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2019 (12) TMI 140

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..... ore initiation of penalty proceedings or any time during proceedings, then subsequent issue of show-cause notice is a formality to communicate the assessee about initiation of penalty proceeding. In this case, AO had issued one more show-cause notice and also, called upon the assessee to explain why penalty proceedings shall not be initiated for furnishing inaccurate particulars of income, for which no compliance from the assessee. Therefore a proper satisfaction has been arrived at before initiation of penalty proceedings, and then a defect in notice including mere non-striking of irrelevant portion in the notice does not invalidate the penalty proceedings. Although, the assessee has cited certain judicial precedents, including the decision in the case of Mehrjee Cassinath Holdings Pvt.Ltd. vs ACIT [ 2017 (5) TMI 904 - ITAT MUMBAI] we find that facts of the present case are entirely different from the case laws relied upon by the assessee and hence, are not considered as applicable to the case of the assessee. In the case of M/s. Earthmoving Equipment Services Corporation vs DCIT [ 2017 (5) TMI 474 - ITAT MUMBAI] had considered an identical issue and held that when, proper .....

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..... Assessment Year 2010-11. 2. The assessee has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case and in law the CIT(A) ought to have held that the assessing officer had not compiled with the provisions of section 274(1) of the Act by not granting assesses reasonable opportunity of being heard and hence the penalty levied under section 271(1)( c) of the Act is bad in law. 2. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have held that the assessing officer had not complied with the provisions of section 274 of the Act r.w.s. 271(1)(c) since the assessing officer erred in levying penalty without explicitly mentioning in the penalty notice the reason for initiating penalty proceedings. It is humbly submitted that the initiation of proceedings u/s 271(1)(C) of the Income-tax Act, is not valid as the assessing officer erred in not striking off the inappropriate portion of the notice. The assessing officer ought to have struck off the inappropriate portion and indicated to the assesses the applicable portion in the notice. .....

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..... 271(1)(c) of the I.T.Act,1961 was initiated and accordingly, a show- cause notice, dated 19/02/2016 was issued u/s 274 r.w.s. 271(1)(c) of the I.T.Act, 1961. In response, the Ld. AR of the assessee filed a letter and requested for short adjournment, however could not file any explanation. The Ld. AO after considering relevant submissions of the assessee and also taken note of provisions of Explanation-1 to section 271(1)(c) held that without any sufficient reasonable cause, the assessee has committed default by furnishing inaccurate particulars of its income and accordingly, opined that it is a fit case for levy of penalty u/s 271(1)(c) and hence, levied penalty of ₹ 41,63,924/-, which is 100% of tax sought to be evaded. The relevant findings of the Ld. AO are as under:- 4. The proposition laid down by the appellate authorities is that interest received by a company which carries on business, from bank deposits and loans could only be taxable as income from other sources and not as business income. The income derived by an assessee has to be fitted under one or other head having regard to the source from which that Income is derived. It is the manner In w .....

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..... the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed . 6. The facts fall under above clause 'A' as the assesses failed to offer an explanation in respect of facts which are material to the computation of its total Income. I am satisfied that without any sufficient and reasonable cause the assesses has committed default by furnishing inaccurate particulars of its Income as defined u/s 271(1) (c) of the I.T Act. Considering the facts of the case and provisions of explaination-1 to Section 27l(1)(c), I am satisfied that the assessee has furnished inaccurate particulars leading concealment of income. The minimum and maximum penalty leviable is at 100% being Rs, 41,37199/- and at 300% being ₹ 1,24,11,597/- respectively. Keeping in view of the facts of the case, I, therefore, levy a minimum penalty of ₹ 41,37,200/- (Forty one Lakh Thirty Seven Hundred Only)being 100% of the tax sought to be evaded. Working of penalty:- (I) Assessed Income including concealed Income: S .....

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..... well as in penalty order the AO had specifically brought out the facts for which the penalty was initiated and levied. In this case also in the assessment order as well as in the penalty order the AO has clearly brought out on record the fact that the penalty was initiated and levied for filing of inaccurate particulars of income. It is further noticed that the appellant has never raised this issue before the AO therefore, the same cannot be entertained at this stage. In this regard I would like to place my reliance on the ratio laid down in the case of M/s Nokia India (P) Ltd. Vs DCIT (2015) 59 Taxann.co 2012. Accordingly, the additional ground raised by the appellant is not admissible, therefore, dismissed. 5.1 During assessment proceedings the AO noticed that this is a first year of the appellant s business and the business activities could not be started due to delay in acquiring the land and other infrastructure. In view of these facts the appellant had parked its surplus share capital/funds in the bank, in the form of FDRs. Against these FDRs the appellant had earned interest income of ₹ 1,22,50440/- and capitalized with a plea that the same had been .....

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..... f fixed deposits and earned interest income there from. The same was not offered for tax with the plea that it had been earned against share capital and would be used for capital investment. As per rulings of the various courts, including Supreme Court in the usual course, the interest received against surplus deposits, required to be taxed under the head Income from Other sources u/s 56 of the Act. In this regard I would like to place my reliance on the ruling of the Hon ble ITAT in the case of Thermal Powertech Corpn. India Vs DCIT (2017) taxmann.com 168 (Hyderabad Trib.) (2017)/164 ITD 449, wherein it is inter-alia, held that- where assessee-company formed to build own and operate a power plan deposited unutilized borrowed funds in short term fixed deposits during the construction of power plant interest earned on those deposits would be taxed as income from other sources . 5.5 The fact that a person/entity carried on business does not lead to inference that all the income received by such person/entity is business income. It is the manner in which income is derived that is relevant and not merely the fact that the person/entity are engaged in the business. .....

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..... h Holdings Vs ACIT in ITA No. 2555/Mum/2012 ii) Rekha Bhupendra Dalal vs DCIT in ITA No. 3363/Mum/2016. 6. The Ld. DR, on the other hand strongly supported order of the Ld.CIT(A). 7. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. As regards, preliminary objections of the assessee, in light of show cause notice issued by the AO u/s 274 r.w.s. 271(1)(C) of the I.T.Act, 1961, dated 30/01/2014, we find that although, the assessee has challenged the validity of penalty proceedings, in light of non striking of irrelevant portion in the notice u/s 274, but, fact remains that the Ld. AO had issued further show-cause notice, dated 19/02/2016, for which the assessee neither filed any explanation nor justified its case in light of Explanation-1 to section 271(1)(c) of the I.T.Act 1961. We, further noted that the Ld. AO has arrived at proper satisfaction, in respect of additions made towards interest income on fixed deposits at the time of assessment proceedings, where he had initiated penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income le .....

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..... he assesee, it is abundantly clear that the assessee has parked its surplus funds in the banks in form of fixed deposits and earned interest income. Further, although interest income from fixed deposits is assessable under the head income from other sources, the assessee has treated said interest income as capital receipts and set up against pre-operative expenses without offering interest income for tax. Therefore, we are of the considered view that the assessee has furnished inaccurate particulars of income, in respect of interest income earned from fixed deposits, which warrants levy of penalty u/s 271(1)(c) of the I.T.Act, 1961. Further, the assessee has also failed to offer any explanation in response to a show cause notice thereby committed default within the meaning of Explanation-1 to section 271(1)(C) of the I.T.Act, 1961. Therefore, we are of the considered view that there is no error in penalty levied u/s 271(1)(c) and accordingly, the Ld.CIT(A) was right in affirmed penalty levied by the Ld. AO. Hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject ground taken by the assesee. 9. In the result, appea .....

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