TMI Blog2017 (7) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T.A. No. 2998/Mum/2013 - - - Dated:- 2-12-2016 - SHRI D. KARUNAKARA RAO, AM AND SHRI RAVISH SOOD, JM For The Appellant : Shri B.V. Jhaveri For The Respondent : Miss. Anupama Singh ORDER PER RAVISH SOOD, JUDICIAL MEMBER: The present appeal is directed against the order passed by the CIT(A) 9, (Mumbai), which arises from the order passed by the A.O u/s 271(1)(c) of the Income Tax Act, 1961 (for short Act ), therein imposing penalty of ₹ 6,25,000/- on the assessee. The brief facts of the case are that the assessee which is a Private Limited Company engaged in the business of manufacturing and export of cut and polished diamonds, had e-filed its return of income for A.Y. 2007-08 as on 26.10.2007, declaring total income of ₹ 6,25,26,230/-. That the case of the assessee was taken up for scrutiny proceeding, wherein the A.O after carrying out the following disallowances/additions:- S. No. Particulars Amount 1. Disallowance u/s 36(1)(iii) of interest relatable to investment made by assessee towards purchase of property at Bharat Diamond Bourse, Mumbai (fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re found to be sufficient to meet the investments, then it could safely be presumed that the investment was made from the interest free funds generated or available with the assessee. (iv) Alternatively, it was further submitted by the assessee that no such disallowance u/s 36(1)(iii) with respect to investment made towards property at BDB was made by the AO while framing the assessment for the immediately succeeding year, i.e. A.Y. 2008-09. The AO however being of the view that as the asssessee had failed to substantiate that the investment in the premises at BDB was made out of own surplus funds, and the interest bearing borrowed funds have not been utilized for making of the said investment, therefore such amount was not allowable as an expenditure u/s 36(1)(iii) of the Act . Thus in the backdrop of the aforesaid observations, the A.O holding a conviction that as the assessee had raised a wrong claim for deduction of such interest on borrowed capital as an expenditure, it was therefore to be held to have furnished inaccurate particulars of income and imposed penalty of ₹ 6,25,000/- in the hands of the assessee. 4. The assessee being aggrieved with the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty u/s 271(1)(c). 5. That the assessee being aggrieved had assailed before us the order of the CIT(A) sustaining the penalty imposed u/s 271(1)(c). The Learned Authorized Representative for the asssessee (for short A.R ) reiterating the submissions made before the lower authorities, therein submitted that the investment towards the purchase of the property at BDB was made out of substantial interest free funds so available with it, as well as the surplus/profits generated during the year under consideration. The Ld. A.R in order to fortify his contention, therein drew our attention to Page 27 of the Paper Book (for short APB ), which is a Cash Flow Statement for the year under consideration, i.e. A.Y. 2007-08. The Ld. A.R further took us to Page 10 of the APB , which is the Profit and loss account of the assessee for the year under consideration, which therein revealed that Profits/surplus after tax as had been generated by the assessee during the year amounted to ₹ 4,27,81,772/-. It was thus in the backdrop of the aforesaid facts submitted by the Ld. A.R that now when substantial interest free funds along with profits /surplus generated during the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which as a matter of fact remained injected in the business of the asssessee, was established with the making of the investment towards purchase of property at BDB , therefore the assessee could at least not be held to have furnished inaccurate particulars by claiming such interest on borrowed capital as an expenditure in the Profit loss a/c . We find that the assessee had throughout relied on the judgment of the Hon ble High Court of Bombay in the case of CIT Vs. Reliance Utilities and Power Limited (2009) 313 ITR 340 (Bom), in support of its aforesaid contention before the lower authorities, but are surprised to find that neither of the lower authorities had taken cognizance of the said judgement, which seizes the issue under consideration. The Hon ble High Court of Bombay in the aforesaid case had held as under: 10. If there be interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest free funds available. In our opinion the Supreme Court in East India Pharmaceutical Works Ltd. (supra) had the occasion to consider the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asized by different Hon ble Courts, that as penalty proceedings are separate and distinct from assessment proceedings, therefore merely because an addition had been made by the A.O, or sustained by an appellate authority, the same solely on the said count cannot form the basis of imposing or sustaining of a penalty in the hands of an assessee, as the A.O remains under a statutory obligation to establish that over and above the making of addition/disallowance in the hands of the assessee during the course of the assessment proceedings, it can safely be concluded that the said addition/disallowance had emerged on account of either Concealment of income or furnishing of inaccurate particulars of income , as the case may be, by the assessee. Thus to be brief and explicit, in light of the settled position of law as had been so laid down by the Hon ble Supreme Court in its landmark judgment so passed in the case of :Hindustan Steels Limited Vs. State of Orissa (1972) 83 ITR 26 (SC), that penalty proceedings are in the nature of quasi criminal proceedings, therefore we are of the considered view that mere making of an addition by the A.O in the case of the quantum proceedings, solely o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factum of availability of such sufficient interest free funds during the year under consideration, then in light of the principle enunciated by the Hon ble Jurisdictional High Court in the case of : Reliance Utilities and Power Limited (supra) , that if the interest free funds so available with the assessee are sufficient to meet the investments so made, the same could safely be presumed to be related to such interest free funds, then without prejudice to the fact that the assessee had allowed the quantum addition pertaining to the disallowance of interest so made in its hands u/s 36(1)(iii) to attain finality, no penalty so imposed upon it u/s 271(1)(c) of the Act on the said count, which has been assailed before us by the assessee, shall be allowed to survive. That as a word of caution, we herein direct the A.O to dispose of the issue which is being restored to him for fresh adjudication, as per the parameters laid down by the Hon ble Jurisdictional High Court in the case of Reliance Utilities and Power Limited (supra). 9. Thus the ground of appeal no. 1 2 are allowed for statistical purposes. The appeal of the assessee is allowed for statistical purposes. Order pronoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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