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2016 (4) TMI 338 - ITAT MUMBAIPenalty U/s. 271(1)(c) - Disallowance of Business Expenses u/s 37(1) - Held that:- These expenses were of routine nature e.g. Director's Salary, Bank Charges, Filing Fee, Audit Fee etc. Undoubtedly, these expenses were of statutory nature and were necessary for maintaining the existence of the company and thus these can be said to be incurred for the purpose of business of the assessee, and therefore these expenses were claimed under the head "Business". The claim of the assessee was very much plausible not only on facts but it is also supported on the basis of various judgments in favour of the assessee. CIT vs. Ganga Properties Ltd. [1989 (5) TMI 10 - CALCUTTA High Court] so long as a company is in operation, it has to maintain its status as a company and it has to discharge certain legal obligations and, for that purpose, it is necessary to appoint clerical staff and secretary or accountant and incur incidental expenses. In this background, the conclusion of the Tribunal that the expenses incurred were wholly and exclusively for the activities to earn income is preeminently a reasonable conclusion.- Decided in favour of assessee Disallowance out of interest on loan u/s 24(b) as well as u/s 36(1)(iii) - Held that:- The claim of the assessee was that funds were borrowed for the purpose of business on which interest was paid. The income from House Property although was part of business of the assessee but due to specific provisions, the same was assessed under the head "Income from House Property". But, the intrinsic nature of the income remains as income from business, even if it was assessed under a different head. Under these circumstances, the belief of the assessee that any expense incurred during the course of its business (including interest paid on funds borrowed) should be allowable against the income earned during the course of business, cannot be said to be wholly unfounded and without any basis. The claim of the assessee was rejected due to application of particular provisions of law by the AO. It is further noted by us that the AO has himself allowed part of the total claim of interest. The assessee had claimed a sum of ₹ 1,72,79,082/-. Out of the said claim, only a sum of ₹ 55,97,027/- has been disallowed by the AO u/s 24(b) of the Act. Thus, even as per the AO, the claim of the assessee was not wholly disallowable. Rather, substantial amount was allowed by the AO, and disallowance of part of the total claim was made by the AO on the basis of some calculations done by him by alleging that whole of the funds were not utilized for acquiring the property. Thus, an element of guess work was involved while computing and quantifying the amount of disallowance. Further, it is brought to our notice that similar claim has been accepted by the AO in the subsequent year i.e. AY 2010-11, wherein no disallowance has been made by the AO. Under these circumstances, it cannot be said, on 'certain' and 'unambiguous' basis that the claim of the assessee in this year was patently erroneous. Under these circumstances, the AO was not able to make out a case for concealment of income or furnishing of inaccurate particulars of income while initiating the penalty in the assessment order or while levying the penalty in the penalty order. It is noted that penalty has been levied in the manner as if once disallowance has been made, then levy of penalty would be automatic, disregarding the well-settled position of law that penalty proceedings are independent of the assessment proceedings. - Decided in favour of assessee
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