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2016 (6) TMI 288 - ITAT MUMBAI

2016 (6) TMI 288 - ITAT MUMBAI - TMI - Penalty u/s.271(1) (c) - additions made u/s 94(7) - Held that:- This is not a fit case for levying of penalty u/s 271(1)(c) of the Act as the assesseefirm has not concealed the particulars of income nor furnished any inaccurate particulars of income. No doubt there has been slip up in filing the claim u/s 94(7) of the Act but the same keeping in view the explanation submitted by the assessee-firm was an inadvertent omission and mistake which was not intenti .....

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e-firm has concealed particulars of its income or furnished inaccurate particulars of income so that the rigours of the provisions of section 271(1)(c) of the Act can be attracted. It could be said that the assessee-firm made claim before the authorities below which did not found favour with the Revenue and was not accepted by the authorities below in quantum proceedings which was later confirmed by the learned CIT(A) and the Tribunal in quantum assessments . The case of the assessee-firm is squ .....

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11, is directed against the order dated 25-11-2011 passed by learned Commissioner of Income Tax (Appeals)- 8, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2005-06, the appellate proceedings before the learned CIT(A) arising from the penalty order dated 29-03-2010 passed by the learned assessing officer (hereinafter called the AO ) u/s 271(1)(c) of the Income Tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the assessee-firm in the memo of appeal .....

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ed inaccurate particulars of its income and that the income has been assessed at a higher amount an account of (a) inadvertent omission in case of disallowance u/s.94(7) and (b) honest difference of opinion between the Appellant and the department as regards the disallowance of interest claimed u/s.36(1) (iii) of Income Tax Act, 1961. 3. The learned CIT (A) further erred in confirming the order levying penalty u/s.271(1)(c) of Income Tax Act, 1961 by holding that the explanation offered by the A .....

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the AO u/s 143(3) of the Act against the assessee-firm, vide assessment orders dated 30th October, 2007 whereby two additions have been made by the AO to the retuned income, first addition of ₹ 1,44,580/- u/s 94(7) of the Act and another disallowance of ₹ 21,42,363/- towards interest expenses . These additions were confirmed by the learned CIT(A) in quantum proceedings. Penalty proceedings u/s 271(1)(c) of the Act were initiated by the AO against the assessee-firm for furnishing of i .....

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vironment. The assessee-firm borrowed the funds from outside parties and has paid interest to them @ 12% per annum and it was submitted that sometimes there is surplus funds for short intervals which are likely to remain idle for some point of time and the said funds may again be required after a short interval for business purposes. In such a situation if the funds are parked with a bank for a short period of time , the funds may fetch lower interest rate of 3 to 4% p.a.. The assessee-firm subm .....

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mely receipt back of the funds. It was submitted that business decisions are to be taken by the businessmen and the AO cannot sit in the armchair of businessmen. The interest expenditure was duly incurred by the assessee-firm on the borrowed funds. The assessee-firm relied upon the decision of Hon ble Supreme Court in the case of CIT v. S.A.Builders (2007)288 ITR 1(SC) and decision of Hon ble Delhi High Court in the case of CIT v. Sahni Silk Mills Private Limited (2001)253 ITR 294(Del. HC). The .....

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of the unreasonable transactions carried out by the assessee-firm with sister concern and the assessee-firm has flouted the provisions of Section 40A(2)(b) of the Act, and hence it cannot be said that there was no deliberate evasion of taxes on the part of the assessee-firm. With respect to the disallowance on account of interest paid, the A.O. observed that assessee has borrowed money at higher rate of interest and deployed the same to the sister concerns at lower rate of interest and hence an .....

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t related parties. The assessee-firm received lesser interest from sister concerns whereas the assessee paid interest to its relative of partners and to partners themselves @ 12% p.a.. Thus, the addition was confirmed by the learned CIT(A) to the tune of ₹ 21,42,363/- in quantum proceedings with respect to the disallowance of interest expenses as detailed above . As per the A.O. , the assessee-firm has not bonafidely explained the reasons to substantiate the claim made by the assessee-firm .....

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1(SC), Hon ble High Court of Kerala decision in the case of CIT v. P K Narayanan (1999) 106 taxman 567(Ker.), ITAT, Hyderabad decision in the case of Shivlal Dulichand Agarwal v. ITO (1993) 45 ITD 319(Hyd. Trib.) and Hon ble Bombay High court decision in the case of Western Automobiles (India) v. CIT (1978) 112 ITR 1048(Bom.) Accordingly, the A.O. levied penalty of ₹ 8,36,850/- u/s 271(1)(c) of the Act on the grounds that it is established that the assessee-firm has concealed its income an .....

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ted here for the sake of brevity. The learned CIT(A) rejected the contentions of the assessee-firm and confirmed the penalty levied by the A.O. u/s 271(1)(c) of the Act vide appellate orders dated 25.11.2011. The learned CIT(A) relied upon the decision of UOI v. Dharmendra Textile Processors (2008) 306 ITR 277(SC) while confirming/sustaining the penalty orders of the AO levying penalty of ₹ 8,36,850/- u/s 271(1)(c) of the Act. 5. Aggrieved by the appellate order dated 25.11.2011 of the lea .....

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contest before the Tribunal disallowance u/s 94(7) of the Act in quantum proceedings as no grounds of appeal was taken before the Tribunal concerning disallowance u/s 94(7) of the Act . With respect to dividend stripping u/s 94(7) of the Act, the assessee-firm pleaded accidental or inadvertent omission due to oversight and represents bonafide and unintentional mistake and relied upon the case laws as detailed below to contend that the penalty u/s 271(1)(c) of the Act is not exigible with respec .....

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144 ITR 127(Kar. HC) 4. CIT v. Hiralal Shankarlal 165 ITR 124(Calcutta HC) 5. CIT v. Raj Textile -166 ITR 632(MP HC) The learned Counsel submitted that the assessee-firm borrowed funds @ 12% p.a. interest and deployed the funds at 6 to 9% p.a. interest to its sister concerns. The assessee-firm relied upon the decision of Hon ble Punjab & Haryana High Court in the case of CIT v. Pankaj Munjal Family Trust, (2010) 326 ITR 286(P&H HC) and the decision of Hon ble Supreme Court in the case o .....

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ble Bombay High Court in the case of CIT v. Aditya Birla Nova Limited, (2012) 82 CCH 206 (Bom. HC), Hon ble Delhi High Court decision in the case of CIT v. P.H.I. Seeds India Ltd., (2008) 301 ITR 13 (Del. HC), the decision of Hon ble Supreme Court in the case of CIT v. Reliance Petroproducts (P) Ltd, (2010) 322 ITR 158 (SC), decision of Hon ble Madhya Pradesh High Court in the case of D&H Sechron Electrodes Pvt. Ltd. v. CIT, (1983) 142 ITR 528 (MP) and the decision of Hon ble Supreme Court .....

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learned D.R. submitted that the assessee-firm had furnished inaccurate particulars of income. It is a related party transaction whereby the assessee-firm has entered transactions with the sister concern to evade taxes by shifting the income to other sister concerns. The learned D.R. further relied on the orders of the learned CIT(A). The learned DR relied upon the decision of Hon ble Supreme Court in the case of Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277(SC) , decision o .....

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wed funds from partners and relatives of the partners whereby interest is payable at 12% per annum. The assessee-firm has deployed its funds to certain sister concerns @ 6 to 9% interest p.a.. The additions made by the AO disallowing interest expenses due to the above differential in the assessment orders passed u/s 143(3) of the Act has been confirmed by the learned CIT(A) and also by the Tribunal in quantum proceedings and the same has attained finality. It was the contention of the assessee-f .....

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re kept for short period of time with sister concern which fetched 6-9% p.a. interest and which can be recalled at any time as per requirements of the assessee-firm. The assessee firm sighted that it is a business decision based on commercial expediency relying upon the decision of Hon ble Supreme Court in the case of S A Builders(supra) and the Revenue cannot put itself into an armchair of the business men to decide the business decisions of the businessmen. With respect to dividend stripping u .....

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ase, this is not a fit case for levying of penalty u/s 271(1)(c) of the Act as the assesseefirm has not concealed the particulars of income nor furnished any inaccurate particulars of income. No doubt there has been slip up in filing the claim u/s 94(7) of the Act but the same keeping in view the explanation submitted by the assessee-firm was an inadvertent omission and mistake which was not intentional or deliberate on the part of the assessee-firm or otherwise with an intention to defraud reve .....

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osed the transactions of borrowing and lending of funds in the return of income filed with the Revenue and made complete disclosures about the same before the Revenue. The assessee-firm came forward with an explanation which is a bonafide explanation as set out above and it cannot be said that the assessee-firm has concealed particulars of its income or furnished inaccurate particulars of income so that the rigours of the provisions of section 271(1)(c) of the Act can be attracted. It could be s .....

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he instant case, the penalty of ₹ 8,36,850/- so levied by the AO and confirmed/sustained by the learned CIT(A) is not sustainable. We have duly considered the case laws relied upon by the Revenue but the same did not advance the case of the Revenue. Hon ble Supreme Court in the case of UOI v. Dharmendra Textile Processors(supra) has laid down that mens rea is not relevant in penalty proceedings but at the same time each and every omission or mistake of the tax-payer in filing of the return .....

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