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2015 (3) TMI 1188 - AT - Income TaxPenalty under section 271(1)(c) - disallowance of interest on borrowed capital - Held that:- When the Assessing Officer himself was not sure whether assessee has concealed the particulars of income or has furnished inaccurate particulars of income, the imposition of penalty under section 271(1)(c) of the Act is invalid. Addition on account of proportionate disallowance of interest on borrowed capital is concerned, in our view such addition does not call for imposition of penalty under section 271(1)(c) of the Act. There is no dispute to the fact that the assessee has borrowed the fund of ₹ 10.50 crores from the Punjab National Bank. Proportionate disallowance of interest on such borrowed fund is being done from assessment year 2006-07 on the reasoning that the assessee has utilized an amount of ₹ 7,21,14,405 for construction and not the entire borrowed funds. Though, assessee might have agreed for such proportionate disallowance of interest on borrowed fund for whatever may be the reason, but it is a fact on record that assessee’s claim that an amount of ₹ 1.20 crores was utilized for purchase of land has not been controverted by the Department. In fact, the learned CIT (A) while considering the validity of penalty imposed under section 271(1)(c) of the Act on similar disallowance of interest on borrowed capital for assessment years 2007-08 and 2008-09 deleted the penalty by observing that the disallowance of proportionate interest on borrowed fund is on notional or estimate basis and as such penalty cannot be imposed under section 271(1)(c). The decision of the learned CIT (A) was upheld by the ITAT while dismissing the appeals of the Department. Therefore, on merits also penalty under section 271(1)(c) could not be imposable, at least, to the extent of addition made on disallowance of proportionate interests on borrowed funds. In view of the foregoing discussions, we delete the penalty imposed under section 271(1)(c) of the Act. - Decided in favour of assessee.
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