TMI Blog2016 (4) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... able conclusion.- Decided in favour of assessee Disallowance out of interest on loan u/s 24(b) as well as u/s 36(1)(iii) - Held that:- 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 ₹ 1,72,79,082/-. Out of the said claim, only a sum of ₹ 55,97,027/- has been disallowed by the AO u/s 24(b) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 2. 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. 3. 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 ₹ 58,36,019/-. The AO completed the assessment u/s 143(3) determining total income at ₹ 6,28,080/- on 07.12.2011. During the course of assessment proceedings, the A.O had made disallowance of ₹ 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 ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - ₹ 3,51,783/- U/S 371(1) of the Income Tax Act. b) Disallowance out of interest on loan for ₹ 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 ₹ 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 abse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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. While filing the return the expenses have been claimed as reflected in the books of accounts. On the other 'hand the assessee had diverted the principal amount taken as the housing loan towards ginning away of interest free loans. As a business entity the moneys received as income and loan are deposited in to a common bank account and is used for various 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 assessment proceedings when the issue was brought before the assessee, it did not voluntarily offer the said amount to tax. The appellant while appearing before the Learned Assessing Officer has merely submitted the accounts and the facts as known 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant is mala fide. She has merely stated as such to justify the levy of 300% penalty. The Learned Assessing Officer has misconstrued the non filing of the appeal by appellant as a pointer to the intentions of the appellant at the time of filing the return. This is not humanly possible since the view point of the department has been made through the assessment order only and not known to the appellant at the time of filing the return of income. At that point of time the appellant was under a bona-fide belief that interest paid on moneys borrowed for acquiring the property is deductible u/s. 24(b) 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 ₹ 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' w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong 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. 6. 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 inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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. 9. 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 1,72,79,082/-. Out of the said claim, only a sum of ₹ 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 year was patently erroneous. Under these circumstances, the AO was not able to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly 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 ITA No.49/2013 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 15. 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 reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X
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