TaxTMI 
TaxTMI 
2016 (7) TMI 841
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.... Officer has levied the penalty in respect of the following three additions :- (i) Disallowance of interest amounting to Rs. 9,42,000/- which is capitalized by the Assessing Officer. (ii) Disallowance of interest of Rs. 1,50,980/- which is also capitalized by the Assessing Officer. (iii) Addition on account of difference in the receipt as per TDS certificate and books of account at Rs. 14,387/-. 4. With regard to the first two items i.e., capitalization of interest, it is stated by the learned counsel that there is no dispute that the plot was purchased for the purpose of business and the construction started thereon was also for the purpose of business. As per Assessing Officer, since the building was not put to use, the interest attri....
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....ral as assessee would be getting more depreciation due to capitalization of interest. It is only the timing difference and therefore, the assessee, to avoid unnecessary litigation, has accepted the order of the Assessing Officer. However, penalty proceedings are independent to assessment proceedings and therefore, assessee has a right to point out that even the addition itself is not sustainable. He further stated that in any case, the assessee has disclosed all the material facts which have not been found to be false and incorrect and therefore, the assessee cannot be charged with the penalty u/s 271(1)(c). In support of this contention, he relied upon the decision of Hon'ble Apex Court in the case of CIT Vs. Reliance Petroproducts Pvt.Ltd....
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....ent Credit Bank Ltd. Vs. DCIT - [2012]-TIOL-722-ITATMum. 6. We have considered the rival submissions and have perused the order of the Assessing Officer and learned CIT(A). Though it is a case of a penalty but both the sides have argued with regard to the correctness of allowability of interest. Therefore, we would like to deal with the same briefly because penalty proceedings are separate and independent proceedings. Section 36(1)(iii) reads as under:- "36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 - (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profes....
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.....Ltd. (supra) in paragraph 16 held as under:- "16. As we noted earlier, the funds/reserves of the appellant were sufficient to cover the interest free advances made by it of Rs. 10.29 crores to its sister company. We are entirely in agreement with the judgment of the Bombay High Court in Commissioner of Income Tax vs. Reliance Utilities & Power Ltd., (2009) 313 ITR 340, para-10, that if there are interest free funds available a presumption would arise that investment would be out of the interest free funds generated or available with the company if the interest free funds were sufficient to meet the investment." 8. From the above, it is evident that as per Hon'ble Jurisdictional High Court, if there are interest free funds available,....
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....e making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars." 9. The ratio of above decision of Hon'ble Apex Court would be squarely applicable to the facts of the assessee's case. The assessee has disclosed all material facts and, admittedly, the details supplied by the assessee in its return of income are not found to be incorrect or erroneous or false. Accordingly, we, respectfully following the above decision of Hon'ble Apex Court, hold that no penalty u/s 271(1)(c) of the Act is leviable in respect of disallowance of interest of Rs. 9,42,000/- and Rs. 1,50,9....