INCOME TAX APPELLATE TRIBUNAL,MUMBAI - `E' BENCH.
Before S/Sh.I.P.Bansal, Judicial Member & Rajendra,Accountant Member
/.ITA No.1700/Mum/2012,[ [/Assessment Year-2007-08
M/s E.S.Patanwala ACIT 13(1)
182/84 A.R.Street, Mumbai.
Mumbai-400003 Vs.
.
.../PAN:AAAFE1723A
(/ Appellant) (× / Respondent)
[ / Assessee by : Shri Ashok J. Patil
/ Revenue by : Shri Vijay Kumar Bora
/ Date of Hearing : 18-09-2014
/ Date of Pronouncement : 24-09-2014
, 1961 254 ( 1 ) Û[
Order u/s..254(1)of the Income-tax Act,1961(Act)
Per Rajendra,AM Û] :
Challenging the order dt.19.03.2012 of the CIT(A)-28,Mumbai,Assessee has raised following
Grounds of Appeal:
1)The Learned CIT has erred in law as well as fact of the case in :-
a)levying penalty u/s 271(1 )(c) of Rs. 180743/-That the findings of the learned CIT are erroneous
and circumstances and materials produced and on record given levying penalty of Rs.180743/-
3.That the learned C.I.T. failed to consider that the income added in the assessment proceeding
order cannot be treated as concealment of income for technical error and levied penalty u/s
271(l)(c) as decided in number of cases on account f object clause and accepted assessment a/s
143(3) to inaccurate particular does not arise and beside case Law given, wherein two view the
assessee shall not be penalised for a view favourable to him in filing return.
4.That the learned ITO ought to have considered all facts and circumstances on proper
appreciation thereof and evidence and materials on record and explanation given ought to have
Not levied penalty u/s 271(1)(c) of Rs. 180743/-
5.That your petitioner pray accordingly and craves leave to add to or to alter or amend the above
grounds of appeal as and when occasions arises.
2.In this case,the return of income declaring income of Rs.Nil was filed by the assessee on 14/11/
2007along with the audited statement of accounts and other details. The same was processed u/s
143(1) of the Act.Scrutiny assessment u/s143(3) of the Act was completed on 29/12/2009
determining the total income at Rs.Nil.In the assessment,penalty proceedings u/s. 271(1)(c) of the
Act was also initiated-the first issue on which penalty was initiated related to disallowance of Rs.
4,81,273/- out of interest expenditure on account of interest @12 % on excess withdrawal by the
partners to the tune of Rs. 40,10,614/-.The second issue for which penalty was initiated relates to
disallowance of interest expenditure of Rs. 55,693/- on non-genuine loans of AY.2005-06.A
penalty show cause notice u/s.274 r.w.s271 of the Act was issued on 29/12/ 2009 to the assessee
along with the assessment order u/s.143(3) of the Act.In response to this notice, no submissions
were furnished by the assessee. Later on it filed written reply on 15/06/2010.It was argued that
the assessee had not concealed any income or had given inaccurate particulars,that the partners
had withdrawn money for their household drawing,that there was no provision for payment of
2 ITA No.1700/Mum/2012 M/s E.S.Patanwala
interest.After considering the submission of the assessee,the AO held that that despite borrowing
funds at heavy interest assessee was giving interest free loans to the partners in terms of excess
withdrawal from their capital account for their household purpose,that there was no provision to
charge interest on such excess withdrawal in the deed,that absence of such a clause did not mean
that the funds borrowed by the assessee could be used to give them to partners as excess
withdrawal from capital account,that the assessee had not proved that funds were being used for
the purpose of the business wholly and exclusive1y.With regard to second issue,the AO held
that,the assess had accepted that genuineness of loan could not be verified and hence the claim of
interest expenditure on such non-genuine loans amounted to furnishing of inaccurate particulars
of income and thereby concealing the income as well as loss of revenue.
He further held that the explanation offered by the assessee was not tenable.Referring to the
judgment of Dharmendra Textile Processors Ltd.(306 ITR 277)has held that the assessee had not
discharged the onus by giving any explanation that the explanation furnished by it was not
satisfactory.Finally,he held that it had committed default within the meaning of sec. 271(1)(c) of
the Act and had made itself liable for penalty.He levied a penalty of Rs. 1,80,743/-,being 100% of
the tax sought to be evaded under the above mentioned section.
3.Aggrieved by the order of the AO,the assessee filed an appeal before the First Appellate
Authority(FAA).In the appellate proceedings,the assessee made substantially the same
submissions as made in the penalty proceedings with respect to the first disallowance on account
of excess withdrawal by partners. As regards the second disallowance of interest expenses on
account of non-genuine loans, it was been submitted that some of the loans had been held to be
genuine by the FAA in his order.After considering the penalty order and the submissions made by
the assessee,he held that the AO had given a finding that borrowed funds on which substantial
interest was being paid by the assessee and claimed as deductible expenditure had been given to
the partners for household expenses,that the interest expenses claimed on these amounts were not
allowable as a deduction since the same was not used wholly and exclusively for the purposes of
the business,that the assessee had not controverted such finding of the AO,that once it is held that
the borrowed funds on which interest was being paid had not been used for the purposes of
business the interest attributable to that part of the borrowed funds could not be allowed as an
expenditure from the income of the assessee,that the act of the assessee of claiming such
expenditure as a deduction was completely untenable in law,that the assessee has also not been
able to show his bonafide in respect of such claim.He relied upon the cases of Zoom
Communications Ltd.(327TR510)and Reliance Petroproducts Pvt.Ltd.(322ITR158) and held that
the ratio of the above decisions were clearly applicable to the facts of the case under
consideration.He also held that the case of the assessee was covered by the provisions of sec.
271(1)(c) and penalty was leviable in respect of the disallowance of Rs. 4,81,273/-.
As regards the second disallowance,he held that the while deciding the quantum appeal for the
AY. 2005-06 the then FAA had held that the loan/deposit two creditors(Chatriwala of Rs. 50,
000/- and from Alfa H. Manasawala of Rs. 70,000/-) were not genuine,that the loans from the
remaining two parties had been held to be genuine by him by the then FAA,that no interest could
be claimed by the assessee as an expenditure in respect of Chattriwala and Manaswala,that the
assessee had also not shown that its case was not covered by the provisions of sec. 271(1)(c) of
the Act,that the disallowance had not been made on account of difference of opinion,that the
claim was totally untenable in law.Finally,he held that in view of the ratio laid down by the
3 ITA No.1700/Mum/2012 M/s E.S.Patanwala
Hon'ble Delhi High Court in the case of Zoom Communications Ltd.(supra), penalty u/s 271(1)(c)
would be leviable in respect of the disallowance of interest expenditure of Rs.16,416/-relating to
Chattriwala and Manasawala(Rs. 5,083 + 11,333),that the action of the AO was to be upheld to
the extent of the disallowance of Rs.(4,81,273/- + 16,416/-),that the assessee had furnished
inaccurate particulars of income for the amounts in question.He directed the AO to re-compute the
penalty u/s.271(1)(c) in respect of the above amount of Rs. 4,97,689/- and partly allowed the
appeal filed by the assessee.
4.Before us,the Authroised Representative(AR)argued that rate of interest adopted by the AO for
making disallowance for excess withdrawal by the partners was estimate based,that concealment
penalty cannot be levied where estimated additions were made. Departmental
Representative(DR)supported the order of the FAA.
5.We have heard the rival submissions and perused the material before us.On a specific query by
the Bench the AR stated that the assessee had not filed quantum appeal and had accepted the
addition made by the AO.We find that the undisputed facts of the case are that the assessee had
claimed interest expenditure on two counts i.e.on the interest payment made to partners for excess
withdrawal and on the interest payment to the creditors, that the assessee had not challenged the
finding given by the AO,that the FAA had partly allowed the appeal filed by the assessee
challenging the order passed by the AO u/s.271(1)(c)of the Act.In our opinion,the issue of
estimation of addition may have some relevance in deciding quantum appeal,but the issue before
us is to decide the question as to whether the imposed by the AO and confirmed by the FAA for
filing inaccurate particulars and thus concealing the taxable income is justifiable?The assessee
very well knew that the interest expenditure shown in the books of accounts,on account of excess
withdrawal by the partners,was not a business expenditure.As per the provisions of the Act,not
only there should be incurring of expenditure but such incurring should be wholly and exclusively
for the business purposes. The assessee was fully aware of the fact that interest expenditure
claimed in the books of account had no connection with the business carried out by it during the
year under appeal. Even then while filing the return of income, it claimed the said expenditure as
business expenditure.The moment a patently disallowable claim was made about which the
assessee knew that it was not permissible as per law, it had exposed itself to the penal provisions
as envisaged by the Act.We find that that there was no difference of opinion between the AO and
the assessee about the allowability of the expenditure. Both were of the view that the expenditure
was not related in any manner to the carrying on business of the assessee.The question of
incurring of same wholly and exclusively for the business does not arise.Similar is the situation
about the other disallowance.Interest expenditure of Rs.16,416/- claimed to have been paid to
Chattriwala and Manasawala was found by the AO and the FAA as non genuine and the assessee
had not preferred any appeal about the quantum in the previous year when the then FAA had
decided the issue against the assessee.Thus,to claim interest expenses about the parties who were
found to be non-genuine cannot be treated as difference of opinon.In short,both the additions do
not fall in the category of debatable issue. A non-genuine claim and debatable claim are two
different concepts.When an unreal thing or untrue fact is projected or presented as true or genuine
same is termed to be a bogus claim. Courts are unanimous that for a debatable claim assessee
cannot be penalised,but when it makes a bogus claim levy of penalty is justified.Assessees are
expected, rather required, not only produces evidence, but to produce positive evidence in respect
4 ITA No.1700/Mum/2012 M/s E.S.Patanwala
of a claim made. Onus of proving a claim is always on the assessees and they have to be discharge
it fully.Mere making of a claim is not sufficient.If assessee fails to produce the corroborative
evidences,his claim also fails.In the case under consideration, the assessee has failed miserably to
substantiate and support claim that the expenditure was incurred wholly and exclusively for the
business purposes-rather it was aware that there was no connection between the expenditure and
the business.The partners of the assessee-firm had incurred the expenditure for their personal use.
In no circumstances,such a claim can be held to be genuine.Therefore,in our opinion,the AO and
the FAA were justified in levying/confirming the penalty.
As the facts and the conduct of the assessee clearly establish that it had filed inaccurate particulars
of income and had thus concealed particulars of income,so we do not want disturb the order of the
FAA.Upholding his order, we decide effective ground of appeal against the assessee.
As a result,appeal filed by the assessee stands dismissed.
[ .
Order pronounced in the open court on 24th,September2014.
Û 24 ,2014
Sd/- Sd/-
(.. /I.P. Bansal) (Û]/Rajendra)
Û /JUDICIAL MEMBER /ACCOUNTANT MEMBER
/Mumbai,/Date: 24.09.2014.
/Copy of the Order forwarded to :
1. Assessee / 2. Respondent /×
3. The concerned CIT(A)/ ,4.The concerned CIT /
5. DR " E" Bench, ITAT, Mumbai / , ,..Û.
6. Guard File/[ × //True Copy//
/ BY ORDER,
/ Dy./Asst. Registrar
, /ITAT, Mumbai
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