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Dr. Bharti L. Chandan Prasad Nursing Home, Yogeshwar Dham, Chandanbag Road, Off. M. G. Road, Mulund (W), Mumbai-400 080 Vs. ITO-11(2)(2), Mumbai
July, 30th 2014

      . . ,        ,                                                                 

                     ./I.T.A. No. 8869/Mum/2011
                    (   / Assessment Year: 2003-04)
Dr. Bharti L. Chandan                              ITO-11(2)(2),
Prasad Nursing Home,                               Mumbai
Yogeshwar Dham, Chandanbag Road,          /
Off. M. G. Road, Mulund (W),              Vs.
Mumbai-400 080
     . /  . /PAN/GIR No. AAGPC 7157 C
        ( /Appellant)                        :            (     / Respondent)

         / Appellant by                      :    Shri Bhupendra Shah

          /Respondent by                     :    Shri Jivanlal Lavidiya

                          /                  :    09.07.2014
                    Date of Hearing
                     Date of Order           :    15.07.2014
                                    / O R D E R
Per Sanjay Arora, A. M.:

      This is an Appeal by the Assessee directed against the Order by the Commissioner
of Income Tax (Appeals)-3, Mumbai (`CIT(A)' for short) dated 12.12.2011, confirming
the levy of penalty u/s.271(1)(c) of the Income Tax Act, 1961 (`the Act' hereinafter) for
the assessment year (A.Y.) 2003-04 vide order dated 22.03.2010.

2.    The brief facts of the case are that the assessee, a doctor (child specialist) by
profession, claimed interest at Rs.1,16,083/- in computation of her income arising to her
in exercise of her profession. The same was found to be on a loan of Rs.10 lacs from
HDFC Bank, which had been, upon receipt, transferred by her to a company by the name
                                                         ITA No. 8869/Mum/2011 (A.Y. 2003-04)
                                                                  Dr. Bharti L. Chandan vs. ITO

`Sanjivani Diagnotic Hospital & Resarch Centre Pvt. Ltd.', a company in which she was
a director, as a loan. There was, accordingly, no nexus between the interest suffered and
claimed by the assessee and her professional activity or income arising there-from. The
same came to be disallowed in assessment, invoking section 14A, and which stood
confirmed in appeal. Though he did not exactly endorse the application of section 14A, in
the view of the first appellate authority, there was no business (professional) purpose in
extending the loan by the assessee to the company, which had perhaps been given on
interest-free basis to the borrower-company due to her directorial interest. The assessee
did not carry the matter before the tribunal.
Penalty proceedings, initiated at the conclusion of the assessment proceedings, were proceeded with. The assessee had willfully sought to conceal and suppress her income, and which would not have come to light but for her return having been subject to the verification procedure under the Act. Explanation 1 to section 271(1)(c) stood clearly attracted. Penalty at the minimum rate, working to Rs.36,568/-, was accordingly levied, relying on the decision in the case of CIT vs. A. Sreenivasa Pai [2000] 242 ITR 29 (Ker). In first appeal, the ld. CIT(A) found that both the Explanation 1(A) and Explanation 1(B) to section 271(1)(c) stood attracted in the instant case. In-as-much as there was no nexus between the interest paid and her professional income, the assessee's claim was a deliberate attempt to suppress her professional income, and her case was without any explanation, attracting Explanation 1(A). In-as-much as the assessee had been unable to substantiate her explanation that the loan to the company was given with an intent to earn interest, Explanation 1(B) would stand attracted. Penalty was, accordingly, confirmed, relying on the decision in the case of UOI vs. Dharmendra Textile Processors [2008] 306 ITR 277 (SC). Aggrieved, the assessee is in second appeal. 3. We have heard the parties, and perused the material on record. 3.1 The law in the matter of levy of penalty u/s.271(1)(c) of the Act is trite. Penalty is not automatic, and a plausible explanation saves penalty, the onus to furnish which though is fully and squarely on the assessee, and toward which we may refer to a host of 3 ITA No. 8869/Mum/2011 (A.Y. 2003-04) Dr. Bharti L. Chandan vs. ITO decisions by the apex court, apart from the case law relied upon by the Revenue: CIT v. Atul Mohan Bindal [2009] 317 ITR 1 (SC); Dharmendra Textile Processors (supra); K.P. Madhusudhanan vs. CIT [2001] 251 ITR 99 (SC); B.A. Balasubramaniam and Bros. v. CIT (1999) 236 ITR 977 (SC); Addl. CIT vs. Jeevan Lal Shah [1994] 205 ITR 244 (SC). 3.2 We have gone through the assessee's explanation furnished before the Assessing Officer (A.O.) vide letter submitted on 25.03.2009 (copy on record), specifically called for by the Bench during hearing. The same is sans any explanation on facts, and full of decisions; in fact, even on other than `penalty'. The assessee has at no stage, either before the authorities below or even before us, shown as to how and in what manner the said decisions are applicable in the facts and circumstances of the case. There is, thus, in fact, no explanation on facts, even as observed by the ld. CIT(A). The contention that the loan to the company was given with an intent to earn interest, apart from being inconsistent with the assessee's return, claiming interest against her professional receipt, was furnished for the first time before the ld. CIT(A). Even so, it is without any substantiation. No wonder, he finds the assessee's case as covered both under Explanation 1(A) and Explanation 1(B) to s. 271(1)(c). The main thrust of the assessee's arguments before us, placing reliance on the decision in the case of CIT vs. Shivam Motors Pvt. Ltd. (in IT(Appeal) No. 88 of 2014 dated 05.05.2014 ­ All.-HC)), was that in-as-much as no income stands generated from the loan, section 14A, where-under the disallowance had been effected, would have no application in the instant case. The argument is misleading, being contrary to the assessee's own explanation that the amount advanced to the company was not by way of share capital, but by way of a loan, which is interest bearing. Interest, if any, on the said loan, would not be tax-exempt. There is, thus, no question of it yielding income not forming part of the total income, so that in the absence of such income section 14A disallowance would not hold. The question is not of the provision under which the assessee's claim stood disallowed, but of the basis of the assessee's claim. The same stands made u/s. 36(1)(iii), toward which no basis or explanation has been forthcoming 4 ITA No. 8869/Mum/2011 (A.Y. 2003-04) Dr. Bharti L. Chandan vs. ITO even up to before us. Again, even assuming it to be u/s.57(iii), for which though there is no basis or material, there is nothing to substantiate that interest, though contracted for, was declined or could not be given by the company due to its adverse financial position. The first appellate authority in the quantum proceedings has, in fact, upon examining the same, stated that it does not indicate that the company is not in a position to pay interest. Even as the said finding assumes finality in view of it being not contested, the assessee has not brought any material on record at any stage of the penalty proceedings to challenge the same. Rather, the ld. Authorized Representative's (AR's) contention before us that the loan was secured by the assessee for its onward transmission to the company as it (the company), being in loss, was unable to raise loan on its own, refurbishes the view that an accommodation by way of interest-free loan was sought to be extended to the company by the assessee, a director and, as it appears, a principal stakeholder. 3.3 The assessee before us has placed reliance on the decision in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC). The same nowhere rewrites the law (as explained by the apex court over a series of decisions referred to here-in- before), or states of Explanation 1 to section 271(1)(c), wherein the penalty stands levied, as no longer valid. Rather, to the extent it states that it all depends on the return (of income), it is against the assessee in the facts and circumstances of the case. In fact, both we as well as the ld. CIT(A) earlier have, in examination of the assessee's case from the stand point of section 57(iii), travelled outside the assessee's return, only in a bid to see if any case for any explanation is made out. The assessee's case, on the contrary, is covered by the decisions as in the case of CIT vs. Zoom Communication (P.) Ltd. [2010] 327 ITR 510 (Del.), rendered after considering the decision in the case of Reliance Petroproducts (P.) Ltd. (supra), and CIT vs. Escorts Finance Ltd. [2010] 328 ITR 44 (Del). We have already observed that the decision in the case of Shivam Motors Pvt. Ltd. (supra) has no application in the facts and circumstances of the present case. 4. We, accordingly, have no hesitation in, for the reasons afore-stated, upholding the levy of penalty in the instant case. We decide accordingly. 5 ITA No. 8869/Mum/2011 (A.Y. 2003-04) Dr. Bharti L. Chandan vs. ITO 5. In the result, the assessee's appeal is dismissed. Order pronounced in the open court on July 09, 2014 at the conclusion of the hearing. Sd/- Sd/- (I. P. Bansal) (Sanjay Arora) / Judicial Member / Accountant Member Mumbai; Dated : 15.07.2014 . ../Roshani, Sr. PS /Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent 3. () / The CIT(A) 4. / CIT - concerned 5. , , / DR, ITAT, Mumbai 6. / Guard File / BY ORDER, / (Dy./Asstt. Registrar) , / ITAT, Mumbai
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