- (1.) By way of this appeal, the assessee has challenged the judgment & order of the Income Tax Appellate Tribunal allowing the appeal preferred by the Department, reversing the order of the CIT (Appeals).
(2.) This Court while admitting the appeal framed following substantial questions of law:- "Whether, merely sustenance of additions can be the basis for imposition of penalty u/s 271(1)(c) of I.T. Act, 1961 and the Tribunal was justified in directing to the Assessing Officer to recalculate the penalty on account of estimated marriage and household expenses, irrespective of the fact that penalty is not an automatic and mandatory one -
(3.) Counsel for the appellant has contended that the order of CIT (Appeals) is just & proper. CIT (Appeals) in paragraph 5 & 6 observed as under:- "5. By way of response to the showcause notice regarding the penalty in the reply dated March 22, 2006, the assessee claimed that all the details given in the return were correct, there was no concealment of income, nor were any inaccurate particulars of such income furnished. It was pointed out that the disallowance made by the assessing authority in the assessment order under Section 143(3) of the Act was solely on account of different views taken on the same set of facts and, therefore, they could, at the most, be termed as difference of opinion but nothing to do with the concealment of income or furnishing of inaccurate particulars of such income. It was claimed that mere disallowance of the claim in the assessment proceedings could not be the sole basis for levying penalty under section 271(1)(c) of the Act. It was submitted specifically that it was an investment company and in its own case for the assessment year 2000-01 the Commissioner (Appeals) had deleted the disallowance of interest made by the Assessing Officer and the Tribunal has also confirmed the stand of the Commissioner (Appeals) for that year and, therefore, it was on the basis of this that the expenditure was claimed. It was again reiterated that there was absolutely no concealment, nor were any inaccurate particulars ever submitted by the assessee-company. 6. Shri Bhattacharya, learned Additional Solicitor-General submits that the Commissioner (Appeals), the Tribunal as well as the High Court have ignored the positive language of section 271(1)(c) of the Act. He pointed out that the claim of the interest expenditure was totally without legal basis and was made with the mala fide intentions. It was further pointed out that the claim made for the interest expenditure was not accepted by the assessing authority nor by the Commissioner (Appeals) and, therefore, it was obvious that the claim for the interest expenditure did not have any basis. He further pointed out that the contention about the earlier claims being finalized was also not correct as the appeal was pending before the High Court against the order of the Tribunal for the year 2000-01. According to the learned Additional Solicitor-General, even otherwise, the expenditure on interest could not have been claimed in law, as under section 36(1)(iii), only the amount of interest paid in respect of capital borrowed for the purposes of the business or profession could have been claimed and it was clear that the interest in the present case was not in respect of the capital borrowed. Our attention was also invited to section 14A of the Act, which provides that no deduction could be allowed in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. The learned Additional Solicitor-General also invited our attention to the provision of section 10(33) to show that the income arising from the transfer of a capital asset could not be reckoned as an income which can form part of the total income. In short, the contention was that the assessee in this case had made a claim which was totally unacceptable in law and thereby had invited the provisions of section 271(1)(c) of the Act and had, therefore, exposed itself to the penalty under that provision.;