TMI Blog2016 (9) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal would indicate that interest bearing funds were used by the assessee for making investment in the company. In other words, he would earn interest income. It is a different matter that in this year, the income was to the extent of ₹ 35,203/-. Had there been more interest income, then, the total claim of interest expenditure would have been set off. So, the question is whether the claim of the assessee was not tenable at all or it was not allowed because sufficient interest income was not there for a set off. Even if a part of the interest expenditure is being set off against alleged interest income, it would falsify the reasoning of the AO. The assessee, as such exclusively not claimed the interest expenditure against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld.CIT(A) has not confirmed penalty on this addition. The AO has determined the taxable income at ₹ 3,97,475/-. Out of that addition, ₹ 1,42,890/- has been deleted. The ld.CIT(A) has noticed this fact elaborately in the impugned order. Therefore, I deem it pertinent to take note of the finding of the ld.CIT(A) from para 4.3 as under: 4.3 As can be seen from the above, the Ld, CIT(A) has observed that no cash flow statement was filed by the appellant before the AO during the course of assessment proceedings and appellant failed to substantiate its argument before the AO that interest free funds were advanced as deposits to the company. The view of the AO that the interest expenditure was incurred not wholly and exclusive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Hon ble ITAT, Ahmedabad, there is no justification to allow such claim. From these observations of the Ld.CIT(A) as well as the Hon'ble ITAT, it is established that the claim of the appellant with regard to interest expenditure of ₹ 5,41,838/- was incorrect and was not genuine and therefore/such claim of interest/expenses clearly attract the provisions of section 271(1)(c) of the IT Act. Considering all these facts, I hold that the AO has correctly levied penalty under section 271(1)(c) of the Act so far as the addition on account of disallowance of interest expenditure of ₹ 5,41,838/- is concerned. At this place it may be mentioned that subsequently the appellant had filed a petition before Hon'ble ITAT 'D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above addition of ₹ 1,42,890/- on merits and therefore, no penalty can be levied on such addition. With regard to the disallowance of interest payment of ₹ 1,42,876/-, the Hon'ble ITAT, Ahmedabad has confirmed the addition on the same principle on which the addition of ₹ 5,41,838/- has been confirmed by it In view of this, the penalty u/s 271(1)(c) of the IT Act is required to be confirmed on this addition of ₹ 1,42,876/- also on the basis of the same reason on which the penalty u/s 271(1)(c) of the IT 1 Act have been confirmed in preceding paragraphs on addition of ₹ 5,06,635/-. In short, the action of the AO with regard to levy of penalty u/s 271(1)(c) of the IT Act is confirmed on addition of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is whether the claim of the assessee was not tenable at all or it was not allowed because sufficient interest income was not there for a set off. Even if a part of the interest expenditure is being set off against alleged interest income, it would falsify the reasoning of the AO. The assessee, as such exclusively not claimed the interest expenditure against the salary income, rather, his stand is to be construed that he claimed interest expenditure on the ground that such interest bearing funds were used for making investment in the company. To my mind, in such situation, he cannot be visited with penalty under section 271(1)(c) of the Act. More so, ld.AO has not specified whether penalty was imposed for furnishing inaccurate particulars f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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