2014 (6) TMI 735 - AT - Income Tax

Levy of penalty u/s 271(1)(c) of the Act Disallowance u/s 14A of the Act Held that - The assessee has not incurred any administrative or interest expenditure for managing such investment - The expenses claimed in the profit & loss account have no relation with the earning of dividend income the AO did not accept the assessee s contention but computed the disallowance u/s 14A read with Rule 8D - merely because certain disallowance is made u/s 14A rejecting the assessee s contention that no disallowance is called for would not be sufficient to levy the penalty u/s 271(1)(c) - there is no allegation of the Revenue that the assessee furnished any details which are found to be false or inaccurate - Merely because some disallowance is computed as per the formula prescribed under Rule 8D, it cannot be presumed that the assessee has concealed the income or furnished inaccurate particulars of income Relying upon CIT Vs. Reliance Petroproducts Pvt.Ltd. 2010 (3) TMI 80 - SUPREME COURT Decided in favour of Assessee.

Summary

Issues:
Appeal against penalty under Section 271(1)(c) of the Income-tax Act, 1961 for AY 2009-10.

Analysis:
1. Identical Grounds Raised in Appeals:
- Two appeals by different assessees challenged the penalty under Section 271(1)(c) for AY 2009-10.
- The appeals contested the penalty imposed by the Assessing Officer under Section 14A read with Rule 8D.

2. Assessment Details - Espire Infolabs Pvt.Ltd.:
- The appellant declared total income of Rs.4,91,120/-, but the assessment was completed at Rs.8,47,650/- with a disallowance of Rs.3,56,531/- under Section 14A.
- The penalty imposed under Section 271(1)(c) amounted to Rs.1,21,185/-, which was upheld by the CIT(A), leading to the appeal.

3. Ex Parte Decision Due to Non-Appearance:
- Despite issuing a notice, no representation was made on behalf of the assessee during the hearing.
- The appeals were decided ex parte after hearing the arguments presented by the learned DR.

4. Judgment on Disallowance and Penalty:
- The Assessing Officer computed the disallowance under Section 14A despite the assessee's contention that no disallowance was warranted.
- The Tribunal held that the mere disallowance under Section 14A does not automatically justify the penalty under Section 271(1)(c).
- Referring to the decision in CIT Vs. Reliance Petroproducts Pvt.Ltd., it was emphasized that the penalty cannot be imposed solely based on a disallowance computation under Rule 8D.

5. Decision on Espire Infrastructure Corporation Ltd.:
- The facts in the case of M/s Espire Infrastructure Corporation Ltd. mirrored those of M/s Espire Infolabs Pvt.Ltd.
- The disallowance under Section 14A and the penalty were canceled for Espire Infrastructure Corporation Ltd. based on the earlier discussion and judgment.

6. Final Verdict:
- The Tribunal allowed the appeals of both assessees, setting aside the penalties imposed under Section 271(1)(c).
- The decision was pronounced in open court on 6th June 2014.

This judgment highlights the importance of assessing the validity of penalties under Section 271(1)(c) in relation to disallowances made under Section 14A, emphasizing that a mere disallowance does not automatically warrant the imposition of penalties without evidence of concealment or inaccurate particulars of income.