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2016 (1) TMI 1072 - ITAT MUMBAI

2016 (1) TMI 1072 - ITAT MUMBAI - TMI - Penalty u/s 271(1)(c) - no nexus between borrowed funds and the investment made by the assessee and further huge interest expenditure was disallowed by the Assessing Officer - CIT(A) deleted the addition - Held that:- Section 36(1)(iii) has to be read on its own terms as it is a code by itself. All that section requires is that the assessee must borrow capital for business purposes, carried out by the assessee in the year of account. Unlike section 37, whi .....

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Company pvt. Ltd. vs CIT (1993 (12) TMI 19 - GUJARAT High Court ). The totality of facts clearly indicates that the assessee did not establish the nexus between the borrowed funds and the investment so made with a clear intention to conceal the income by furnishing inaccurate particulars of such income, therefore, in our view, penalty was rightly imposed by the Assessing Officer. The stand of the Revenue is further fortified by the fact that even the assessee did not file appeal against the dis .....

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sed in this appeal pertains to deleting the penalty of ₹ 25,48,706/-, imposed u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter the Act), ignoring the fact that there was no nexus between borrowed funds and the investment made by the assessee and further huge interest expenditure was disallowed by the Assessing Officer against which no appeal was filed by the assessee, meaning thereby, the same was accepted by the assessee. 2. During hearing of this appeal, the ld. DR, Shri Samir Tekr .....

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e has either concealed the income or furnished inaccurate particulars of such income. Reliance was placed upon the decision in the case of Shri Hafeez S. Contractor vs ACIT (ITA No.6222 and 6223/Mum/2013) order dated 02/09/2015, M/s Sheetal Manufacturing Company vs JCIT (ITA NO.7107/Mum/2011) order dated 28/09/2012, Mehta Brothers Gems Pvt. Ltd. vs ACIT (ITA No.6245/Mum/2010) order dated 25/01/2012 the decision from Hon ble Bombay High Court in CIT vs Reliance Utilities and Power Ltd. 313 ITR 34 .....

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of income statement, filed along with the return, it was noticed that the assessee made investment in shares of subsidiary company and mutual funds to the tune of ₹ 21,81,03,600/-. The assessee earned income of ₹ 3,18,500/- and claimed the same as exempt u/s 10(34) of the Act along with income from mutual funds of ₹ 41,59,586/-. The assessee was asked to pin point with respect to expenses relating to various source of income, source of investment made in shares as the expenses .....

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of various mutual funds of ₹ 41,59,586/- and dividend income of ₹ 3,18,500/- u/s 10(34) of the Act. It was also noticed that the assessee paid interest of ₹ 13,89,28,290/- on export/import working capital availed from the bank. The stand of the Revenue is that the assessee cannot use such working capital funds for the purposes of making investment to generate tax free income. The Assessing Officer computed the taxable income at ₹ 6,00,65,950/- against the income of ͅ .....

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d not gather possession of the property and claimed refund of the advances. As per the Revenue, the assessee was not provided the interest, so accrued from such advances and did not offer for taxation. Since, the assessee has borrowed substantial amount from banks and paid huge interest of ₹ 14.17 crores to the bank, therefore, the assessee has to prove the nexus of funds advanced towards purchase of property and further to explain the position of own and borrowed funds. During assessment .....

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n appeal before this Tribunal. 2.2. If the observation made in the assessment order/penalty order, leading to addition made to the total income/imposition of penalty, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, there is no dispute to the fact that the assessee has taken huge borrowed funds on which substantial amount of interest of ₹ 14.17 crores was paid to the bank. It is also .....

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funds advanced towards purchase of property was out of own funds and not from the borrowed funds. It is noteworthy that no appeal was filed by the assessee against the quantum addition knowing fully well that the assessee has not made the investment within the parameters of the provisions of law. Even, before us, the assessee has merely relied upon the decision from the Hon ble jurisdictional High Court in the case of CIT vs Reliance Utilities and Power Ltd. 313 ITR 340 (Bom.). However, in that .....

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at nothing was mentioned with respect to diversion of funds which can be directly linked with the investment of property. The facts are clearly indicate that in spite of specifically asking by the Assessing Officer, the assessee never proved the nexus, therefore, we find merit in the contention of the ld. DR. Even otherwise, as per section 36(1)(iii) of the Act, legislative amendment was made by the Finance Act, 2003 by adding a new proviso inserted w.e.f. 01/04/2004 to provide that the amount o .....

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