TaxTMI 
TaxTMI 
2026 (2) TMI 922
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....come. The penalty levied may please be cancelled. 3. The assessee prays to amend, alter or delete any of the ground of appeal." 2. The background facts leading to present appeal are as under: (i) The assessee-individual filed return of AY 2020-21 declaring a total income of Rs. 32,82,050/- consisting of income from salary, business and other sources. In so far as income other sources is concerned, the assessee declared interest receipt of Rs. 5,84,414/- against which claimed a deduction of interest expenditure of Rs. 5,84,414/- (actual interest paid is stated to be Rs. 13,16,688/-) u/s 57 and declared "Nil" taxable income. The case of assessee was selected for scrutiny. In Para 1 of assessment-order, the AO has mentioned the reason of selection for scrutiny: "The assessee has claimed substantial deduction under the head "Income from other sources" u/s 57 in Schedule OS of ITR. The genuineness of the expenses deducted u/s 57 is to be verified." During scrutiny-proceeding, the AO issued notices u/s 143(2)/142(1) which were replied by assessee. The AO sought explanation from assessee qua the deduction claimed u/s 57 on account of interest expenditure. In response,....
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....acceptable. The claim of deduction of expense against income shown under the head "Income from other sources" is available provided the expenses are incurred wholly and exclusively for purpose of earning the income u/s 56 of the Act. There needs to be a direct link of expenses and income. In the case of assessee, the AO specifically observed that the assessee was not able to establish the link of interest expense with interest income. The borrowings were specifically used for interest earning advances was not proved and established. Mere general claim cannot be allowed. Assessee failed to substantiate its claim of interest u/s 57 of the Act with income u/s 56 of the Act. Assessee was well aware of the fact that, it claimed deduction u/s 57 of the Act which is not connected with interest income earned u/s 56 of the Act. Accordingly, assessee should have offered the said amounts in its return but such is not the fact of the case. Had the case of assessee been not subject to scrutiny, it would have never be known that the above income of Rs 5,84,414/- was under reported. Since in the scrutiny proceeding, the assessee was called for to furnish the details, the under reporting came into....
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.... and decision: 5.1 Ground No. 1 to 4: In these grounds the appellant has agitated against levy of penalty of Rs. 91,168/- u/s 270A. 5.2 In my considered legal analysis, the appellant, in the course of filing their Income Tax Return (ITR), purportedly sought to avail a deduction of expense made on account of interest expenses of Rs. 5,84,414/-. Subsequently, during the meticulously conducted assessment proceedings under Section 143(3) r.w.s. 144B, the AO noticed that the appellant had wrongly claimed expenses of Rs. 5,84,414/- against the interest income of Rs. 5,84,414/- and there is no nexus between the loan taken on which interest of Rs. 13,16,688/- had been paid viz-a-vis utilization of loan. This observation led to the palpable disallowance of claim of expense, resulting in an augmentation of the taxable income by a sum of Rs. 5,84,414/-. 5.3 In Light of the evidences before me, it is incontrovertible that this is a clear-cut case of under reporting of income as per provisions of sub-section 1 and sub-section 7 of section 270A. 5.4 It is noteworthy that the such disclosure materialized only during the assessment proceedings, whereas it was in....
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....the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bonafide and the assessee has disclosed all the material facts to substantiate the explanation offered; XXX (c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance;" Ld. AR submitted that the total interest paid by assessee on borrowed funds was Rs. 13,16,688/- but the assessee claimed deduction of Rs. 5,84,414/- only; thus the assessee, on his own, made disallowance of Rs. 7,32,274/- [13,16,688 (-) 5,84,414] whereas the AO has made disallowance of entire interest of Rs. 13,16,688/-. Thus, the clause (c) is very much applicable. 6. Per contra, Ld. DR for revenue also made oral arguments and also filed a written-submission raising following contentions: (i) The assessee has claimed deduction of interest expenditure u/s 57. The case of assessee was selected under scrutiny only to examine....
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....oximate connection between the interest-bearing borrowings and interest-earning advances. The claim was thus disallowed and the assessment was completed accordingly. The assessee accepted the disallowance and did not prefer any appeal against the assessment order. 9. In penalty proceedings also, the position of assessee remained same i.e. the assessee did not bring any material or evidence to demonstrate the nexus between funds borrowed and loans given. The AO, after considering the explanation, recorded a categorical finding that the assessee had failed to substantiate the claim of deduction u/s 57 and that the income to the extent of Rs. 5,84,414/- was under-reported. The penalty was accordingly on the basis of provision of section 270A(2)(a) of the Act. 10. The contention of Ld. AR that the deduction was allowed in earlier years and therefore the principle of consistency should apply, cannot be accepted. As rightly pointed out by the Ld. DR, the earlier returns were processed u/s 143(1) and no scrutiny assessment was carried out. It is settled law that intimation u/s 143(1) does not amount to formation of any opinion. Furthermore, there is no estoppel against law and the A....