TMI Blog2015 (3) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. - ITA No.599/Vizag/2014 - - - Dated:- 5-3-2015 - <!--[if gte mso 9]> <![endif]--> <!--[if gte mso 9]> Normal 0 false false false ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs for assessment year 2006-07, wherein the property was actually constructed, it was found by the Assessing Officer that assessee had utilized ₹ 7,21,14,405 for construction purposes as against borrowed funds of ₹ 10.50 crores availed from Punjab National Bank. Assessing Officer while conducting the assessment proceedings for assessment year 2006-07 was of the view, as entire borrowed fund was not utilized for construction purposes, interest on such borrowed fund was required to be disallowed proportionately to which, as noted by the Assessing Officer, assessee agreed. Assessing Officer observed that following the same principle, assessee herself, disallowed proportionate interest on borrowed capital while computing income from house property in assessment year 2009-10. However, in the assessment year under consideration assessee has not made any such proportionate disallowance of interests on the borrowed fund. Accordingly, Assessing Officer calculated proportionate interest on borrowed fund which was not utilized for the purpose of construction and made a disallowance of ₹ 54,74,678 out of the total amount of interest claimed of ₹ 1,69,62,265. Further, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, this contention of the assessee is rejected. 5.1 The Authorised Representative contended that satisfaction was not recorded in the assessment order and that the observation penalty proceedings will be initiated separately could not amount to valid satisfaction contemplated under the Act. I have considered the plea. It is relevant to note that in view of the provisions contained in sec 271(1B) of the I.T. Act, the direction, penalty proceedings will be initiated separately would amount to recording of satisfaction requisite under the Act. Further, the Hon'ble sc in the case of MAK DATA PVT Ltd vs. CIT 358 ITR 593 (S.C) has observed, the AO has to satisfy whether the penalty proceedings be initiated or not during the course of assessment proceedings and the Assessing Officer is not required to record his satisfaction in a particular manner or reduce into writing . Thus, it is not necessary that the Assessing Officer had to spell out the satisfaction in a particular manner or reduce into writing it has to be held that the satisfaction is very much discernible from the recordal of direction penalty proceedings initiated separately . In view of the above legal positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposable under section 271(1)(c) of the Act for concealment of income or furnishing inaccurate particulars of income. In this context he drew our attention to the finding of the Assessing Officer in the penalty order. The learned Authorised Representative submitted even otherwise also the disallowance of proportionate interest on borrowed capital is on notional basis by presuming that the entire borrowed fund was not utilized for the purpose of construction. The learned Authorised Representative submitted only because the assessee has agreed for such disallowance, it does not necessarily follow that assessee has concealed his income or furnished inaccurate particulars of income while claiming deduction towards interest on borrowed capital. In this context it was submitted by the learned Authorised Representative that a part of the borrowed fund to be precise, an amount of ₹ 1,20,24,000 was utilized for purchase of land. Therefore, it cannot be said that the entire borrowed fund was not utilized for the construction. The learned Authorised Representative submitted before us that considering the aforesaid facts, CIT (A) in assessment year 2007-08 and 2008-09 has deleted the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned, we are unable to accept it. As can be seen, Assessing Officer while making proportionate disallowance has observed that though, the assessee out of her own accord has made similar disallowance in assessment year 2009-10 as also agreed for similar disallowance in assessment year 2006-07, but has not disallowed proportionate interests in the assessment year under consideration. Further, Assessing Officer has also made addition of ₹ 15,60,000 under section 68 of the Act as assessee could not explain the source of such investment with supporting evidence. Therefore, the satisfaction of the Assessing Officer for imposition of penalty under section 271(1)(c) in the present case, in our view, is discernible from the discussions made by Assessing Officer in the assessment order. In this context it is to be noted that while initiating proceedings under section 271(1)(c), Assessing Officer is not required to record in detail his satisfaction with regard to furnishing of inaccurate particulars of income or concealment of income. The discussion made in the assessment order should indicate that Assessing Officer was prima facie satisfied that penalty proceedings under section 271(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f inaccurate particulars of income no penalty can be imposed under section 271(1)(c) as the notice issued is defective. The Hon ble High Court held that in absence of clarity in the show cause notice, the assessee could not be expected to furnish his explanation in an effective manner. The ratio laid down by the Hon ble Karnataka High Court (supra) clearly apply to the facts of the present case. On a perusal of the show cause notice issued under section 271 read with section 274, it is manifest Assessing Officer has not specified whether the penalty proposed to be imposed under section 271(1)(c) is for concealment of particulars of income or for furnishing of inaccurate particulars of income. 9. Further, it is worth mentioning, even in the penalty order passed under section 271(1)(c) Assessing Officer has not given any conclusive finding as to whether penalty imposed is for concealment of particulars of income or furnishing inaccurate particulars of income. For ready reference the observations made by the Assessing Officer is extracted hereunder: In view of the foregoing, the submission/ explanation furnished by the assessee is held as untenable and accordingly I am satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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