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2018 (3) TMI 40 - ITAT MUMBAIPenalty levied u/s 271(1)(c) - Nature of interest expenditure - disallowance of finance charges on the ground that the expenditure incurred under the head “Finance Charges” is not incurred wholly and exclusively for the purpose of business of the assessee - Held that:- No merits in the arguments of the assessee for the reason that the activity carried out by the assessee i.e. investment in shares of Anand Group of Companies for holding controlling interest cannot be considered as main business activity of the assessee in the nature of trade or commerce. The assessee itself has admitted that it is in the activity of investment in group companies for acquiring controlling interest and such investment has been treated as long term investment in its financial statements. The statutory auditors of the company have reported that the company is not engaged in carrying on any business or as part of its business activity of acquisition of shares except making long term investments - AO and CIT(A) were right in treating the activity carried out by the assessee as investment activity and accordingly finance charges is not deductable under section 36(1)(iii). Also the assessee has made an alternate plea in as much as finance charge incurred shall be deductable u/s 57(iii) as its dividend income is taxable under the head “Income from other sources”, the facts remain that the assessee has failed to furnish any details in respect of investments which earned income and investments which do not earn dividend income for the year under consideration. The assessee itself had admitted that all its investments are not earned dividend income. CIT(A), after considering relevant facts, has directed the AO to allow finance charges on proportionate basis in respect of investments which earned dividend income after verifying the facts. CIT(A) has given factual finding, after considering the relevant facts of the case. We do not find any error or infirmity in the order of the Ld. CIT(A), hence, we are inclined to uphold the findings of the Ld. CIT(A) and reject grounds raised by the Revenue as well as the assessee. For Penalty u/s 271(1)(c) an order imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty may be passed on the basis of assessment as revised by giving effect to such order of the appellate authorities. The proviso provided further stated that no order of imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty shall be passed unless the assessee has been heard or has been given a reasonable opportunity of being heard and after the expiry of six months from the end of the year of which the order of the appellate authority has been received by the Commissioner. In this case, the AO has levied the penalty without waiting for the outcome of the orders of the appellate authorities. Therefore, we are of the considered view that the issue needs to be reexamined by the AO in the light of provisions of section 275(1A) of the Act. Hence, we set aside the issue to the file of the AO and direct him to reconsider the issue
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