TMI Blog2001 (6) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... hence penalty could not be levied. The ld. DR on the other hand strongly supported the order of the ld.CIT(A). 4. We have considered the rival submissions, facts and the material on record. It is not disputed that no materials have been brought on record to show that the assessee had received interest higher than that declared in the return. There is also not a case that the assessee claimed interest as expenditure higher than that paid by it to the creditors. The crux of the issue is whether the claim of the assessee for business expenditure of Rs.2,59,000 can be considered as bona fide. The learned CIT(A) in his order mentioned that the Hon'ble Allahabad High Court in the case reported in 68 I.T.R. 76 had observed in the context of interpreting the expression 'bona fide'as under:-- "In order that a transaction is bona fide it must be shown that everything was done in the open and straight forward manner without subterfuge or concealment of any kind or any attempt to make the transaction appear other than that what it was in reality." We fail to locate such decision as mentioned by the learned CIT(A). We are, therefore, unable to consider in what context this observation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 1975-76 the firm filed return declaring loss of Rs.2,42,884. The assessment was completed by the Assessing Officer on a total loss of Rs.1,97,885. During the course of hearing of the appeal the C.I.T.(A) found that the assessee had claimed interest deduction which has not been utilised for the business purpose and hence he sought to enhance the same and accordingly issued show-cause notice for the enhancement and in fact, enhanced the income after issuing show-cause notice to the assessee and after affording reasonable opportunity of being heard. The assessee filed appeal to the I.T.A.T. against the quantum addition on account of enhancement and the same has been confirmed by the I.T.A.T. in I.T.A. No. 1397(Cal.) of 87 dated 28-7-1989 for the assessment year 1975-76. The C.I.T.(A) has also initiated penalty proceedings under section 271(1)(c) and after issuing show-cause notice imposed the penalty on 14-4-1989. The assessee has come in appeal to Tribunal against the said imposition of penalty by the C.I.T.(A). 8. During the course of hearing of the appeal the learned A.R. of the assessee submitted that the imposition of penalty is not justified in the instant case. Mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew to reducing the incidence of tax on true income of the firm. The members of the family were made to invest in the shares of M/s. B.N. Elien Co., so that the Goenka family could take over the sick company. The investment was made not with a view to earn any dividend income for purpose of acquising that business. There was no possibility of getting any dividend income from those investments. The C.I.T.(A) has also found that the funds of G.P. Goenka and others, H.U.F. had also been passed on to their own members through the medium of the assessee-firm for investment in the same shares. The C.I.T.(A) has brought these things clearly in its quantum appeal order in paras 5 and 6 of the order. All these facts and circumstances clearly go to show that the entire thing is an integrated scheme further from the assessee's business of money lending, and has been brought into existence with a view to under-state its true income by inflating claim of interest payment as well as for facilitating other members of the Goenka group to claim deduction of interest payment of the assessee firm with a consequent reduction in the incidence of tax in their respective assessment. It is also fact whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the I.T.O. under section 143(3) at a loss of Rs.1,97,855 and after enhancement of Rs.2,59,000 by the CIT(A) this has resulted in a positive figure of Rs.61,115. This clearly goes to show that the assessee has furnished inaccurate particulars attracting the penalty under section 271(1)(c) of the I.T. Act. In this connection reliance is placed on the Allahabad High Court decision in the case of Mirzapur Construction Co. Ltd. v. CIT [1980] 122 ITR 828 wherein it has been held that the explanation added to section 271(1)(c) raises a presumption of concealment and filing of inaccurate particulars of income in cases where the returned income falls short of 80% of the assessed income. The Department is not saddled with the onus of proving that the assessee was guilty of concealment or filing inaccurate particulars. 13. Lastly, I would like to mention the findings of the Supreme Court in the case of Chuharmal v. CIT[1988] 172 ITR 250 which also supports the abovementioned view of the Allahabad High Court. Their lordships in the said case have held that if the returned income is less than 80% of the assessed income, then Explanation to section 271(1)(c) is attracted and the penalty u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttracted in the instant case and imposition of the penalty is justified and the same is accordingly confirmed. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 We, having differed on the following point in the above appeal filed by the assessee, refer the following point of difference to the President under section 255(4) of the Income-tax Act, 1961: "Whether in the circumstances of the present case, levy of penalty under section 271(1)(c) of the I.T. Act, 1961 was justified?" THIRD MEMBER ORDER Per Shri R.P. Garg, Vice President - On account of difference of opinion between the Judicial Member and the Accountant Member, the matter was referred by the President, Income Tax Appellate Tribunal for my opinion as Third Member on the following point of difference: "Whether in the circumstances of the present case, levy of penalty under section 271(1)(c) of the LT Act. 1961 was justified" 2. A sum of Rs.7,91,962 was paid by the assessee as interest to various parties including bank and was claimed as a deduction. On the contrary, the assessee realised a sum of Rs.2,38,828 from the sundry parties as interest which was offered to tax. The assessee made an inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest paid was ranging from 1296 to 13.596 and, accordingly, the difference between the interest received and interest paid amounting to Rs.7,690 at best could be disallowed under section 40A(2) of the Act. The C.I.T.(A) did not agree with the contention of the assessee and enhanced the assessment by Rs.2,59,000 [Rs.3,04,000 - Rs.45,000]. 4. The assessee carried the matter in further appeal to the Tribunal and the Tribunal upheld the enhancement and, accordingly, the disallowance of Rs.3,04,000 for payment of interest. The order of the Tribunal is in I.T.A. No. 1397 (Cal.)/1987, dated 28-7-1989 and the relevant portion is in paragraphs 9 to 11 which for the sake of brevity are reproduced hereunder:-- "9. We have considered the rival submissions, papers filed and case law cited before us. For allowance of a claim for deduction of interest under section 36(1)(iii), the following conditions are to be fulfilled: (i) The money, that is, capital, must have been borrowed by the assessee; (ii) It must have been borrowed for the purpose of business; (iii) The assessee must have paid interest on the borrowed amount. (Madhav Prasad Jatia v. CIT 118 ITR 200, 208) If the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee paid interest to its creditors as under: --------------------------------------------------------------------- Name Rate of Interest --------------------------------------------------------------------- 1. Gouri Prosad Goenka Varying from 12 1/2% to 18 1/2% Others (HUF). 2. MoorarjeeGokuldas Spinning 13 1/2% Weaving Co. Ltd. --------------------------------------------------------------------- The assessee collected interest at the rate of 12% only from the interested persons to whom the moneys were advanced as detailed in page 27 of the paper book filed. The interested persons to whom the moneys were lent by the assessee utilised the funds for purchasing the shares in BNE. The purchase of the shares in BNE was as under: --------------------------------------------------------------------- Name No. of shares --------------------------------------------------------------------- 1. Keshav Pd. Ram Pd. (HUF) 778 2. Sushila Goenka 445 3. Indu Goenka 1000 4. Rama Pd. Goenka Others (HUF) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for the acquisition of shares in BNE) cannot be said to have been incurred wholly and exclusively for the purpose of earning income. As per the decision of the Supreme Court in the case of Seth H. Dalmia v. CIT 110 ITR 644 before section 57(iii), read with section 58 can be attracted one of the conditions to be fulfilled is that the expenditure must have been incurred wholly and exclusively for the purpose of earning income or making profit. The purpose behind the borrowal is not the earning of dividend but to get R.P. Goenka as Chairman. So the condition as laid down by Supreme Court is not fulfilled in the assessee's case before us in respect of the assessee's claim for deduction of Rs.45,000 under section 57(iii). Regarding the enhancement made by the CIT(A) in the disallowance of interest payment by Rs.2,59,000 the assessee contended that the CIT(A) exceeded his jurisdiction under section 251(2) by finding out new source of income. According to him, the CIT(A) found out a new source for making the addition and this is bit by the decision in 66 ITR 443 In fact, the CIT(A) has not found out any new source of income in the assessee's case. So the assessee's argument has to be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uharmal, wherein it was held that if the returned income was less than 80% of the assessed income, then Explanation to section 271(1)(c) is attracted and penalty under section 271(1)(c) is leviable. He then referred to the provisions of explanation as inserted by the Finance Act, 1964 and thereafter the decision of the Supreme Court in the case of McDowell Co. Ltd. 7. In the background of these facts, the question extracted in paragraph-1 above was referred to me for my opinion as Third Member. 8. The assessee borrowed a sum of Rs.14 lakhs from Gouri Prosad Goenka and others (HUF) and Rs.5 lakhs from Moorarjee Gokuldas Spinning Weaving Co. Ltd. on 20-12-1973. The interest rate was varying from 12.5% to 18.5% in the case of Gouri Prosad Goenka (HUF) and 13.5% in the case of Moorarjee Gokuldas Spinning Weaving Co. Ltd. The assessee advanced the following loans on 20-12-1973 itself. --------------------------------------------------------------------- Name Amount --------------------------------------------------------------------- 1. Munia Chamaria Rs. 18,000.00 2. Keshav Prasad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has been charged to tax and, therefore, the interest payment by the assessee for earning that income was an allowable deduction and making a claim thereof by the assessee would not constitute furnishing of inaccurate particulars or concealment of income thereof. 9. It has also to be seen that all the material particulars have been furnished by the assessee before the Assessing Officer, but he chose to disallow only that much interest which pertained to the amount of investment utilised in purchasing the shares of BNE and not on the amount advanced to the other associates. On the same facts and circumstances of the case, the CIT(A) has given a different opinion and enhanced the assessment and in these circumstances as observed by the Ld. Judicial Member the issue would be covered by the decision of the Delhi High Court in the case of Delhi Cloth General Mills Co. wherein it was held that the mere fact that the plea of the assessee that the expenditure in question was of revenue nature was not accepted upto the Tribunal, by itself did not mean that the assessee had furnished inaccurate particulars of its income by not adding that back to its total income. 10. The inter ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
