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Smt. Karajgi Vanita Nagesh, L/H of Late Nagesh K. Karajgi, C/o. K.K. Associates, Versus ACIT, Circle-1 Solapur

2013 (8) TMI 1039 - ITAT PUNE

Levy of penalty u/s.158BFA (2) - Held that:- Facts and circumstances of the case do not warrant levy of penalty u/s.158BFA(2). We, therefore, set-aside the order of the CIT(A) and direct the AO to cancel the penalty levied u/s.158BFA(2) on account of disallowance of interest expenditure. - ITA No. 537/PN/2010 - Dated:- 30-8-2013 - Shri R.S. Padvekar, Judicial Member and Shri R.K. Panda, Accountant Member Appellant by : Shri Pramod Shingte Respondent by : Smt. Sunita Rao ORDER PER R.K. PANDA, AM .....

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search and seizure action u/s.132 of the Income Tax Act was carried out at the business and office premises of the assessee on 29-08-2000. In response to notice u/s.158BC the assessee filed his return of income declaring undisclosed loss of ₹ 75,39,357/- pertaining to 3 years, i.e. A.Y. 1999-2000 to 2001-02. While arriving at this loss, the assessee had claimed accrued interest of ₹ 90,77,000/- on advances received from the members of the society. The Assessing Officer completed the .....

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#8377; 22,49,790/- and depreciation of ₹ 5,69,170/-. The Revenue filed an appeal before the Tribunal. The Tribunal confirmed the deletion of notional income of ₹ 10,21,815/-, disallowed the interest totally and gave directions to allow the expenses incurred by the assessee for earning undisclosed income. The Assessing Officer thereafter computed the revised income of the assessee at ₹ 16,38,620/- vide his order dated 07-05-2008. 3.2 The Assessing Officer thereafter initiated pe .....

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ors during the period 10-12-2000 to 16-01- 2003 at the rates varying from 5% to 6%. The above allowance was on the basis of documentary evidence in the form of letter-cum-receipts. However, the Hon ble Tribunal overlooked this fact and has disallowed the entire interest. It was submitted that the interest has been disallowed on merely technical grounds. However, the assessee was under contractual obligation to pay interest and the claim was not frivolous or malafide. It was submitted that althou .....

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icer was not convinced with the explanation given by the assessee. He noted that no evidence was found at the time of search with regard to the liability of the assessee for making any payment of interest on this account to the plot holders. The copies of the letters submitted by the assessee at the time of assessment were not found during the course of search. Therefore, the Assessing Officer made the disallowance which has been upheld by the CIT(A). The Assessing Officer further noted that lac .....

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nal assets worth ₹ 59,78,282/-. Rejecting the various decisions cited before him the Assessing Officer levied penalty of ₹ 61,67,600/- u/s.158BFA (2) of the Income Tax Act. 5. In appeal the Ld.CIT(A) upheld the action of the Assessing Officer by holding as under : 5. I have carefully considered the contention of the appellant in the light of the facts of the case and provisions of law. The appellant's contention that his claim of interest of ₹ 90,77,000/- was bonafide and g .....

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therefore, no cognizance could be taken of the fresh evidence filed by the appellant during assessment proceedings of the block period. Various case laws relied upon by the appellant have already been distinguished by the Assessing Officer and after due consideration, I find myself in agreement with the view taken by the Assessing Officer. 5.1. Further, the claim of the appellant that the Assessing Officer should have taken the basis for working out the quantum of penalty to be the amount of tax .....

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ch is in excess of the amount of undisclosed income shown in the return. In other words, the penalty is leviable on the amount of difference between the assessed income and returned income. It is settled law that income includes loss and therefore, where the assessee has shown a negative figure against undisclosed income in the block return; for the purpose of calculating penalty u/s.158BFA(2), the difference between the assessed undisclosed income and the negative figure (loss) shown in the ret .....

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s justified in visiting the appellant with the penal provisions of section 158BFA(2) and levying penalty in an amount of ₹ 61,70,000/-. Accordingly, order u/s 158BFA(2) is confirmed. 5.1 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 6. The Ld. Counsel for the assessee reiterated the same submissions as made before the Assessing Officer and the CIT(A). Challenging the leviability of penalty he submitted that the disallowance of interest was made only on the ba .....

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eferring to the decision of the Mumbai Bench of the Tribunal (Third Member) in the case of Super Metal Industries Vs. DCIT reported in 119 ITD 153 he submitted that the Tribunal in the said decision has held that the expression or any expense, deduction or allowance claimed under this act which is found to be false not being there in section 158B(b) at the time of filing of the return on 31-05-2001, penalty u/s.158BFA(2) could not be validly imposed on the basis of certain disallowances of expen .....

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158BFA (2) is leviable. 6.2 Arguing the second plank of his submission he drew the attention of the Bench to sub-section (2) of section 158BFA and submitted that penalty is leviable only on the assessed income of ₹ 16,38,620/- and not on the total undisclosed income of ₹ 61,67,600/-. 7. The Ld. Departmental Representative on the other hand while supporting the order of the CIT(A) submitted that the assessee has not maintained any books of accounts before the search and those were pre .....

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o the fact that the assessee in the return of income filed on 23-03-2001 in response to notice u/s.158BC claimed liability for interest payable at ₹ 90,77,000/- as accrued liability on account of advance received from the members of the society. Although the Assessing Officer disallowed the entire interest the CIT(A) on the basis of certain documents allowed interest to the extent of ₹ 9,07,700/-. We find the Tribunal reversed the order of the CIT(A) on this issue. The Assessing Offi .....

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de or any expense deduction or allowance claimed under this act which is found to be false by the Finance Act, 2002 with retrospective effect from 01-07-1995 whereas the assessment years involved in the case of the assessee relates to block period 1991-92 and part of 2001-02 and the date of search is 29-08-2000 and the assessee filed return of income on 23-03-2001. Therefore, in view of the decision of the Mumbai Bench of the Tribunal (Third Member) in the case of Super Metal Industries (Supra) .....

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s not satisfactory to the officer and that itself is sufficient to levy the penalty, particularly on the basis of facts in the instant case, is difficult to accept. As rightly noted by the JM, at the time when the assessee filed the return on 31st May, 2001, the section as it stood then was materially different from, as it exists now. Sec. 158B(b), which defines "undisclosed income", was subjected to change by insertion of the words "or any expense, deduction or allowance claimed .....

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