Genuinity with respect to income earned from other source and interest expenses clearly established: ITAT deletes Penalty [Read Order]

The Ahmedabad bench, Income Tax Appellate Tribunal (ITAT) while deleting the penalty imposed by the assessing officer held that genuinity with respect to income earned from other source and interest expenses are clearly established by the assessee.

The Assessee Mahendra N. Patel’s case was selected for scrutiny after filing the return of income. During the course of assessment proceedings, the AO observed that the assessee failed to establish any nexus between the income earned from other sources and interest expenses of Rs. 13,33,313/- as explained under Section  57 of the Income Tax Act.

Subsequently The Assessing Officer initiated penalty proceedings for mis-reporting of income and under reporting of income and show cause notice was issued under Section  270A r.w.s 274 was issued.

Since the assessee did not reply the same, the Assessing Officer imposed a penalty of Rs. 11,39,860/- for under reporting of income in consequence of mis-reporting of income under Section  270A r.w.s. 274 of the Income Tax Act.

Accordingly Notice under Section  148 of the Act is issued after obtaining the approval of the Joint Commissioner of Income Tax Range – 18(1), Mumbai.

Aggrieved by the order assesee filed an appeal before the CIT(A). The CIT(A) dismissed   the appeal filed by the assessee . Thereafter the assessee filed an appeal before the tribunal.

During the adjudication Piyush Chajjed, the counsel for assessee argued that  the expenditure was properly noted in the books of accounts/audit report and the same was filed during the assessment proceedings.

Shambu Yadav,  Department representatives argued that the assessee has not claimed the proper expenditure as required under the law and therefore the same is mis-reporting and under reporting.

The tribunal observed that the assessee has established the nexus between the interest expenses and interest earned during the financial year 2009- 10 from unsecured loans .

Thus, the assessee has given all the details and explained the expenses including that of the interest expenditure which was led out or extended wholly and exclusively for the purpose of earning income from LIC policy maturity hence director fees from Mila India Pvt. Ltd.. Thus, it cannot be said that the assessee has under-reported in consequence of mis-reported the income of assessee at any point of time.

After analyzing the submission of both parties, the bench of  Suchitra Kamble(Judicial Member) deleted the penalty imposed by the assessing officer.

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