid down that willful concealment or fraud is an essential condition for levy of penalty. The Honorable SC observed that the revenue has not understood the implication of Dharrnendra textile processors's case in the right manner. It has been held that mens rea is an essential condition for levy of penalty. In para 20 in the decision of the Rajasthan Spinning and Weaving Mills the honorable Apex court has clearly laid down the correct law in regard to imposition of penalty.
9.1.2 In this regard it is humbly submitted that the Learned Assessing Officer While admitting that penalty U/s. 271(1)(c) has been enacted to provide for a remedy for loss of revenue has merely stated that this case law is in favor of the department. The applicability of the decision to the case of the appellant has not been narrated in detail and has instead levied 300% of the tax amount as penalty. It is humbly submitted before your honor that the Learned Assessing Officer has not applied her mind as to the quantum of loss of revenue. On the face of the order it appears that the Learned Assessing Officer has mechanically levied" the penalty. The Learned Assessing Officer has not considered the decision of Honorable SC in the Rajasthan Spinning and Weaving Mills while holding that the decision Dharmendra textile processors is in favor of the department. 9.2 The Learned Assessing Officer has also distinguished the decision of Honorable Apex Court in the case of Reliance Petroproducts 189 Taxman 322. The Learned Assessing Officer has mentioned extract from the above decision which is reproduced hereunder.- “A mere making of the claim, which "is hot sustainable in law by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in" the return cannot amount to the inaccurate particulars. Merely because the assessee had claimed the expenditure, which claim was not accepted or was no acceptable to the revenue, that, by itself, would not attract the penalty under section 271(1)(c)" (extract from the order levying penalty emphasis supplied) 9.3 In the instant case the Learned Assessing Officer has given the following facts for concluding that the appellant has will fully concealed / furnished inaccurate particulars of income.
Observation of the Learned Our view on the facts Assessing Officer The assessee had consciously and While filing the return the knowingly claimed various as expenses have been claimed as business expenses against income reflected in the books of from house property which was accounts. not permissible by the Act Further the assessee claimed interest expenses U/S 24(b) knowing fully well that the principal amount had not been utilized for the repair, purchase or construction of the house property from which the assessee was in receipt of rental income which it had offered as income from house property. On the other 'hand the assessee As a business entity the moneys had diverted the principal amount received as income and loan are taken as the housing loan towards deposited in to a common bank ginning away of interest free account and is used for various loans. purposes as per needs. There is no element of intentional diversion of funds with a view to reducing tax payment. Even during the course of the The appellant while appearing assessment proceedings when the before the Learned Assessing issue was brought before the Officer has merely submitted the assessee, it did not voluntarily accounts and the facts as known offer the said amount to tax. to company and interpreted the tax laws as per his knowledge. That is the reason why the appellant company had not voluntarily offered the said amount to tax.
It is pertinent to mention that The appellant had not preferred after the assessment proceedings to file an appeal before Ld. were over and the additions CIT(A) to co-operate with the aware made on the said grounds, department by reducing litigation the assessee did not prefer an and for making payment of the appeal before the Ld CIT(A) due taxes as per the. view of the department This clearly suggests that the This conclusion of the Learned assessee was well aware of the Assessing Officer in our humble fact the deduction it was claiming opinion is not correct. The was not in conformity with the appellant did not prefer an appeal provisions of the IT Act 1961. to co-operate with the Important to note here is the fact department only after he came to that over the last couple of years know the view points of the the assessee has been claiming department through the similar deduction with the sole assessment order. It cannot be intent of concealing its taxable presumed that the appellant income. company was aware of this view point of the department at the time of filing his return of income. It was not the case of assessee For the reasons stated in the that it was advised that the earlier paragraphs the Learned amount of income – tax paid by it Assessing Officer has not could be claimed as a revenue established beyond doubt that the expenditure. It was also not the claim made by the appellant is case of the assessee that mala fide. She has merely stated deduction of income-tax paid by it as such to justify the levy of was a debatable issue. It is true 300% penalty. The Learned that mere submitting a claim Assessing Officer has which incorrect, in law, would not misconstrued the non filing of the amount to giving inaccurate appeal by appellant as a pointer particulars of the Income of the to the intentions of the appellant assessee, but it cannot be at the time of filing the return. disputed that the claim made by This is not humanly possible since the assessee needs to be bona the view point of the department fide. If the claim beside being has been made through the incorrect, in law, is mala fide the assessment order only and not Explanation 1 to section 271(1) known to the appellant at the would come into play and work to time of filing the return of the disadvantage of the assessee. income. At that point of time the (extract from the decision CIT appellant was under a bona-fide V/s. Zoom Communications Pvt. belief that interest paid on Ltd) moneys borrowed for acquiring the property is deductible u/s. In the extant case it has already 24(b) been established the claim made by the assessee is malafide. Had it not been so the assessee would have preferred appeal against the order of the AO. The fact that addition made was accepted the assessee proves beyond doubt that the assessee knew all along that the claim it was making was inaccurate.
9.4. The Learned Assessing Officer has concluded in the last paragraph of the order as under.- “I therefore hold that the assessee has deliberately and consciously furnished inaccurate particulars of income and attempted to conceal income to the tune of Rs. 59,48,810/-" 9.5 We respectfully submit before your honor that the Learned Assessing Officer- has not concretely held that the appellant has concealed any income and rather has observed that he has deliberately and consciously furnished inaccurate particulars of income. In this respect we' would also like to submit before your honor that the appellant has correctly submitted an particulars of income viz. the nature, source and quantum, which has not been disputed by the Learned Assessing Officer. The addition to the total income is by way of disallowance of a claim Vis. 24(b) of the Act. This claim has been disallowed on the basis of a different method of calculation under a different head of income adopted by the Learned Assessing Officer. This amounts to a different interpretation of law leading to a different method of calculating the appellant's income from the same particulars submitted by the appellant. Hence we respectfully submit that there is no concealment/furnishing of inaccurate particulars of income by the appellant company and consequently the decision of honorable Apex Court in the case Reliance Petroproducts and Delhi High Court in the case of Zoom developers is squarely applicable in favor of the appellant.
In view of the above factual and legal aspects of the case we request your honor to delete the penalty imposed by the Learned Assessing Officer and allow our appeal in toto.
11. Alternate prayer 11.1 In the event your honor do not consider our submission and prayer as above in the preceding paragraphs, we would like to put forth before your honor the facts of the case in brief and our alternate prayer in regard to the quantum of the penalty 11.2 Kindly refer to the observation of the Learned Assessing Officer as given in paragraph 9.1 supra reproducing the observation of the Apex court in the case of Dhannendra textile processors 306 ITR 277 11.3 Considering the above conclusion of the Honorable Apex Court we respectfully request your honor to consider loss of revenue from the attempted concealment as equivalent to 100% of the tax that would have been payable by the appellant in the absence of the assessment order as the tax sought to be avoided and direct the Learned Assessing Officer to reduce the penalty to that extent. In view of the above, your honour is humbly requested to adopt a liberal approach and drop the penal action for which the appellant company shall ever remain grateful and oblige."
But Ld. CIT(A) did not accept the submissions of the assessee, and he confirmed the action of the AO in levying the penalty @ 300%.
It was held by him that the assessee had made a wrong claim and it was not a debatable issue where two opinions were possible and that it was a case of old assessee who was expected to know basic aspect of deduction available u/s 24(b) of the Act. Accordingly, he confirmed the action of AO in levying the penalty and also rejected the alternative claim of the assessee that maximum penalty could not have been levied in this case. Thus, appeal of the assessee was dismissed by him without any relief.
Being aggrieved, the assessee filed an appeal before the Tribunal.
During the course of hearing before us, both the parties have made detailed submissions. It was argued by ld. counsel of the assessee that in this case no satisfaction has been recorded as per law by the AO in the assessment order while initiating the penalty proceedings, nothing has been mentioned whether there was concealment of income or furnishing of inaccurate of particulars of income. It was further argued that satisfaction is not discernible even from the perusal of the assessment order, and that complete information was provided in the return filed and in the assessment proceedings with regard to claim of expenses and interest made by the assessee, and no information has been concealed. All the information has been correctly provided to the AO, and he could make disallowance on the basis of details provided by the assessee only. It was further submitted that claim of expenses and interest was made by the assessee in the normal course of business under the belief that all the expenses incurred in the course of business are allowable as deduction. It was further submitted that all the expenses have been found to be genuine. The claim of the expenses has not been found to be bogus by the AO. The disallowance has been made only because of change of head of assessment of income and different legal interpretation adopted by the AO. None of the information/details filed by the assessee was found to be incorrect by the AO. It was thus, submitted that it was neither a case of concealment nor furnishing of inaccurate particulars of income. In support of his arguments, ld. counsel relied upon the following judgments: a. CIT v. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158(SC). b. Price Waterhouse Coopers P. Ltd. vs. CIT [2012] 348 ITR 306 (SC). c. CIT vs. M/s. S.M. Construction (ITA No. 412/13)[Bombay HC]. d. Smt. Kajal V Mange vs. ITO (ITA No. 6000/D/10) [Del ITAT]. e. Mr. Naresh Kumar vs. ACIT (ITA No. 49/13) [Bombay HC]. f. CIT v. Nalin P. Shah (HUF) (ITA No. 49/13) [Bombay HC]. g. Global Green Co. Ltd. v. DCIT (ITA No. 1390/D/11) [Del ITAT].
Lastly, it was submitted by ld. counsel that similar claim has been allowed to the assessee in the subsequent years. Our attention was drawn upon the copy of return filed for AY 2010-11 to show that similar claim was made on account of interest amounting to Rs 14780632/-, which has been accepted and no disallowance has been made by the AO in AY 2010-11. Thus, merely because, the claim has been disallowed in this year, it does not call for levy of penalty.
On the other hand, Ld. DR supported the orders of lower authorities and argued that impugned disallowances call for levy of penalty. Since the claim of the assessee was found to be wrong, the AO was justified in levying of penalty. In response to our query about the levy of penalty @ 300%, Ld DR was fair enough to state that he could not find any specific reason to levy penalty at the maximum rate of 300% in the given facts of the case.
We have gone through the submissions made by both the sides, orders of the lower authorities and judgments placed before us for our consideration. At the outset, it is noted by us that in the penalty order and the assessment order, the AO has not made out a case that whether it was a case of concealment of income or furnishing of inaccurate particulars of income.
It is further noted by us that, admittedly, claim of expenses and interest has not been found to be bogus. It has also been accepted by the lower authorities that these expenses were incurred by the assessee in the normal course of his business. The only allegation of the AO was that routine expenses were not allowable because assessee did not carry out its main business activity and interest was not fully allowed.
According to the AO, part of the funds was not utilized for acquiring/constructing the property from which rental income was received.
10. We have analyzed the nature of both of the disallowances.
Regarding the disallowance of Rs. 3,51,783/- out of expenses, it is noted that these expenses were of routine nature e.g. Director’s Salary, Bank Charges, Filing Fee, Audit Fee etc. Undoubtedly, these expenses were of statutory nature and were necessary for maintaining the existence of the company and thus these can be said to be incurred for the purpose of business of the assessee, and therefore these expenses were claimed under the head “Business”. The claim of the assessee was very much plausible not only on facts but it is also supported on the basis of various judgments in favour of the assessee. Similar claim was held to be allowable by Hon’ble Calcutta High Court in the case of CIT vs. Ganga Properties Ltd. 199 ITR 94(Cal.), relevant portion of the judgment is reproduced below:
“In our view, a limited company, even if it does not carry on business but it derives income from "other sources" has to maintain its establishment for complying with statutory obligations so long it is in operation and its name is not struck off the register or unless the company is dissolved which means cessation of all corporate activities of the company for all practical purposes. So long as it is in operation, it has to maintain its status as a company and it has to discharge certain legal obligations and, for that purpose, it is necessary to appoint clerical staff and secretary or accountant and incur incidental expenses. In this background, the conclusion of the Tribunal that the expenses incurred were wholly and exclusively for the activities to earn income is pre- eminently a reasonable conclusion. We have considered a similar case in Income-tax Reference No. 360 of 1979 (CTT v. New Savan Sugar and Gur Refining Co. Ltd.), where the judgment was delivered on April 18, 1989.”
Regarding the other disallowance u/s 24(b) r.w. 36(1)(iii), it is noted by us at the outset that assessee was in the business of Real Estate. The claim of the assessee was that funds were borrowed for the purpose of business on which interest was paid. The income from House Property although was part of business of the assessee but due to specific provisions, the same was assessed under the head “Income from House Property”. But, the intrinsic nature of the income remains as income from business, even if it was assessed under a different head. Under these circumstances, the belief of the assessee that any expense incurred during the course of its business (including interest paid on funds borrowed) should be allowable against the income earned during the course of business, cannot be said to be wholly unfounded and without any basis. The claim of the assessee was rejected due to application of particular provisions of law by the AO. It is further noted by us that the AO has himself allowed part of the total claim of interest.
The assessee had claimed a sum of Rs. 1,72,79,082/-. Out of the said claim, only a sum of Rs. 55,97,027/- has been disallowed by the AO u/s 24(b) of the Act. Thus, even as per the AO, the claim of the assessee was not wholly disallowable. Rather, substantial amount was allowed by the AO, and disallowance of part of the total claim was made by the AO on the basis of some calculations done by him by alleging that whole of the funds were not utilized for acquiring the property. Thus, an element of guess work was involved while computing and quantifying the amount of disallowance. Further, it is brought to our notice that similar claim has been accepted by the AO in the subsequent year i.e. AY 2010-11, wherein no disallowance has been made by the AO. Under these circumstances, it cannot be said, on ‘certain’ and ‘unambiguous’ basis that the claim of the assessee in this yearwas patently erroneous.
Under these circumstances, the AO was not able to make out a case for concealment of income or furnishing of inaccurate particulars of income while initiating the penalty in the assessment order or while levying the penalty in the penalty order. It is noted that penalty has been levied in the manner as if once disallowance has been made, then levy of penalty would be automatic, disregarding the well-settled position of law that penalty proceedings are independent of the assessment proceedings.
12. Our view is supported by many judgments, some of which have been relied upon by the ld. counsel before us. We begin with the judgment of Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts India (P) Ltd. 322 ITR 158 wherein it was held that if there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false, then there is no question of invoking the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return, ipso facto, cannot amount to furnishing inaccurate particulars.
Hon’ble Bombay High Court in the case of CIT vs. S.M.
Construction vide its order dated 12.03.2015 held as under:
“There has been a complete disclosure of all facts by the assessee. Besides the claim made by the assessee of not being taxable was not found to be not bonafide. As held by the Supreme Court in Reliance Petroproducts Pvt. Ltd 322 ITR 158 making of an incorrect claim would not tantamount to furnishing inaccurate particulars of income. In this case, the assessee bonafide believed that the difference of Rs.1.65 Crores and Rs.55 Lakhs is not chargeable to tax and had so stated before the Assessing Officer. The fact that the explanation of assessee is not accepted in quantum proceedings would not ipso facto visit the assessee with penalty in the absence of the claim being held to be not bonafide. The decision of the Delhi High Court in Zoom Communication P. Ltd. 327 ITR 510 (Del) is not applicable in the present facts for the reason that in this case, the stand taken by the assessee cannot be said to be in defiance of law and thus not bonafide. In this case it is not the case of revenue that the claim made by the assessee was not on the basis of bona fide view.”
Similarly in another judgment, Hon’ble Bombay High Court in the case of CIT vs. Nalin P. Shah (HUF) vide its order dated 04.03.2012 in held as under:
Though the income from the transfer of units of a mutual fund is exempt u/s 10(33), the assessee claimed a deduction for the loss of Rs. 3.08 crores suffered by him on transfer of US 64 units. The AO disallowed the loss on the ground that the exemption in s. 10(33) applied to a loss as well and imposed penalty u/s 271(1)(c).The CIT(A) confirmed the penalty. On appeal by the assessee, the Tribunal allowed the appeal on the ground that as the assessee had disclosed the details with the return, he had not filed inaccurate particulars of his income and that the making of a wrong claim/incorrect claim did not attract penalty u/s 271(1)(c). On appeal by the department to the High Court, HELD dismissing the appeal: As the assessee had disclosed all details in the return of income, at the highest it can be said that the claim of the assessee was not sustainable in law. But as there was no furnishing of inaccurate particulars or concealment of income on the part of the assessee, penalty u/s 271 (1)(c) could not be levied.
15. It is further noted by us that similar issue has been decided by Hon’ble Delhi Bench of ITAT in the case of Naresh Kumar Vs. ACIT (ITA No. 6000/Del/2010) order dated 27.04.2015. In this judgment also the facts are similar in the manner that claim of interest was disallowed u/s 24(b), the claim of the assessee was partly allowed and partly disallowed and on the disallowance made by the AO, penalty was also levied which was confirmed in first appeal. The matter reached before the Tribunal where the Tribunal found that penalty was not leviable on such type of disallowance. Relevant portion of the order is useful for deciding the case before us and therefore, operative portion of same is reproduced hereunder for the sake of ready reference:
“11. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is noticed that the assessee claimed interest amounting to Rs. 79,16,523/- as deductible u/s 24 of the Act. The assessee also claimed interest of Rs. 70,22,831/- on the loans from certain companies which were utilized for purchase of property, investment in companies and giving loans etc. The assessee also received interest amounting to Rs. 55,30,319/- from different companies. The AO limited the interest @ 9% on the loans advanced amounting to Rs. 4,20,80,000/- and worked out the interest of Rs. 37,87,200/- which was allowed as deduction u/s 57 of the Act against the interest income of Rs. 55,30,319/-.
From the above facts it is clear that the AO allowed the interest on estimate basis i.e. @ 9% amounting to Rs. 37,87,200/- as against the interest claimed at Rs. 70,22,831/-. In the present case, the assessee furnished all the particulars relating to the interest earned and paid but the claim of the assessee was not accepted in toto. Now question arises as to whether penalty u/s 271 (1)(c) of the Act is leviable when the claim of the assessee is partly allowed. In this regard the Hon’ble Supreme Court in the case of CIT Vs Reliance Petro Products Pvt. Ltd. (2010) 322 ITR 158 (supra) held as under: “A glance at the provisions of section 271 (J)(c) of the lncome-tax Act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271 (1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars."
13. From the ratio laid down by the Hon'ble Supreme Court in the aforesaid referred to case it can be held that the penalty u/s 271 (1)(c) of the Act was not leviable to the facts of the present case because the AO disallowed the claim of the assessee, in part. In other words the AO estimated the interest payable on the loans @ 9% i.e. Rs. 37,87,200/- instead of actual amount paid at Rs. 70,22,831/-. However, all the particulars relating to the payment of interest were furnished to the AO., therefore, the penalty u/s 271 (1)(c) of the Act was not leviable because the AO did not accept full claim of the assessee. In the present case, it is also noticed that the AO in the assessment order nowhere recorded his satisfaction that the assessee concealed the income or furnished inaccurate particulars of income, he simply stated as under: "Penalty u/s 271 (1)(c) of the Act for filing inaccurate particulars of income is being initiated separately. "
14. From the above observation, it cannot be said that the AO was satisfied that the assessee concealed the income. On a similar issue the Hon'ble Jurisdictional High Court in the case of Ms. Madhushree Gupta Vs Union of India and Another (2009) 317 ITR 107 held as under: "The legal position that power to impose penalty under section 271 of the Act depends upon the satisfaction of the Income-tax Officer in the course of the proceedings under the Act remains the case even after the insertion of section 271 (1B). Prima facie satisfaction of the Assessing Officer as reflected in the record as against his "final conclusion" should be discernible clearly from the order passed during the course of such proceedings. The provision only provides that an order initiating penalty cannot be declared bad in law only because it states that penalty proceedings are initiated, if otherwise it is discernible from the record, that the Assessing Officer has arrived at prima facie satisfaction for initiation of penalty proceedings. The issue is of discernibility of the "satisfaction" arrived at by the Assessing Officer during the course of proceeding before him. Section 271(1) (c) has to be read in consonance with section 271 (1B). The presence of prima facie satisfaction for initiation of penalty proceedings was and remains a jurisdictional fact. The contention that prima facie satisfaction of the Assessing Officer need not be reflected at the stage of initiation but only at the stage of imposition of penalty would render the provision arbitrary. The assessing Officer would in such a situation be in a position to pick a case for initiation of penalty merely because there is an addition or disallowance without arriving at a prima facie satisfaction with respect to infraction by the assessee of clause (c) of sub-section (1) of section 271 of the Act."
Similarly the Hon'ble Gujarat High Court in the case of CIT Vs Lakhdhir Lalji (1972) 85 ITR 77 held as under: "That the penalty proceedings had been commenced against the assessee on a particular footing, viz., concealment of particulars of income, but the final conclusion for levying the penalty was based on a different footing altogether, viz., on the footing of furnishing inaccurate particulars of income. Under the circumstances, it could not be said that the assessee had been given a reasonable opportunity of being heard before the order imposing the penalty was passed. "The very basis for the penalty proceedings against the assessee initiated by the Income-tax Officer disappeared when the Appellate Assistant Commissioner held that there was no suppression of income by the assessee. The conclusion of the Tribunal that the Inspecting Assistant Commissioner had no jurisdiction to impose a penalty under section 271(1)(c) for concealment of income was correct."
16. In the present case also the AO in the course of assessment proceedings had not recorded any satisfaction while initiating the penalty proceedings, therefore, the penalty u/s 271(1)(c) of the Act was not leviable. In the present case, this contention of the Id. Counsel for the assessee that in the subsequent year similar claim was although disallowed but penalty proceedings were dropped was not rebutted. Therefore, on the identical facts in the year under consideration vis-a- vis the subsequent year penalty u/s 271(1)(c) of the Act was not leviable, particularly when the department itself dropped the penalty in the subsequent year in similar facts. In the instant case the assessee claimed the deduction on account of interest u/s 24 of the Act because it was claimed and allowed in the preceding year, therefore, the claim of the assessee was a bonafide claim based on a similar claim of the earlier year, the assessee disclosed all the facts relating to the payment of interest and claim of deduction before the AO. Therefore, only on this basis that the claim in full was not accepted by the AO, it cannot be said that the assessee concealed the particulars of his income or furnished inaccurate particulars of his income. As such the penalty u/s 271(1)(c) of the Act was not leviable. We, therefore, by considering the peculiar facts of this case as discussed hereinabove delete the penalty sustained by the Ld. CIT(A).”
It is noted that the facts of the case before us are identical to the case decided by the Co-ordinate Bench in the case of Naresh Kumar (Supra) and other cases discussed above, thus, respectfully following the judgment of Hon’ble Supreme Court, Hon’ble Bombay High Court and the Co-ordinate bench, as discussed above, we find that penalty levied by the AO is beyond jurisdiction and contrary to law and facts, and therefore, the same is directed to be deleted.
As a result, appeal filed by the assessee is allowed.
Order pronounced in the open court on this 2nd March, 2016.