DCIT CEN CIR 46, MUMBAI V. DHANAJI GALA, MUMBAI

ITA 2617/MUM/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7965 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 19-06-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 05-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bonafide belief; Commercial expediency; Bogus loan
• Section: 68; 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) .. , , ./I.T.A. NO.2617/MUM/2010 ( / ASSESSMENT YEAR : 2006-07) DY. COMMISSIONER OF INCOME TAX, CIRCLE-7(1), 622, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020. / VS. SHRI DHANJI GALA, 303, PALAI COMPLEX, BHANDARKAR ROAD, MATUNGA (C RAILWAY), MUMBAI-400019. ( !' / APPELLANT) .. ( #$!' / RESPONDENT) ./I.T.A. NO.2753 AND 2754/MUM/2010 ( / ASSESSMENT YEARS : 2006-07 & 2007-08) SHRI DHANJI GALA, 303, PALAI COMPLEX, BHANDARKAR ROAD, MATUNGA (C RAILWAY), MUMBAI-400019. / VS. DY. COMMISSIONER OF INCOME TAX, CC -46, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020. ( !' / APPELLANT) .. ( #$!' / RESPONDENT) ! ./ % ./PAN/GIR NO. : AABPG2169H !' & / REVENUE BY : SHRI DURG A DUTT #$!' ' & /ASSESSEE BY : SHRI NISHIT GANDHI ( ) ' *+ / DATE OF HEARING : 16.6.2014 ,- ' *+ /DATE OF PRONOUNCEMENT : 13.8.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE CROSS APPEALS RELATING TO THE ASSESSMENT YEAR 2006-07 AND THE APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2007-08 A RE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A)-38, MUMBAI. ALL THESE A PPEALS RELATE TO THE PENALTY I.T.A. NO.2617/MUM/2010 I.T.A. NO.2753 AND 2754/MUM/2010 2 LEVIED BY THE AO U/S 271(1)(C) OF THE INCOME TAX A CT, 1961 (THE ACT) IN BOTH THE YEARS. ALL THESE APPEALS WERE HEARD TOGETHER A ND HENCE THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF C ONVENIENCE. 2. IN ASSESSMENT YEAR 2006-07, THE AO LEVIED MINIMUM A MOUNT OF PENALTY ON THE FOLLOWING ADDITIONS:- (A) INTEREST DISALLOWED - RS.48,53,168/- (B) LOAN RECEIPT ASSESSED U/S 68 OF THE ACT RS.2 5,00,000/- IN ASSESSMENT YEAR 2007-08, THE AO HAD DISALLOWED T HE INTEREST CLAIMED ON THE ABOVE SAID LOAN OF RS.25.00 LAKHS. THE AO HAD DISA LLOWED THE SAID CLAIM AND HENCE HE LEVIED PENALTY ON THE SAID INTEREST DISALL OWANCE. 2.1 THE LD CIT(A) DELETED PENALTY LEVIED ON THE INT EREST DISALLOWANCE OF RS.48.53 LAKHS MADE IN AY 2006-07 AND CONFIRMED THE PENALTY LEVIED IN RESPECT OF LOAN AMOUNT OF RS.25.00 LAKHS ASSESSED U/S 68 IN AY 2006-07. IN THE ASSESSMENT YEAR 2007-08, THE LD CIT(A) CONFIRMED PE NALTY LEVIED ON INTEREST DISALLOWANCE MADE IN RESPECT OF THE ABOVE SAID LOAN AMOUNT OF RS.25.00 LAKHS. THE REVENUE HAS FILED APPEAL AGAINST THE RELIEF GRA NTED BY LD CIT(A) IN AY 2006- 07 AND THE ASSESSEE HAS FILED APPEALS FOR AY 2006-0 7 AND 2007-08 CHALLENGING THE ORDERS PASSED BY LD CIT(A) IN CONFIRMING THE PE NALTY. 3. WE SHALL FIRST TAKE UP THE APPEAL FILED BY BOTH THE PARTIES FOR AY 2006-07. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE IS A BUILDER, DEVELOPER AND FINANCIER. THE RETURN OF INCOME FILE D BY THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 WAS ORIGINALLY PROCESSED U/ S 143(1)(A) OF THE ACT. SUBSEQUENTLY, THE AO RE-OPENED THE ASSESSMENT BY IS SUING NOTICE U/S 148 OF THE ACT ON 21.4.2008 AND COMPLETED THE ASSESSMENT BY DI SALLOWING PART OF INTEREST I.T.A. NO.2617/MUM/2010 I.T.A. NO.2753 AND 2754/MUM/2010 3 CLAIM AND ALSO ASSESSING THE LOAN AMOUNT OF RS.25.0 0 LAKHS U/S 68 OF THE ACT. THE ASSESSEE HAD RECEIVED THE ABOVE SAID LOAN FROM A LADY NAMED SMT. LATIKA DHAMNE. SUBSEQUENTLY, THE AO LEVIED PENALTY ON THE ABOVE SAID ADDITIONS. THE LD CIT(A) DELETED THE PENALTY LEVIED ON THE AMOUNT OF INTEREST DISALLOWANCE AND CONFIRMED THE PENALTY LEVIED ON THE AMOUNT ASSESSED U/S 68 OF THE ACT. 4. THE REVENUE IS IN APPEAL IN RESPECT OF THE PE NALTY LEVIED ON THE INTEREST DISALLOWANCE. THE FACTS RELATING TO THE SAID CLAIM ARE STATED IN BRIEF. THE ASSESSEE HAD PAID INTEREST OF RS.59,47,369/- AND RE CEIVED INTEREST INCOME OF RS.7,12,763/- AND ACCORDINGLY CLAIMED NET INTEREST EXPENDITURE OF RS.51,36,342/- AS DEDUCTION. THE AO NOTICED THAT THE ASSESSEE HAD BORROWED LOANS TO THE TUNE OF RS.6,48,45,678/- AND HAS USED ONLY RS.1,09,42,01 6/- IN HIS BUSINESS NAMED M/S DHANJI DEVELOPERS. HENCE THE AO TOOK THE VIEW THAT THE INTEREST EXPENDITURE IS ALLOWABLE ONLY TO THE EXTENT OF RS.1 0,94,201/- (10% OF RS.1,09,42,016/-) AND ACCORDINGLY DISALLOWED A SUM OF RS.48,53,168/- OUT OF THE GROSS INTEREST CLAIM OF RS.59,47,369/-. THE AO LEV IED PENALTY ON THE ABOVE SAID DISALLOWANCE AND THE SAME WAS DELETED BY THE LD CIT (A). 4.1 BEFORE US, THE LD D.R PLACED STRONG RELIANCE ON THE ORDER PASSED BY LD CIT(A). HOWEVER, THE LD A.R SUBMITTED THAT THE ASS ESSEE HAD AGREED FOR THE DISALLOWANCE OF PART OF INTEREST CLAIM DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, BUT THE SAME WOULD NOT LEAD TO LEVY OF PENALTY AUTOMATICALLY. HE SUBMITTED THAT THE ASSESSEE HAD USED THE BORROWED F UNDS FOR THE PURPOSE OF MAKING BUSINESS INVESTMENTS. HE INVITED OUR ATTENT ION TO PAGE 3 OF THE PAPER BOOK AND SUBMITTED THAT (A) THE ASSESSEE HAS BORROWED FUNDS TO THE TUNE OF RS.6.48 CRORES. I.T.A. NO.2617/MUM/2010 I.T.A. NO.2753 AND 2754/MUM/2010 4 (B) OUT OF THE SAME, HE HAS INVESTED A SUM OF RS.3. 25 CRORES AS HIS CAPITAL IN THE PROPRIETARY AND PARTNERSHIP CONCERNS . (C) FURTHER HE HAS INVESTED A SUM OF RS.20.20 LAKHS IN A PRIVATE LIMITED COMPANY NAMED M/S PRAMANIK CLOTHING P LTD, WHEREIN HE IS A DIRECTOR, AND HAS ALSO ADVANCED A SUM OF RS.1.00 CRORE TO THAT COMPANY. HE SUBMITTED THAT THE ASSESSEE IS RECEIVI NG SALARY FROM THE ABOVE SAID CONCERN. ACCORDINGLY, THE LD A.R SUBMITTED THAT THE ASSESSEE HAS USED MAJOR PORTION OF BORROWED FUNDS FOR BUSINESS PURPOSES, WHEREIN HE IS DIRECTLY INTERESTED. HE SUBMITTED THAT THE ADVANCES MADE TO THE FAMILY MEMB ERS AND OTHER RELATIVES ARE IN THE NATURE OF CURRENT ACCOUNT TRANSACTIONS HAVIN G COMMERCIAL EXPEDIENCY. HE SUBMITTED THAT THE INVESTMENTS MADE OUT OF COMMERCI AL EXPEDIENCY WOULD NOT DISENTITLE THE ASSESSEE TO DEDUCTION. IN THIS REGA RD, THE LD A.R PLACED RELIANCE ON THE FOLLOWING CASE LAW:- (A) CIT VS. RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD (2013) (260 CTR (BOM) 159 ). (B) CIT VS. SHRISHTI SECURITIES P LTD (2010)(321 ITR 498)(BOM) ACCORDINGLY HE SUBMITTED THAT THERE IS NO CASE FOR DISALLOWING A PART OF INTEREST EXPENDITURE, YET THE ASSESSEE ACCEPTED THE SAID DIS ALLOWANCE. HE FURTHER SUBMITTED THAT THE AO HAS MADE ADHOC DISALLOWANCE W ITHOUT INVOKING ANY OF THE PROVISIONS OF THE ACT. ACCORDINGLY, HE SUBMITTED T HAT THE AO HAS NOT BROUGHT OUT ANY CASE TO SHOW THAT THE ASSESSEE HAS CONCEALED AN Y PARTICULARS OF INCOME IN RESPECT OF THIS DISALLOWANCE. HE FURTHER SUBMITTED THAT, SINCE THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE ON BONAFIDE BELIEF, TH E AO WAS NOT JUSTIFIED IN LEVYING PENALTY ON THE AMOUNT OF INTEREST DISALLOWE D. I.T.A. NO.2617/MUM/2010 I.T.A. NO.2753 AND 2754/MUM/2010 5 4.2 WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISS UE AND ALSO PERUSED THE RECORD. WE NOTICE THAT THE LD CIT(A) HAS DWELT UPON THIS I SSUE IN A DETAILED MANNER AND HENCE, FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELO W THE RELEVANT OBSERVATIONS MADE BY LD CIT(A) IN PARA 3.14 OF HIS ORDER AS UNDE R : 3.14. I HAVE CAREFULLY CONSIDERED THE FACTS AND SUB MISSIONS. IT IS A SETTLED JUDICIAL PROPOSITION THAT ASSESSMENT PROCEE DINGS AND PENALTY PROCEEDINGS ARE INDEPENDENT OF EACH OTHER AND AN AD DITION DOES NOT RESULT INTO LEVY OF PENALTY U/S. 271(1)(C) AUTOMATI CALLY. THIS IS SO FOR THE REASON THAT IN THE COURSE OF PENALTY PROCEEDINGS, T HE ASSESSEE CAN OFFER AN EXPLANATION TO PROVE ITS BONAFIDES. THEREAFTER, THE AO HAS TO EXAMINE THE EXPLANATION OFFERED BY THE ASSESSEE AND HE CAN LEVY PENALTY U/S. 271(1)(C) ONLY IF SUCH EXPLANATION IS FOUND TO BE F ALSE OR IF HE IS OF THE OPINION THAT SUCH EXPLANATION IS NOT BONAFIDE AND A LL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF ITS TOT AL INCOME HAD NOT BEEN DISCLOSED BY THE ASSESSEE. THE ABOVE PROVISION S NECESSARILY REQUIRE THE AO TO APPLY HIS MIND AFRESH IN THE COURSE OF PE NALTY PROCEEDINGS AND THUS, HE CANNOT LEVY THE PENALTY U/S. 271(1)(C) SOL ELY ON THE BASIS OF STATEMENT GIVEN BY THE ASSESSEE IN THE COURSE OF AS SESSMENT PROCEEDINGS. WITH REGARD TO THE DISALLOWANCE OF INTEREST AMOUNTI NG TO RS.48,53,168/-, IT IS EVIDENT THAT DETAILS OF LOANS BORROWED AND L OANS AND ADVANCES GIVEN TO VARIOUS CONCERNS AND PERSONS WERE REFLECTED IN T HE PROFIT & LOSS ACCOUNT AND THE BALANCE SHEET. FURTHER DETAILS AND BREAK UP OF INTEREST PAID AND RECEIVED WERE FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. A SUBSTANTIAL PART OF INTEREST BEARING FUNDS WAS UTILISED IN THE ASSOCIATED CONCERNS, PROPRIETARY CONCERNS AND A LSO BY GIVING LOANS TO RELATIVE AND FRIENDS WITHOUT APPELLANT HAD NOT USED BORROWED FUNDS EXCLUSIVELY FOR THE PURPOSE OF BUSIN ESS. THEREFORE, THE DISALLOWANCE HAD BEEN MADE BY THE AO AT RS. 48,53,168/- AND THE ADDITION SO MADE WAS ACCEPTED BY THE APPELL ANT. HOWEVER, THERE WAS NO FALSITY WITH REGARD TO THE AMOUNTS OF INTERE ST EXPENSES CLAIMED AND INTEREST RECEIVED. THUS, FACTUAL DETAILS SUBMIT TED WITH REGARD TO THE INTEREST PAID AND RECEIVED WERE TRUE. IT WAS ALSO S EEN THAT SOME OF THE ACCOUNTS OF THE PARTIES TO WHOM INTEREST FREE ADVAN CES WERE GIVEN WERE IN THE NATURE OF RUNNING ACCOUNTS AND IN SOME OTHER CASES OF THE ASSOCIATED CONCERNS TO WHOM ADVANCES WERE GIVEN OR WHEREIN INVESTMENT WERE MADE, THOSE CONCERNS HAD OFFERED INCOME FOR TA XATION. THE PURPOSE OF GIVING THESE LOANS AND ADVANCES TO THESE CONCERN S AND PERSONS COULD BE ARGUED ON GROUND OF COMMERCIAL EXP EDIENCY. THUS, FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY, THE APP ELLANT'S CLAIM FOR ALLOWANCE OF INTEREST COULD NOT BE TOTALLY RULED OU T IN VIEW OF THE APEX COURT JUDGEMENT IN THE CASE OF SA BUILDERS REPORTE D IN 288 ITR 1. THE APPELLANT'S CLAIM THAT FULL FACT WERE AVAILABLE IN THE BALANCE SHEET AND THE APPELLANT HAD OFFERED EXPLANATION WHICH CANNOT BE C ONSIDERED AS MALAFIDE ALSO CARRIES SOME WEIGHT. IT IS ALSO SEEN THAT DUR ING THE EARLIER YEARS I.T.A. NO.2617/MUM/2010 I.T.A. NO.2753 AND 2754/MUM/2010 6 UNDER THE SIMILAR FACTS, PERHAPS, NO DISALLOWANCE H AS BEEN MADE BY THE AO ON ACCOUNT OF INTEREST FOR THE REASONS BEST KNO WN TO HIM. THUS, THE ISSUE OF DISALLOWANCE OF INTEREST WAS DEFINITELY DE BATABLE AS IT COULD BE ARGUED OUT AS A CASE OF COMMERCIAL EXPEDIENCY. THE REFORE, CONSIDERING THE FACT THAT THE BONAFIDE OF THE APPELLANT COULD N OT BE DOUBTED AND THE ISSUE OF DISALLOWABLE WAS DEBATABLE, THE LEVY OF PE NALTY U/S 271(1)(C) IN RESPECT OF DISALLOWANCE OF RS. 48,53,168/- WAS NOT JUSTIFIED. THE AR'S RELIANCE ON THE VARIOUS COURT JUDGMENTS WAS ACCEPT ABLE. 4.3 FOR THE REASONS DISCUSSED INFRA, WE ARE INCL INED TO AGREE WITH THE VIEW EXPRESSED BY LD CIT(A) ON THIS ISSUE. FIRST OF ALL , THE ASSESSEE HAS FURNISHED ALL THE DETAILS RELATING TO THE INTEREST CLAIM. SECOND LY, THE ASSESSEE HAS MAINLY USED THE BORROWED FUNDS FOR MAKING INVESTMENTS IN PROPRI ETARY CONCERNS, PARTNERSHIP CONCERNS AND THE PRIVATE LIMITED COMPANIES, WHEREIN HE IS SUBSTANTIALLY INTERESTED. WE HAVE ALREADY NOTICED THAT THE AO H AS WORKED OUT THE DISALLOWANCE BY CONSIDERING THE INVESTMENTS MADE IN ONE OF THE CONCERNS ONLY. HOWEVER, AS PER THE DETAILS OF INVESTMENTS NARRATE D BY LD A.R, THE ASSESSEE HAS MADE INVESTMENTS IN MORE THAN ONE CONCERN, WHICH FA CT WAS IGNORED BY THE AO WHILE WORKING OUT THE DISALLOWANCE. IN RESPECT OF ADVANCES GIVEN TO RELATIVES, THE SUBMISSION OF THE ASSESSEE IS THAT THEY ARE IN THE NATURE OF CURRENT ACCOUNT TRANSACTIONS INVOLVING BOTH PAYMENT AND RECEIPT OF MONEY AND FURTHER IT IS THE CLAIM OF THE ASSESSEE THAT THERE IS COMMERCIAL EXPE DIENCY IN MAKING THOSE ADVANCES. AS OBSERVED BY LD CIT(A), IT IS A WELL S ETTLED PROPOSITION THAT THE ADDITIONS MADE DURING ASSESSMENT PROCEEDINGS WOULD NOT AUTOMATICALLY GIVE RISE TO PENALTY PROCEEDINGS. THE AO HAS TO EXAMINE THE ISSUE AFRESH DURING THE COURSE OF PENALTY PROCEEDINGS AND IN THAT REGARD, T HE FINDINGS GIVEN IN THE ASSESSMENT PROCEEDINGS CAN BE TAKEN AS GUIDANCE. T HE OBSERVATIONS MADE BY THE LD CIT(A) AND THE DISCUSSIONS MADE BY US ABOVE WOULD SHOW THAT THE ASSESSEE DID NOT HIDE ANY DETAIL RELATING TO THE IN TEREST CLAIM. FURTHER ALL THE I.T.A. NO.2617/MUM/2010 I.T.A. NO.2753 AND 2754/MUM/2010 7 INVESTMENTS CANNOT BE CONSIDERED AS DIVERSION OF IN TEREST BEARING FUNDS FOR GIVING INTEREST FREE ADVANCES. ACCORDINGLY, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN DELETING THE PENALTY LEVIED ON THE INTEREST DISALLOWANCE AND ACCORDINGLY CONFIRM HIS ORDER ON THIS ISSUE. 5. THE NEXT ISSUE RELATES TO THE PENALTY LEVIED O N THE CASH CREDIT ASSESSED U/S 68 OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO EXAMINED THE LOAN CREDITORS. IN THAT PROCESS, THE AO EXAMINED SMT LATIKA DHAMNE FROM WHOM A SUM OF RS.25.00 LAKHS WAS RECEIV ED BY THE ASSESSEE. IN THE STATEMENT RECORDED FROM HER, SHE CATEGORICALLY DENIED HAVING KNOWLEDGE OF EXTENDING ANY LOAN TO THE ASSESSEE. SHE ALSO STATE D THAT SHE DOES NOT HAVE FINANCIAL CAPACITY TO EXTEND A SUM OF RS.25.00 LAKH S AS LOAN. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSEE OFFERED THE ABOVE SAID SUM OF RS.25.00 LAKHS AS HIS INCOME. ACCORDINGLY THE ABOVE SAID SU M OF RS.25.00 LAKHS WAS ASSESSED AND THE INTEREST CLAIMED THEREON AMOUNTING TO RS.1,54,167/- WAS DISALLOWED IN AY 2006-07. THE LD CIT(A) ALSO CONFI RMED THE PENALTY RELATING TO THIS ADDITION ON THE GROUND THAT THE LOAN TAKEN MRS . LATIKA DHAMNE WAS TOTALLY BOGUS; THE ASSESSEE SEEMS TO HAVE USED HER NAME TO SHOW LOAN AND THE ASSESSEE HAS FAILED TO SUBSTANTIATE EXPLANATION AND PROVE THE BONAFIDES. 5.1 THE LD A.R SUBMITTED THAT THE ASSESSEE HAD A RRANGED THE IMPUGNED LOAN THROUGH BROKERS. HE SUBMITTED THAT THE LOAN WAS TA KEN FROM SMT LATIKA DHAMNE THROUGH ACCOUNT PAYEE CHEQUE AND IT WAS ALSO REPAID BY WAY OF ACCOUNT PAYEE CHEQUE. HE SUBMITTED THAT THE ASSESSEE HAS FILED C OPY OF LOAN CONFIRMATION OBTAINED FROM HER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS. WHEN THE LOAN CREDITOR WAS ASKED TO BE PRODUCED, THE ASSESSEE APP ROACHED THE BROKERS, WHO I.T.A. NO.2617/MUM/2010 I.T.A. NO.2753 AND 2754/MUM/2010 8 HAD ARRANGED THE LOAN FROM HER TO FIND OUT HER NEW ADDRESS AND TO ESTABLISH CONTACT WITH HER. SINCE THEY DID NOT CO-OPERATE ON THIS MATTER, THE ASSESSEE WAS CONSTRAINED TO OFFER THE SAME AS HIS INCOME. THE L D A.R FURTHER SUBMITTED THAT THE LOAN CREDITOR HAS GIVEN STATEMENT BEFORE THE AO TO SUIT HER NEEDS. THOUGH SHE IS HAVING PAN NUMBER, YET SHE SAID SHE IS NOT A WARE OF THE SAME. HENCE HER STATEMENT IS CONFLICTING WITH THE FACTS AND HEN CE THE SAME WAS NOT RELIABLE. FURTHER, THE STATEMENT TAKEN FROM HER WAS NOT CONFR ONTED WITH THE ASSESSEE. THE LD A.R FURTHER SUBMITTED THAT THE PENALTY IS NO T EXIGIBLE IN SUCH KIND OF CIRCUMSTANCES AND IN THIS REGARD, HE PLACED RELIANC E ON THE FOLLOWING CASE LAW:- (A) CIT VS. M/S BHIMJI BHANJEE & CO. (1984)(146 ITR 145)(BOM) (B) SHREE NIRMAL COMMERCIAL LTD VS. CIT (2009)(30 8 ITR 406)(BOM) (C) CIT VS.MRS. BALJEET JOLLY (2003)(263 ITR 239) (DEL) 5.2 ON THE CONTRARY, THE LD D.R SUBMITTED THAT T HE ASSESSEE HAS FAILED TO PROVE THAT THE EXPLANATIONS FURNISHED BY HIM WAS BONAFIDE ONE. ACCORDINGLY HE PLACED STRONG RELIANCE ON THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE AND CAREFULLY PERUSED THE RECORD. WE NOTICE THAT THE AO HAS LEVIED PENALTY O N THE REASONING THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF IN COME BY SHOWING BOGUS LOANS TO THE TUNE OF RS.25.00 LAKHS. THE LD CIT(A) HAS A LSO CONFIRMED THE VIEW TAKEN BY THE AO. WE HAVE ALREADY NOTICED THAT THE ADDITI ONS MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS WILL NOT AUTOMATICALLY GI VE RISE TO PENALTY AND HENCE DURING THE COURSE OF PENALTY PROCEEDINGS, THE AO HA S TO EXAMINE THE MATTER AFRESH. OF COURSE, THE AO IS ENTITLED TO TAKE THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER AS GUIDANCE. I.T.A. NO.2617/MUM/2010 I.T.A. NO.2753 AND 2754/MUM/2010 9 6.1 IN THE INSTANT CASE, THE SUBMISSION OF THE ASSESSEE IS THAT THE LOAN FROM SMT. LATIKA DHAMNE WAS ARRANGED THROUGH THE BROKERS AND THE SAME WAS RECEIVED BY WAY OF ACCOUNT PAYEE CHEQUE. IT IS ALS O THE SUBMISSION OF THE ASSESSEE THAT THE LOAN WAS ALSO REPAID BY WAY OF AC COUNT PAYEE CHEQUE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS ALSO FURNISHED CONFIRMATION LETTER OBTAINED FROM THE CREDITOR, WHE REIN THE PERMANENT ACCOUNT NUMBER OF THE LENDER WAS ALSO GIVEN. IT WAS ALSO S UBMITTED THAT THE LENDER IS ASSESSED TO INCOME TAX. HOWEVER, IN THE STATEMENT TAKEN, SMT. LATIKA DHAMNE HAS DENIED KNOWLEDGE ABOUT THE ASSESSEE AND WAS ALS O UNAWARE OF THE LOAN TRANSACTIONS. ACCORDING TO AO, SHE DOES NOT HAVE A NY KNOWN SOURCE OF INCOME. HENCE THE AO HAS PROPOSED TO ASSESS THE LOAN AS INC OME OF THE ASSESSEE. ACCORDING TO THE ASSESSEE, THE LOAN WAS ARRANGED TH ROUGH BROKERS AND HENCE HE DOES NOT HAVE DIRECT CONTACT WITH THE LENDER. ACCO RDING TO THE ASSESSEE, THE LENDER IS ASSESSED TO TAX AND THE DETAILS RELATING THERETO WAS GIVEN TO THE AO. IT APPEARS THAT THE AO DID NOT CROSS VERIFY THE SAID C LAIM PUT FORTH BY THE ASSESSEE. FURTHER, IT IS ALSO THE CLAIM OF THE ASSESSEE THAT HE WAS NOT GIVEN OPPORTUNITY TO CROSS EXAMINE THE CREDITOR. DURING THE COURSE OF A SSESSMENT PROCEEDINGS, ACCORDING TO THE ASSESSEE, HE TRIED TO ESTABLISH CO NTACT THROUGH THE BROKERS, WHO ARRANGED THE LOAN, BUT HE COULD NOT GET PROPER RESP ONSE FROM THEM. UNDER THESE DIFFICULT CIRCUMSTANCES, THE ASSESSEE HAS AGR EED TO THE ASSESSMENT OF LOAN AMOUNT AS HIS INCOME. THE LD A.R ALSO SUBMITTED TH AT THE STATEMENT GIVEN BY THE LENDER IS CONTRARY TO THE FACTS AVAILABLE ON RE CORD AND FURTHER REITERATED THE CONTENTIONS THAT THE ASSESSEE WAS NOT GIVEN OPPORTU NITY TO CROSS EXAMINE THE CREDITOR. THUS, IT IS SEEN THAT THE ASSESSEE HAS E XPLAINED THE CIRCUMSTANCES, WHICH COMPELLED HIM TO AGREE TO ASSESSMENT OF THE L OAN AMOUNT AS HIS INCOME. I.T.A. NO.2617/MUM/2010 I.T.A. NO.2753 AND 2754/MUM/2010 10 IT IS PERTINENT TO NOTE THAT THE EXPLANATIONS GIVEN BY THE ASSESSEE HAS NOT BEEN FOUND TO BE FAULT DURING THE COURSE OF PENALTY PROC EEDINGS. 6.2 THE LD A.R HAS PLACED RELIANCE ON THE DECIS ION RENDERED BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHREE NIRM AL COMMERCIAL LTD (SUPRA). IN THE ABOVE SAID CASE, THE ADDITION WAS MADE U/S 68 O F THE ACT SINCE THE LENDER HAS CATEGORICALLY DENIED GIVING OF LOANS TO THE ASS ESSEE. THE ASSESSEE COULD NOT PRODUCE THE BROKERS THROUGH WHOM HE ARRANGED LOANS AND EVEN LOST UPTO THE TRIBUNAL IN THE QUANTUM PROCEEDINGS. THE HONBLE H IGH COURT DELETED THE PENALTY BY FOLLOWING THE DECISION RENDERED BY BOMBA Y HIGH COURT IN THE CASE OF CIT VS. BHIMJI BHANJEE & CO. (SUPRA). IN THE INSTA NT CASE, WE NOTICE THAT THE AO HAS PLACED RELIANCE ON THE STATEMENT TAKEN FROM THE LENDER. HOWEVER, THE CASE OF THE ASSESSEE IS THAT HE RECEIVED THE LOAN BY WAY OF ACCOUNT PAYEE CHEQUE THROUGH THE BROKERS AND ALSO REPAID THE LOAN THROUG H ACCOUNT PAYEE CHEQUE. HENCE, IT IS QUITE A POSSIBILITY THAT THE LENDER MA Y NOT BE AWARE OF THE ASSESSEE. IN THE INSTANT CASE, IT IS NOT CLEAR AS TO WHETHER THE AO DID MAKE ENQUIRIES ABOUT THE BANK ACCOUNT MAINTAINED BY THE LENDER; ABOUT T HE LOAN TRANSACTIONS CARRIED OUT THROUGH ACCOUNT PAYEE CHEQUES AND ALSO ABOUT TH E INCOME TAX RETURNS FILED BY HER. IF THE AO HAD CONDUCTED ENQUIRIES ABOUT TH E SAME, FURTHER TRUTH MIGHT HAVE COME ON THE FORE. WE HAVE NOTICED THAT THE LD A.R ALSO PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE DELHI HIGH COURT I N THE CASE OF MRS. BALJEET JOLLY (SUPRA). IN THE SAID CASE, THE TRIBUNAL HAD NOTICED THAT THE LOAN WAS TAKEN BY WAY OF BANK DRAFTS AND THEY WERE ALSO EN-CASHED THROUGH BANKING CHANNELS. BASED ON THIS FACTS, THE HONBLE DELHI HIGH COURT H ELD THAT THE PENALTY U/S 271(1)(C) COULD NOT BE SUSTAINED MERELY ON THE REAS ONING THAT THE ASSESSEE DID I.T.A. NO.2617/MUM/2010 I.T.A. NO.2753 AND 2754/MUM/2010 11 NOT CHALLENGE THE ASSESSMENT OF LOAN AS HIS INCOME. IN THE INSTANT CASE ALSO, THE CONTENTION OF THE ASSESSEE IS THAT THE LOAN TRANSAC TIONS WERE CARRIED OUT THROUGH BANKING CHANNELS AND THE SAID CONTENTION WAS NOT PR OVED TO BE WRONG. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THERE I S NO REASON TO SUSPECT THE BONAFIDES OF THE ASSESSEE MERELY ON THE FACT THAT T HE ASSESSEE HAS AGREED FOR ASSESSMENT OF LOAN AMOUNT. 6.3 IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE PENALTY U/S 271(1)(C) IS NOT LEVY-ABLE MERELY ON THE REASO NING THAT THE ASSESSEE HAS AGREED FOR ASSESSMENT OF THE LOAN AMOUNT AS HIS INC OME. THE ASSESSEE HAS FURNISHED REASONS AS TO WHY HE ACCEPTED FOR THE ASS ESSMENT OF THE LOAN AMOUNT AS HIS INCOME. THOUGH THE ASSESSMENT HAS BEEN MADE ON THE BASIS OF STATEMENT GIVEN BY THE LENDER, YET IN OUR VIEW, THE SAME CANNOT BE TAKEN AS A STRONG GROUND FOR LEVYING PENALTY. IN OUR VIEW, TH E DECISION RENDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SH REE NIRMAL COMMERCIAL LTD (SUPRA) AND THE DECISION RENDERED BY THE HONBLE DE LHI HIGH COURT IN THE CASE OF MRS. BALJEET JOLLY (SUPRA) COME TO THE SUPPORT OF T HE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE PENALTY LEVIED ON THE LOAN AMOUNT. SINC E WE HAVE DIRECTED TO DELETE THE PENALTY LEVIED ON THE PRINCIPAL AMOUNT OF LOAN, THE PENALTY LEVIED ON THE INTEREST DISALLOWED IS ALSO LIABLE TO BE DELETED. WE ORDER ACCORDINGLY. 7. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE ASSESSEE FOR THE AY 2007-08. IN THIS CASE, THE AO DISALLOWED THE INTEREST CLAIME D BY THE ASSESSEE ON THE LOAN TAKEN FROM SMT. LATIKA DHAMNE. IN THE IMMEDIATELY PRECEDING YEAR, WE HAVE DELETED THE PENALTY LEVIED ON IDENTICAL CIRCUMSTANC ES FOR THE DETAILED REASONS I.T.A. NO.2617/MUM/2010 I.T.A. NO.2753 AND 2754/MUM/2010 12 DISCUSSED SUPRA. FOLLOWING THE SAME REASONING, WE SET ASIDE THE ORDER OF LD CIT(A) AND DIRECT THE AO TO DELETE THE PENALTY THER EON. 8. IN THE RESULT, THE APPEAL FILED BY THE REVEN UE AND BOTH THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 13 TH AUG , 2014. ,- ( ./ 0 1 13 TH AUG, 2014 - ' ) 2 SD SD ( /SANJAY GARG) ( .. / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER . ( ) MUMBAI: 13 TH AUG,2014. . . ./ SRL , SR. PS ! '#$%& '&($ / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. #$!' / THE RESPONDENT. 3. ( 4* ( ) / THE CIT(A)- CONCERNED 4. ( 4* / CIT CONCERNED 5. 56 #* 7 , + 7 , . ( ) / DR, ITAT, MUMBAI CONCERNED 6. 8) / GUARD FILE. 9 ( / BY ORDER, TRUE COPY : (ASSTT. REGISTRAR) + 7 , . ( ) /ITAT, MUMBAI