Mukesh T,. Salecha,, Mumbai vs Assessee

This appeal has been filed by the Assessee, against order dated 16.08.2012, passed by Ld. CIT(A)-26, Mumbai in relation to the penalty proceedings u/s 271(1)(c) for the A.Y. 2007-08.

2. The brief facts of the case are that, the assessee had shown interest income of Rs.20,086/-, comprising of interest on saving bank account, capital gains account and NSC. Against such interest income the assessee has claimed expenditure of Rs.1,09,594/-, being interest paid to various parties. Such an expenditure of interest was claimed u/s 57(iii). Accordingly, the loss from other sources were shown at ITA No. 7509/Mum/2012 2 Assessment Year: 2007-08

Rs.89,508/- however, the learned assessing officer disallowed the assessee's claim of interest expenses of Rs.1,09,594/-, as this expenditure cannot be claimed u/s 57(iii) because assessee was unable to show that such expenditure has been incurred wholly and exclusively for that earning of interest income. The said assessment order was not challenged by the assessee.

3. In response to the show cause notice u/s 271(1)(c), the assessee made an alternative claim that he had taken a loan which was invested in house property and therefore such an interest payment was on loan account which is liable for deduction u/s 24(2). However, the ld. Assessing officer levied the penalty without considering the assessee's alternate explanation and held that the assessee's claim for expenditure against the interest income was untenable in law.

4. Before the Ld. CIT(A), this alternate contention was again raised and reiterated however, the Ld. CIT(A) rejected the assessee said explanation on the ground that assessee has not been able to prove that loan in question was utilized in the investment of self occupied property.

5. Before us, learned counsel submitted that, first of all the details of interest payment was furnished in the return of income as well as before the AO. Hence it cannot be held that assessee has furnished any inaccurate particulars. The alternate explanation that such an interest expenditure is allowable as deduction u/s 24(2) has not been considered by the AO and by the Ld. CIT(A) at all and same has been rejected without giving opportunity to substantiate the same. Thus, order of the Ld. CIT(A) confirming the penalty cannot be upheld.

6. On the other hand, Ld. DR strongly relied upon the order of the Ld. CIT(A).

ITA No. 7509/Mum/2012 3 Assessment Year: 2007-08

7. We have heard the rival submissions and also perusal the relevant finding of the CIT(A) and AO. From the perusal of the impugned order it is seen that, Ld. CIT(A) had issued various notices, however, the assessee did not responded to such notices and neither filed any written submissions. This fact has been noted by the Ld. CIT(A) in para 3 of the order. The Ld. CIT(A) has proceeded to decide the issue on merits as per the explanation furnished before the AO. At the assessment stage, the assessee has claimed the interest expenditure of Rs.1,09,594/- u/s 57(iii) on account of interest earned on saving bank account, NSC etc. The assessee was unable to substantiate that such a claim of deduction was incurred wholly and exclusively for the purpose of earning interest income. The assessing officer has rightly rejected and disallowed the claim of expenditure made by the assessee. However, during the course of the penalty proceedings, the assessee has raised an alternate submission/explanation that, such an interest is liable of deduction u/s 24(2) as the interest was paid on the loans taken for investment made in the house property. This explanation has neither been considered by the AO nor by the Ld. CIT(A). The Ld. CIT(A) has rejected the said explanation on the ground that same has not been proved by the assessee by any evidence. Such a finding of Ld. CIT(A) is for the reason that the assessee has not represented its case before the Ld. CIT(A). It is quite a settled law that penalty proceedings are separate and distinct from the assessment proceedings and assessee can furnish any additional evidence or take a fresh plea that he is not guilty of concealment of income or furnishing of any inaccurate particulars. However, such a plea and evidence needs to be examined by the department on the basis of fact and material on record. The assessee's ITA No. 7509/Mum/2012 4 Assessment Year: 2007-08

explanation at the penalty stage that the interest expenditure should be allowed as deduction u/s 24(2) needs to be examined and proper finding has to be given based on evidences furnished by the assessee. Accordingly, we set aside the order of the Ld. CIT(A) and restore the matter back to the file of the Ld. CIT(A), to consider the assessee's explanation in light of the evidences filed by the assessee. The assessee is also directed to substantiate its claim with proper evidence and material. The Ld. CIT(A) shall due and effective opportunity of hearing to the assessee. Accordingly, ground raised by the assessee is allowed for statistical purposes.

8. In the result, the appeal filed by the Assessee is allowed for statistical purposes.

Order pronounced in the open court on this 25th day of February, 2015.

Sd/- Sd/- (SANJAY ARORA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 25.02.2015 *Srivastava Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT(A) Concerned, Mumbai The DR "B" Bench

//True Copy// By Order

Dy/Asstt. Registrar, ITAT, Mumbai.