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2015 (3) TMI 1188 - ITAT VISAKHAPATNAM

2015 (3) TMI 1188 - ITAT VISAKHAPATNAM - TMI - Penalty 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 additi .....

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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 disall .....

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posed under section 271(1)(c) of the Act. - Decided in favour of assessee. - ITA No.599/Vizag/2014 - Dated:- 5-3-2015 - Normal 0 false false

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on Locked= false Priority= 39 QFormat= true Name= TOC Heading /> SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER, & SHRI SAKTIJIT DEY, JUDICIAL MEMBER For the Appellant : Shri I. Kama Sastry, CA For the Respondent : Shri D. Manoj Kumar, DR ORDER Per Saktijit Dey. This is an appeal by the assessee against the order dated 17.09.2014 of learned CIT (A) Visakhapatnam confirming the penalty imposed under section 271(1)(c) of the Act for .....

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it was noticed by the Assessing Officer that during assessment proceedings 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 c .....

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owed 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, it was noticed by the Assessing Officer that there was a cash deposit of ₹ 15,60,000 in the assessee s bank account on 31.03.2010. As the assessee could not furnish any credible evidence to explain the source of such deposit .....

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e said notice assessee submitted her explanation stating therein that the disallowance with regard to interests on borrowed capital is on agreed basis with an assurance that no penalty proceedings under section 271(1)(c) would be initiated. As far as unexplained cash deposits into the bank accounts are concerned it was submitted that though the assessee was not in a position to establish with strict proof of evidence but there is no possibility to establish concealment she had accepted the addit .....

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n of penalty by raising various grounds on technical issues as well as on merits. However, submissions made by assessee did not find favour with the learned CIT (A) who confirmed the penalty by holding as under: 5. I have considered the submissions made. With regard to the contention raised by the AR that the penalty notice was not issued and not served on the assessee, a letter was issued to the Assessing Officer to verify the records and report on the contention raised in this regard. The A.R .....

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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 i .....

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erest on borrowed capital, the Act contended that the CIT (A) has deleted the penalty in the assessee s appeal for assessment year 2007-08 & A.Y 2008-09 which involved similar issues and accordingly the impugned penalty should be deleted. It is relevant to note that the disallowance of proportionate interest was made from assessment year 2006-07 onwards and which has been admitted by the assessee. But the assessee still chose to claim higher claim of deduction for A.Y 2010-11 also which only .....

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its nor adduced any evidence to show that the claim was made bonafide. The particulars relating to the credit have been detected by the Department during the assessment proceedings. Therefore, I find that the Assessing Officer is justified in holding that the assessee is exigible for penalty for not disclosing these transactions. In the light of the above discussion, it is held that Assessing Officer is justified in levying the impugned penalty. Accordingly the same is upheld . 5. The learned Au .....

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her imposition of penalty is for concealment of particulars of income or furnishing inaccurate particulars of income. The learned Authorised Representative submitted, even in the penalty order itself Assessing Officer was not sure whether penalty is 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 Represen .....

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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 penalty imposed under section 271(1)(c) on account o .....

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228 6. The learned Departmental Representative on the other hand submitted before us, from the assessment order it is evident that in the earlier assessment years, interest on borrowed capital has been proportionately disallowed as the entire borrowed fund was not utilized for construction purpose to which assessee also agreed. However, assessee in the impugned assessment year has again claimed the entire interest on borrowed fund without making proportionate disallowance. Further, learned Depar .....

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rded his satisfaction for imposition of penalty under section 271(1)(c) of the Act in accordance with the provisions of section 271(1B), assessee s claim cannot be accepted. Learned Departmental Representative submitted, as the facts on record clearly prove furnishing inaccurate particulars of income by assessee, provisions of section 271(1)(c) is clearly attracted. 7. We have considered the submissions of the parties and perused the materials on record as well as the orders of the Revenue autho .....

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t 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 .....

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sfied that penalty proceedings under section 271(1)(c) is to be initiated. In aforesaid view of the matter this contention of the assessee is rejected. However, as can be seen in the show cause notice issued under section 271 r.w.s. 274 of the Act, the Assessing Officer has not specified whether penalty proposed to be imposed under section 271(1)(c) is for concealment of particulars of income or furnishing of inaccurate particulars of income. The Hon'ble Karnataka High Court in the case of C .....

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the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentoned in section 271 should be made known about the grounds on which they intend i .....

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initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. 60. Clause (c) deals with two specific offences, that is to say, c .....

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s 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 calle .....

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y proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61. The Assessing Officer is empowe .....

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e of Ashok Pal reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing of inaccurate particulars of income carry different connotations. The Gujrat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing .....

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particulars of income or for furnishing of 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 2 .....

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s 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 satisfied that the assessee has concealed/furnished inaccurate particulars of income as envisaged under section 271(1)(c) and as such invites levy of penalty . 10. The Hon'ble Gujarat High Court in the case of CIT vs. Jyoti Ltd (34 taxmann.com 65)(Guj.) while considerin .....

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ing Officer in the order of penalty also did not come to a clear finding regarding penalty being imposed on concealment of income or on furnishing inaccurate particulars of income. 11. Therefore, 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. Therefore, for these reasons alone, by applying the decisions of Hon'bl .....

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