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TMI Blog2014 (11) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... ender, yet it cannot be taken as a strong ground for levying penalty - Relying upon SHREE NIRMAL COMMERCIAL LTD. Versus COMMISSIONER OF INCOME-TAX [2008 (8) TMI 158 - BOMBAY HIGH COURT] – thus, the order of the CIT(A) is set aside and the AO is directed to delete penalty levied on the loan amount – Decided in favour of assessee. - ITA No. 2617/Mum/2010, ITA No. 2753 and 2754/Mum/2010 - - - Dated:- 13-8-2014 - B. R. Baskaran, AM And Sanjay Garg, JM,JJ. For the Appellant : Shri Durga Dutt For the Respondent : Shri Nishit Gandhi ORDER Per B. R. Baskaran, Accountant Member The cross appeals relating to the assessment year 2006-07 and the appeal filed by the assessee for assessment year 2007-08 are directed against the orders passed by Ld CIT(A)-38, Mumbai. All these appeals relate to the penalty levied by the AO u/s 271(1)(c) of the Income Tax Act, 1961 (the Act) in both the years. All these appeals were heard together and hence they are being disposed of by this common order, for the sake of convenience. 2. In assessment year 2006-07, the AO levied minimum amount of penalty on the following additions:- (a) Interest disallowed - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable only to the extent of ₹ 10,94,201/- (10% of ₹ 1,09,42,016/-) and accordingly disallowed a sum of ₹ 48,53,168/- out of the gross interest claim of ₹ 59,47,369/-. The AO levied penalty on the above said disallowance and the same was deleted by the Ld CIT(A). 4.1 Before us, the ld D.R placed strong reliance on the order passed by ld CIT(A). However, the Ld A.R submitted that the assessee had agreed for the disallowance of part of interest claim during the course of assessment proceedings, but the same would not lead to levy of penalty automatically. He submitted that the assessee had used the borrowed funds for the purpose of making business investments. He invited our attention to page 3 of the paper book and submitted that (a) the assessee has borrowed funds to the tune of ₹ 6.48 crores. (b) Out of the same, he has invested a sum of ₹ 3.25 crores as his capital in the proprietary and partnership concerns. (c) Further he has invested a sum of ₹ 20.20 lakhs in a private limited company named M/s Pramanik Clothing P Ltd, wherein he is a director, and has also advanced a sum of ₹ 1.00 crore to that company. He submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily require the AO to apply his mind afresh in the course of penalty proceedings and thus, he cannot levy the penalty u/s. 271(1)(c) solely on the basis of statement given by the assessee in the course of assessment proceedings. With regard to the disallowance of interest amounting to ₹ 48,53,168/-, it is evident that details of loans borrowed and loans and advances given to various concerns and persons were reflected in the Profit Loss account and the balance sheet. Further details and break up of interest paid and received were furnished during the course of assessment proceedings. A substantial part of interest bearing funds was utilised in the associated concerns, proprietary concerns and also by giving loans to relative and friends without appellant had not used borrowed funds exclusively for the purpose of business. Therefore, the disallowance had been made by the AO at ₹ 48,53,168/- and the addition so made was accepted by the appellant. However, there was no falsity with regard to the amounts of interest expenses claimed and interest received. Thus, factual details submitted with regard to the interest paid and received were true. It was also seen th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is commercial expediency in making those advances. As observed by Ld CIT(A), it is a well settled proposition that the additions made during assessment proceedings would not automatically give rise to penalty proceedings. The AO has to examine the issue afresh during the course of penalty proceedings and in that regard, the findings given in the assessment proceedings can be taken as guidance. The observations made by the ld CIT(A) and the discussions made by us above would show that the assessee did not hide any detail relating to the interest claim. Further all the investments cannot be considered as diversion of interest bearing funds for giving interest free advances. Accordingly, we are of the view that the ld CIT(A) was justified in deleting the penalty levied on the interest disallowance and accordingly confirm his order on this issue. 5. The next issue relates to the penalty levied on the cash credit assessed u/s 68 of the Act. During the course of assessment proceedings, the AO examined the loan creditors. In that process, the AO examined Smt Latika Dhamne from whom a sum of ₹ 25.00 lakhs was received by the assessee. In the statement recorded from her, she categ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. We notice that the AO has levied penalty on the reasoning that the assessee has furnished inaccurate particulars of income by showing bogus loans to the tune of ₹ 25.00 lakhs. The Ld CIT(A) has also confirmed the view taken by the AO. We have already noticed that the additions made during the course of assessment proceedings will not automatically give rise to penalty and hence during the course of penalty proceedings, the AO has to examine the matter afresh. Of course, the AO is entitled to take the observations made in the assessment order as guidance. 6.1 In the instant case, the submission of the assessee is that the loan from Smt. Latika Dhamne was arranged through the brokers and the same was received by way of Account payee cheque. It is also the submission of the assessee that the loan was also repaid by way of Account payee cheque. During the course of assessment proceedings, the assessee has also furnished confirmation letter obtained from the creditor, wherein the Permanent Account Number of the lender was also given. It was also submitted that the lender is assessed to income tax. However, in the statement taken, Smt. Latika Dhamne has denied knowledge a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, it is not clear as to whether the AO did make enquiries about the bank account maintained by the lender; about the loan transactions carried out through Account payee cheques and also about the income tax returns filed by her. If the AO had conducted enquiries about the same, further truth might have come on the fore. We have noticed that the Ld A.R also placed reliance on the decision rendered by Hon'ble Delhi High Court in the case of Mrs. Baljeet Jolly (supra). In the said case, the tribunal had noticed that the loan was taken by way of bank drafts and they were also en-cashed through banking channels. Based on this facts, the Hon'ble Delhi High Court held that the penalty u/s 271(1)(c) could not be sustained merely on the reasoning that the assessee did not challenge the assessment of loan as his income. In the instant case also, the contention of the assessee is that the loan transactions were carried out through banking channels and the said contention was not proved to be wrong. Under these set of facts, we are of the view that there is no reason to suspect the bonafides of the assessee merely on the fact that the assessee has agreed for assessment of loan amou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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