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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 ..... lowed the said claim and hence he levied penalty on the said interest disallowance. 2.1 The Ld CIT(A) deleted penalty levied on the interest disallowance of Rs. 48.53 lakhs made in AY 2006-07 and confirmed the penalty levied in respect of loan amount of Rs. 25.00 lakhs assessed u/s 68 in AY 2006-07. In the assessment year 2007-08, the Ld CIT(A) confirmed penalty levied on interest disallowance made in respect of the above said loan amount of Rs. 25.00 lakhs. The revenue has filed appeal against the relief granted by Ld CIT(A) in AY 2006- 07 and the assessee has filed appeals for AY 2006-07 and 2007-08 challenging the orders passed by Ld CIT(A) in confirming the penalty. 3. We shall first take up the appeal filed by both the parties for AY 2006-07. The facts relating to the case are stated in brief. The assessee is a builder, developer and financier. The return of income filed by the assessee for assessment year 2006-07 was originally processed u/s 143(1)(a) of the Act. Subsequently, the AO re-opened the assessment by issuing notice u/s 148 of the Act on 21.4.2008 and completed the assessment by disallowing part of interest claim and also assessing the loan amount of Rs. 25.00 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial expediency. He submitted that the investments made out of commercial expediency would not disentitle the assessee to deduction. In this regard, the ld A.R placed reliance on the following case law:- (a) CIT Vs. Reliance Communications Infrastructure Ltd (2013) (260 CTR (Bom) 159). (b) CIT Vs. Shrishti Securities P Ltd (2010)(321 ITR 498)(Bom) Accordingly he submitted that there is no case for disallowing a part of interest expenditure, yet the assessee accepted the said disallowance. He further submitted that the AO has made adhoc disallowance without invoking any of the provisions of the Act. Accordingly, he submitted that the AO has not brought out any case to show that the assessee has concealed any particulars of income in respect of this disallowance. He further submitted that, since the assessee had claimed interest expenditure on bonafide belief, the AO was not justified in levying penalty on the amount of interest disallowed. 4.2 We have heard rival contentions on this issue and also perused the record. We notice that the Ld CIT(A) has dwelt upon this issue in a detailed manner and hence, for the sake of convenience, we extract below the relevant observations ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be argued on ground of commercial expediency. Thus, from the point of view of commercial expediency, the appellant's claim for allowance of interest could not be totally ruled out in view of the Apex court judgement in the case of SA Builders reported in 288 ITR 1. The appellant's claim that full fact were available in the balance sheet and the appellant had offered explanation which cannot be considered as malafide also carries some weight. It is also seen that during the earlier years under the similar facts, perhaps, no disallowance has been made by the AO on account of interest for the reasons best known to him. Thus, the issue of disallowance of interest was definitely debatable as it could be argued out as a case of commercial expediency. Therefore, considering the fact that the bonafide of the appellant could not be doubted and the issue of disallowable was debatable, the levy of penalty u/s 271(1)(c) in respect of disallowance of Rs. 48,53,168/- was not justified. The AR's reliance on the various court judgments was acceptable." 4.3 For the reasons discussed infra, we are inclined to agree with the view expressed by ld CIT(A) on this issue. First of all, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed thereon amounting to Rs. 1,54,167/- was disallowed in AY 2006-07. The Ld CIT(A) also confirmed the penalty relating to this addition on the ground that the loan taken Mrs. Latika Dhamne was totally bogus; the assessee seems to have used her name to show loan and the assessee has failed to substantiate explanation and prove the bonafides. 5.1 The ld A.R submitted that the assessee had arranged the impugned loan through brokers. He submitted that the loan was taken from Smt Latika Dhamne through Account payee cheque and it was also repaid by way of Account payee cheque. He submitted that the assessee has filed copy of loan confirmation obtained from her during the course of assessment proceedings. When the loan creditor was asked to be produced, the assessee approached the brokers, who had arranged the loan from her to find out her new address and to establish contact with her. Since they did not co-operate on this matter, the assessee was constrained to offer the same as his income. The Ld A.R further submitted that the loan creditor has given statement before the AO to suit her needs. Though she is having PAN number, yet she said she is not aware of the same. Hence her st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereto was given to the AO. It appears that the AO did not cross verify the said claim put forth by the assessee. Further, it is also the claim of the assessee that he was not given opportunity to cross examine the creditor. During the course of assessment proceedings, according to the assessee, he tried to establish contact through the brokers, who arranged the loan, but he could not get proper response from them. Under these difficult circumstances, the assessee has agreed to the assessment of loan amount as his income. The Ld A.R also submitted that the statement given by the lender is contrary to the facts available on record and further reiterated the contentions that the assessee was not given opportunity to cross examine the creditor. Thus, it is seen that the assessee has explained the circumstances, which compelled him to agree to assessment of the loan amount as his income. It is pertinent to note that the explanations given by the assessee has not been found to be fault during the course of penalty proceedings. 6.2 The ld A.R has placed reliance on the decision rendered by Hon'ble jurisdictional High Court in the case of Shree Nirmal Commercial Ltd (supra). In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , yet in our view, the same cannot be taken as a strong ground for levying penalty. In our view, the decision rendered by the Hon'ble jurisdictional High Court in the case of Shree Nirmal Commercial Ltd (supra) and the decision rendered by the Hon'ble Delhi High Court in the case of Mrs. Baljeet Jolly (supra) come to the support of the assessee. Accordingly, we set aside the order of ld CIT(A) on this issue and direct the assessing officer to delete the penalty levied on the loan amount. Since we have directed to delete the penalty levied on the principal amount of loan, the penalty levied on the interest disallowed is also liable to be deleted. We order accordingly. 7. We shall now take up the appeal filed by the assessee for the AY 2007-08. In this case, the AO disallowed the interest claimed by the assessee on the loan taken from Smt. Latika Dhamne. In the immediately preceding year, we have deleted the penalty levied on identical circumstances for the detailed reasons discussed supra. Following the same reasoning, we set aside the order of Ld CIT(A) and direct the AO to delete the penalty thereon. 8. In the result, the appeal filed by the revenue and both the appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X
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