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2019 (4) TMI 609 - ITAT AMRITSARLevy of penalty u/s. 271(1)(c) - interest on borrowed funds, interest on the said capital was disallowed u/s. 36(1)(iii) - as alleged furnishing of inaccurate particulars of income - HELD THAT:- No change in the circumstances between October, 2004 and August, 2005, has been stated. Why, she did not have sufficient funds to buy the land, deploying borrowed capital for the purpose, much less to set-up an industrial unit? Why, the document executed in her favour in October, 2004, i.e., the GPA along with the affidavit, as admitted, itself prevented the assessee from registering the land in her name, a fact of which she would not but be aware of while making the investment, clearly indicting the assessee’s explanation. Further still, the assessee being short of funds and other resources, including time, yet does not transfer the land to her son for a consideration, but without it. The recoupment of cost from her son by the assessee would not have attracted any additional stamp duty nor any gain in the assessee’s hands. The aspect of it being for a new project, so that the interest expense was not admissible, would in any case obtain. The levy of penalty for furnishing inaccurate particulars of income is, in principle, valid. At the same time, as observe two major inconsistencies in the penalty as levied, also pointed out during the hearing. Firstly, the investment by the assessee is in October, 2004, i.e., midway during the current year, though the interest disallowed is for the full year. The interest disallowed has necessarily to be for the period during the relevant year for which the investment obtains. Two, the assessee has repeatedly, both in the quantum and penalty proceedings, stated that the interest allowed on unsecured loans is at 9% p.a, while the interest disallowed has been worked out @ 12% p.a. AO is accordingly directed to, after verifying the assessee’s claim as to the rate of interest, modify the penalty, working out the same at the same rate of tax at which it stands levied, i.e., after making adjustment for the two factors i.e., period of investment and the rate of interest, for which reasonable opportunity of hearing shall be allowed to the assessee. Assessee’s appeal is partly allowed.
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