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08-02-2019, Kalpesh K Shah, Section 271(1)(c), 139(3), Tribunal Mumbai

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2 months 1 week ago #8627 by amit
Section - 271(1)(c), 139(3), 154, 57
Order Date - 08-02-2019
Favouring - Assessee
Court - Tribunal Mumbai
Appellant - Kalpesh K Shah
Respondent - DCIT
Justice - PAWAN SINGH JM & RAMIT KOCHAR AM
Citation - 219Taxpundit117
Appeal No. - I.T.A. No.6584/Mum/2016
Asstt. Year - 2011-12

Order

PER : RAMIT KOCHAR

This appeal, filed by Assessee, being ITA No. 6584/Mum/2016, is directed against appellate order dated 30.08.2016 in appeal no. CIT(A)-37/IT-267/ACIT-25(2)/2014-15 passed by learned Commissioner of Income Tax (Appeals)-37 , Mumbai (hereinafter called “the CIT(A)”), for assessment year 2011-12, the appellate proceedings had arisen before learned CIT(A) from the penalty order dated 30.07.2014 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 271(1)(c) of the Income-tax Act, 1961 (hereinafter called “the Act”) for AY 2011-12.

2. The grounds of appeal raised by assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-

“1. On the facts and circumstances of the Appellant's case and in law the Ld CIT(A) erred in confirming the Ld. AO's action in levying penalty of Rs 9,28,569/- by invoking provisions of section 271(1)(c) of the Income Tax Act 1961 as per the grounds stated in the order or otherwise.

2. The Appellant craves leaves to alter, amend, withdraw or substitute any ground or grounds or to add any new ground or grounds of appeal on or before the hearing. The appellant prays this Hon'ble Tribunal to delete the addition made by the Assessing Officer, which is confirmed by the ld. Commissioner of Income Tax (Appeals) and/ or grant any other relief as your honors may deem fit.”

3. The brief facts of the case are that the assessee is partner in various firms carrying on business of builder & developer. The assessee has shown income from business and from other sources during the year consideration. The addition was made by the AO in quantum assessment on account of issue of disallowance of interest expenditure of Rs. 74,85,834/- but later on the assessee filed rectification application u/s. 154 before the AO and the AO was pleased the pass an order dated 20.02.2014 wherein addition of disallowance of interest expenditure was restricted to Rs. 31,91,743/, by passing an rectification order u/s 154 by the AO , which is reproduced as hereunder:-

The AO during the course of assessment proceedings has observed that the assessee has claimed deduction u/s. 57 of the Act to the tune of Rs. 1,16,53,956/- towards interest expenditure which were more than the interest income of Rs. 41,68,122/- earned by the assessee on loans and advances for the year under consideration. The AO was of the view that on the grounds of prudency and normal practices of the businessman , no one will pay interest at a higher rate than interest earned. The AO had observed from the Balance Sheet of the assessee that it was showing loan advanced at Rs. 22.14 crores and unsecured loans raised were to the tune of Rs. 23.96 crores. Thus, it was observed by the AO that there is a little difference between loans taken by the assessee and the loans advanced by the assessee . The AO observed that the assessee has declared total interest received on loan advanced at Rs. 41,68,122/- whereas interest paid on the loans advanced was at Rs. 1,16 53,956/- which was claimed as deduction u/s. 57 of the Act. The AO was of the view that deduction u/s. 57(iii) of the Act is a lowable in respect of expenses incurred to earn the income from other sources provided that such expenditure should be wholly & exclusively incurred for the purpose of making or earning of such income only. The claim of the assessee of deduction u/s 57(iii) was not allowed by the AO due to huge difference of Rs. 74,85,834/- because as per AO it clearly indicates that the assessee has paid interest at higher rate than received which as per AO is not the normal business practice and is against the princ ples of prudency. The alternative claim of the assessee for deduction u/s. 36(1)(iii) was also rejected by the AO as in view of AO, the assessee has failed to substantiate with documentary evidences that the loans and advances to the firms/companies in which the assessee is partner/director was wholly & exclusively utilised for the purposes of furthering the business of the assessee.

The AO also invoked penalty provision and show cause notices were issued asking assessee as to why penalty provisions as are contained in Section 271(1)(c) be not invoked against the assessee. The assessee in its reply before the AO during assessment proceedings submitted , as under:-

“1. We have filed our return of income u/s. 139(1) declaring nil income.

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