2012 (2) TMI 514 - HC - Income Tax

Penalty under Section 271(1)(c) - disallowance u/s 14A - ITAT confirming the deletion of penalty - Held that - Disallowance under the said Section have been subject matter of debate and different views have been expressed. A legal contention which was plausible and merited consideration was raised. Accordingly the appellate authorities have applied the explanation to Section 271(1)(c) of the Act. Looking at the nature of explanation offered and the provision in question i.e. Section 14A which was incorporated by the Finance Act 2001 with retrospective effect from 1st April 1962 we do not think in the present case any substantial question of law arises in view of the factual matrix involved. Accordingly the appeal of revenue dismissed.

Summary

Issues:
1. Impugning the order confirming deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Disallowance of expenses under Section 14A and Section 115O.
3. Justification for no disallowance under Section 14A.
4. Consideration of explanation and legal contentions for penalty imposition.

Analysis:

1. The Revenue challenged the order confirming the deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961. The tribunal upheld the order of the Commissioner of Income Tax (Appeals) deleting the penalty.

2. The Assessing Officer disallowed expenses under Section 14A and Section 115O, leading to the penalty imposition. The respondent assessee contested the additions before the CIT(Appeals) and the tribunal, which dismissed the appeal for non-prosecution.

3. The assessee argued against disallowance under Section 14A, stating the expenses were not incurred in relation to income exempt under the Act. They emphasized the direct relationship between expenditure and income, asserting the applicability of Section 14A in cases of indivisible business.

4. The CIT (Appeals) and the tribunal accepted the assessee's explanation as genuine and bona fide, despite its rejection in quantum proceedings. They considered the legal contentions raised, including citations supporting the assessee's position. The authorities applied the explanation to Section 271(1)(c) in assessing whether penalty for concealment should be imposed.

In conclusion, the High Court dismissed the appeal, noting that no substantial question of law arose given the factual context and the plausible legal contentions raised by the assessee regarding Section 14A. The retrospective effect of the relevant provision and the nature of the explanation offered supported the decision to uphold the deletion of the penalty under Section 271(1)(c).