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2016 (9) TMI 651 - ITAT AHMEDABAD

2016 (9) TMI 651 - ITAT AHMEDABAD - TMI - Penalty imposed under section 271(1)(c) - AO was opinion that the assessee has reduced the incidence of tax by claiming deduction of interest expenditure against salary income, and thus, he deserves to be visited with penalty - Held that:- . In the first round of litigation upto the level of the Tribunal, it has been held that interest expenditure cannot be allowed as set off against salary income, but this order was recalled by the Tribunal in Misc. App .....

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e 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 salary income, rather, his stand is to be construed that .....

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IV, Baroda dated 20.2.2013 for the Asstt.Year 2004-05. 2. Grievance of the assessee relates to confirmation of penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. 3. Brief facts of the case of the assessee are that the assessee has filed his return of income on 6.9.2004 declaring loss of ₹ 4,08,089/-. The assessment was made under section 143(1) r.w.s. 147 of the Act on 18.9.2006. The ld.AO has made following additions to the income of the assessee, on which penalty has be .....

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377; 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 .....

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e the appellant Is a salaried employee and therefore, whether his claim of payment of interest to certain depositors amounting to ₹ 5,41,838/- was an admissible deduction against the salary income as per law. From this observation of the Hon'ble ITAT, Ahmedabad, it is clearly established that the claim of interest of ₹ 5,41,838/- of the appellant against his salary income was not correct as per law and therefore, It can be said that the appellant has filed inaccurate particulars .....

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nds, the first appellate authority was correct in holding that the expenditure of interest the purpose of earning interest. Thus, as per 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 provi .....

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argued by the appellant before the Hon'ble ITAT that it had earned interest off 35,203/- from M/s Krishna Barrels Pvt. Ltd. against the loan and advances given by It for which the interest was incurred. Thus, vide the above petition, the appellant'1 requested the Hon'ble ITAT, Ahmedabad to grant netting to the extent of ₹ 35,203/- from the above interest of ₹ 5,41,838/- which was disallowed. The Hon'ble ITAT D' Bench, Ahmedabad vide its order in MA'No.171/Ahd/ .....

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is confirmed on net disallowance of interest of ₹ 5,06,635/- (i.e. ₹ 5,41,838/- ₹ 35,203/-). In other words the penalty levied u/s 271(l)(c) of the IT Act on remaining amount of ₹ 35,203/- is hereby deleted in view of above decision of Hon'ble ITAT, D' Bench, Ahmedabad, …….. …….. 4.4. Since, the Hon'ble ITAT has deleted the above addition of ₹ 1,42,890/- on merits and therefore, no penalty can be levied on such addition. With .....

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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 ₹ 5,06,635/- and also on addition of ₹ 1,42,836/-. The penalty, as levied by the AO u/s 271(1)(c) of the IT Act on addition of ₹ 1,42,890/- on account of disallowance of payment of brokerage is hereby deleted. 5. With the assistance of the ld.representatives, I have gone through the record carefully. The AO was opinion that the assessee has reduced t .....

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this order was recalled by the Tribunal in Misc. Application, as noticed by the ld.CIT(A) in the finding extracted supra. The Tribunal has allowed set off of the interest expenditure against interest income of ₹ 35,203/-. This reasoning of 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 .....

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