Jairaj Manaharsingh Jhala,, Nashik vs Department Of Income Tax

Asst. Commissioner of Income Tax, Shri Jairaj Manaharsingh Jhala, Circle-1, Nashik. 301-Rushiraj House, College Vs. Road, Kulkarni Baugh, Lane No.2, Nashik - 422001. (Appellant) (Respondent) PAN No.AAPPJ3151N

Revenue By: Shri B. C. Malakar Assessee By: Smt. Deepa Khare

Date of hearing : 11-05-2015 Date of pronouncement : 29-05-2015

ORDER

PER VIKAS AWASTHY, JM:-

This appeal has been filed by the Revenue against the order of the

Commissioner of Income Tax (Appeals)-I, Nashik dated 18.04.2013 for

the assessment year 2009-10 in deleting the penalty levied under section

271(1)(c) of the Act.

2. The assessee is engaged in the business of land development and

construction under the name of 'Rushiraj Developers'. The assessee is

also partner in the firm of M/s Rushiraj Builders, Rushiraj Buildtech

and Rushiraj Builders & Developers. The assessee is also a Director in

Rushiraj Builder Pvt. Ltd.. The assessee filed his return of income for

the assessment year 2009-10 on 30.09.2009 declaring total income of

Rs.11,58,420/-. During the course of scrutiny assessment, the 2 ITA No.1385/PN/2013, A.Y. 2009-10

Assessing Officer observed that the assessee has debited interest

expenses to the tune of Rs.36,10,225/- in the Profit & Loss Account. On

enquiry, the assessee explained that the borrowed funds were utilized for

purchase of land for project 'Rushiraj Harmony'. The Assessing Officer

by following the decision of Hon'ble Supreme Court of India in the case of

CIT vs. British Paints India Ltd. reported as 188 ITR 44 (SC) disallowed

the interest and other expenses claimed in the Profit & Loss Account.

The Assessing Officer held that the expenses which are directly

attributable to the project "Rushiraj Harmony" have to be included as

part of closing work-in-progress. Accordingly, the claim of business loss

of Rs.38,49,180/- claimed by the assessee in his return of income was

partly adjusted against the income of Rs.2,67,999/- from firms and the

balance amount Rs.35,26,919/- that was carried forward, was

disallowed. Penalty proceedings were also initiated under section

271(1)(c) of the Act.

3. In penalty proceedings, the Assessing Officer held that the

assessee has furnished inaccurate particulars of the income and levied

penalty of Rs.13,08,340/- under section 271(1)(c) of the Act.

Aggrieved by the order levying penalty dated 24.05.2012, the

assessee preferred an appeal before the Commissioner of Income Tax

(Appeals).

4. The Commissioner of Income Tax (Appeals) by following the ratio

laid down by the Hon'ble Supreme Court of India in the case of CIT vs.

Reliance Petroproducts (P.) Ltd. reported as 322 ITR 158 (SC) deleted the

penalty. The Commissioner of Income Tax (Appeals) held that, the 3 ITA No.1385/PN/2013, A.Y. 2009-10

disallowance on which penalty was levied was on account of rejection of

explanation given by the appellant regarding the claim of business loss.

A view of the appellant that the interest expenditure is period cost and is

to be allowed in the year in which it has been incurred is a possible view.

The Commissioner of Income Tax (Appeals) deleted the penalty in a

particular facts of the case.

Now, the Revenue has come in appeal assailing the order of the

Commissioner of Income Tax (Appeals).

5. Shri B. C. Malakar representing the Department submitted that

the Commissioner of Income Tax (Appeals) has deleted the penalty

merely on assumptions. There cannot be two views in giving treatment

to the interest expenditure as has been wrongly held by the

Commissioner of Income Tax (Appeals). The borrowed funds were

utilized for purchase of land. Therefore, interest had to be capitalized.

The Ld. Departmental Representative prayed for setting-aside the

impugned order and restore penalty.

6. Smt. Deepa Khare appearing on behalf of the assessee submitted

that the assessee is in the business of land development and

construction. The assessee is following project completion method.

During the year, the assessee borrowed the funds and the part of the

said funds were utilized towards newly started project "Rushiraj

Harmony". The expenditure has not been attributed to any particular

project. The assessee has debited the interest paid on borrowed funds in

the Profit & Loss Account in the manner it has been consistently doing

for the past several years. The assessee had offered explanation, that 4 ITA No.1385/PN/2013, A.Y. 2009-10

the assessee has debited interest in Profit & Loss Account in line with

the decision of Hon'ble Bombay High Court in the case of CIT vs.

Lokhandwala Construction Inds. Ltd. reported as 260 ITR 579 (Bom).

The Ld. Counsel for the assessee prayed for dismissing the appeal of the

Revenue and confirming order of the Commissioner of Income Tax

(Appeals).

7. We have heard the submissions made by the Representatives of

both the sides and have perused the orders of the authorities below. The

penalty has been levied on the assessee only for the reason that the

assessee has given wrong treatment to the interest on borrowed funds.

The assessee had claimed the payment of interest as revenue

expenditure whereas in view of the Department it should be capitalized.

The assessee based its claim by placing reliance on the judgement of the

Hon'ble Bombay High Court in the case of CIT vs. Lokhandwala

Construction Inds. Ltd. (supra).

8. From the perusal of the documents on record, we observe that it is

not a case of Revenue that the assessee has claimed interest on

borrowing which are bogus or were not genuine. No information given in

the return of income was found to be incorrect. Undisputedly, the

assessee has borrowed funds and has paid interest thereon. The Hon'ble

Supreme Court of India in the case of CIT vs. Reliance Petroproducts Pvt.

Ltd. (supra) has held that where the information given in the return of

income was found to be correct, making of wrong claim does not amount

to concealment of particulars under section 271(1)(c) of the Act. A mere

make of claim which is not sustainable in law, by itself, will not amount 5 ITA No.1385/PN/2013, A.Y. 2009-10

to furnishing of inaccurate particulars regarding the income of the

assessee.

9. In view of the facts of the case and the judgement of the Hon'ble

Apex Court rendered in the case of CIT vs. Reliance Petroproducts Pvt.

Ltd. (supra), we do not find any infirmity in the order of the

Commissioner of Income Tax (Appeals) in deleting the penalty. The

appeal of the Revenue is devoid of merit and is dismissed.

10. In the result, the appeal of the Revenue is dismissed being devoid

of merit.

Order pronounced on Friday, the 29th day of May, 2015

at Pune.

Sd/- Sd/- (R.K. PANDA) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated: 29th May, 2015

Sujeet

Copy to

1 Assessee 2 Department 3 The CIT(A)-I, Nashik 4 The CIT-I, Nashik 5 The DR, ITAT, "B" Bench, Pune. 6 Guard file.

By Order

//True Copy//

Sr. Private Secretary Income Tax Appellate Tribunal, Pune