TaxTMI 
TaxTMI 
2018 (6) TMI 163
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....gative income was on account of interest paid on loan amounting to Rs. 2,00,11,398 and bank interest of Rs. 5,56,662. Whereas, assessee has earned interest income of Rs. 1,11,23,383. Further, the Assessing Officer noticed that while the assessee was paying interest on loan @ 12%, 15%, 16.8% and 18%, however, it is charging interest on loans advanced @ 12% and 9%. Thus, the Assessing Officer called upon the assessee to explain why the interest paid should not be restricted to 12%. Though, the assessee objected to the proposed addition, however, rejecting the objection of the assessee the Assessing Officer treated the interest on loan availed at 12% which resulted in addition of Rs. 2,72,391. Further, the Assessing Officer observed that the assessee was unable to establish the link between the loan received and loan given to prove the fact that the interest expenditure was towards earning of interest income so as to claim it as deduction under section 57(iii) of the Act. Accordingly, out of the total expenditure claimed towards interest cost amounting to Rs. 2,00,11,398, the Assessing Officer disallowed an amount of Rs. 1,42,55,358 and added back to the income of the assessee. Furthe....
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....he learned Commissioner (Appeals), both, the Revenue and the assessee are in appeal before us. 4. The learned Departmental Representative submitted that the assessee knowing fully well that the deduction claimed on account of interest expenditure was not allowable has claimed it. Therefore, he has concealed the particulars of income. Further, he submitted that the assessee being aware that the provisions of section 2(22)(e) of the Act are applicable to the loan transaction between the two companies wherein he is a major share holder, has not offered income towards deemed dividend which amounts to concealment of income. He submitted that the learned Commissioner (Appeals) without properly appreciating the valid reasoning of the Assessing Officer has deleted the penalty imposed in respect of such addition which is not acceptable. Thus, he relied upon the observations of the Assessing Officer in the penalty order. 5. The learned Authorised Representative strongly relying upon the findings of the learned Commissioner (Appeals) in support of the part relief granted by him submitted that the disallowance of interest under section 57(iii) of the Act and addition made on account of deeme....
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.... such contention, he relied upon the decision of the Tribunal, Mumbai Bench, in Shri Jayant B. Patel v/s ACIT, ITA no.1650/Mum./2017 & Ors., dated 26th July 2017. Without prejudice to the aforesaid submissions, the learned Authorised Representative contended, learned Commissioner (Appeals) was not justified in sustaining penalty on the addition of Rs. 2,72,391, since such addition was made on a notional basis on account of alleged difference in rate of interest. Thus, he submitted, even levy of penalty in respect of the addition of Rs. 2,72,391 is not sustainable. 6. We have considered rival submissions and perused materials on record. At the outset, we propose to deal with the issue relating to imposition of penalty on merits. As could be seen from the facts on record, penalty under section 271(1)(c) of the Act was imposed by the Assessing Officer on the basis of three additions made by the Assessing Officer as under:- i) Addition of Rs. 2,72,391 on account of difference in rate of interest; ii) Disallowance of interest expenditure under section 57(iii) of the Act for Rs. 1,42,55,358; and iii) Addition of deemed dividend under section 2(22)(e) of the Act for Rs. 1,17,50,000....
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....s been claimed as a deduction. Moreover, on a perusal of the chart showing details of loan availed and loan advanced placed at page 128-132 of the paper book, prima facie, it appears that there is linkage between loan availed and loan advanced. Though, the assessee has ultimately offered the disallowed amount as income in a return of income filed under section 153A of the Act, however, penalty under section 271(1)(c) being a separate and independent proceeding, the facts and evidences have to be considered and looked into afresh to find out whether the conditions of the penalty provision are satisfied or not. In any case of the matter, it is a case of deduction claimed by the assessee which has been disallowed by the Assessing Officer. That being the case, there is no concealment of income as held by the Hon'ble Supreme Court in CIT v/s Reliance Petro products 322 ITR 158 (SC). In view of the aforesaid, learned Commissioner (Appeals) was justified in deleting the penalty in respect of this addition. i) As regards penalty imposed in respect of the addition of deemed dividend amounting to Rs. 1,17,50,000, there is no dispute to the fact that the aforesaid addition was made by th....