TaxTMI 
TaxTMI 
2016 (2) TMI 1253
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....taken the following grounds: 1. The order of the learned CIT (A) is erroneous & contrary to facts & law. 2. The Ld. CIT has erred in deleting the penalty on the issue of disallowance of interest u/s 36(l)(iii) by relying on the decision of the Hon'ble Supreme Court in the case of Reliance Petro Products Ltd. when the AO had clearly established that the claim of the assessee was malafide to the extent that the diversion of funds to sister concerns, on which interest was forgone, was without any business expediency. 3. The Ld. CIT has erred in deleting the penalty on the issue of disallowance of interest u/s 36(l)(iii) by relying on the decision of the Hon'ble Supreme Court in the case of Reliance Petro Prod....
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....he assessee had advanced loans to M/s K. Sons & Associates which, as on 31.03.2007 was at Rs. 3341.26 lacs. The Assessing Officer observed that on one hand the assessee had raised huge secured and unsecured loans and on the other hand, the assessee had diverted funds to its sister concern without any commercial expediency. So the Assessing Officer disallowed interest @ 2.55% on the monthly debit balances in the account of this concern. Accordingly, the Assessing Officer disallowed interest of Rs. 65,72,728/- under sect ion 36(1) (iii) of the Act. 3(i) In the assessment order, the Assessing Officer made another addition on account of defer red tax amounting to Rs. 3,35,63,811/- to the book profit under sect ion 115JB of the Act. According to....
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....f notional interest under section 36(1) (iii) of the Act, observing as under : "5.2 I have considered the submission of the Ld. Counsel. The concealment penalty has been levied on account of proportionate disallowance of interest on amount advanced to the sister concern. The disallowance has been made by the Assessing Officer on proportionate/estimated basis. The appellant had not concealed the particulars of its income or had not furnished inaccurate particulars and so the concealment penalty on such disallowance cannot be levied in view of the judgement of Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. (322 ITR 158). Hence, the concealment penalty levied on this issue is cancelled. Ground of appeal No. ....
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....eing notional in nature, there is no concealment of income or furnishing of inaccurate particulars of the income. She also stated that this issue being a debatable issue, no penalty is leviable on the disallowance made by the Assessing Officer under sect ion 36(1) (iii) of the Act. In this case, the impugned penal ty has been levied on account of proportionate disallowance of the interest on amount advanced to the sister concern. It is also t rue that the disallowance was made on estimated basis. In that view of the matter, we hold that the ld. CIT(Appeals) has correctly held that the assessee had not committed any default within the meaning of Sect ion 271(1) (c) of the Act. In the case of CIT Vs Reliance Petroproducts Pvt. Ltd. (2010) 322....
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.... canceling the penalty on the addition of declared tax liability. 10. Before parting this case, we may also observe here that the tax as per MAT is more than the regular tax calculated by the Assessing Officer. Hence, the assessee company was assessed on the book profits under sect ion 115JB of the Income Tax Act, 1961. Recently, the CBDT has issued circular No. F.279/Misc./140/2015/ITJ dated 31.12.2015, wherein i t is stated that when the tax payable on income computed under normal procedure is less than the tax payable under the deeming provisions of Sect ion 115JB of the Act, then penal ty under sect ion 271(1) (c) of the Act could not be imposed with reference to additions /disallowances made under normal provisions. The aforesaid ci....
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....not be imposed with reference to additions /disallowances made under normal provisions. The judgment has attained finality. 4. Subsequently, the provisions of Explanation 4 to sub-section (1) of section 271 of the Act have been substituted by Finance Act, 2015, which provide for the method of calculating the amount of tax sought to be evaded for situations even where the income determined under the general provisions is less than the income declared for the purpose of MAT u/s 115JB of the Act. The substituted Explanation 4 is applicable prospectively w.e.f. 01.04.2016. 5. Accordingly, in view of the Delhi High Court judgment and substitution of Explanation 4 of section 271 of the Act with prospective effect, it is now a se....