2014 (7) TMI 248 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act Claim of disallowance not accepted by AO Held that - The assessee earned dividend income which was claimed as exempt - the assessee furnished all the details relating to the earning of dividend income and the calculation for the disallowance to be made u/s 14A of the Act - it cannot be said that the assessee had concealed income or furnished inaccurate particulars of income - The only basis for levying the penalty u/s 271(1)(c) of the Act was that the claim of the assessee for the disallowance u/s 14A of the Act was not accepted by the AO, so it can at the most be a ground for making the addition but was not sufficient to levy the penalty u/s 271(1)(c) of the Act. Relying upon CIT Vs Reliance Petro Products Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT - there was a difference of opinion as regards to the working of disallowance u/s 14A of the Act - The assessee disallowed suo-moto a sum of ₹ 16,020/- while the AO worked out the disallowance at ₹ 41,10,546/- which was more the total claim of the expenses at ₹ 32,06,595 - merely on this basis that the claim of the assessee was not accepted by the AO it cannot be said that the assessee either concealed the income or furnished inaccurate particulars of income - CIT(A) was fully justified in deleting the penalty levied by the AO u/s 271(1)(c) of the Act thus, there was no infirmity in the order of the CIT(A) Decided against Revenue.

Summary

Issues:
Appeal against CIT(A) order canceling penalty under section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
1. The department appealed against the CIT(A) order canceling a penalty of Rs. 13,97,175 levied under section 271(1)(c) of the Income Tax Act, 1961. The assessment was framed at an income of Rs. 1,06,09,211 under section 143(3) of the Act, where the Assessing Officer (A.O) added Rs. 41,10,546 on account of expenses incurred in relation to exempt income under section 14A. The A.O also initiated penalty proceedings under section 271(1)(c) based on the disallowance. The CIT(A) observed that penalty can only be imposed if there is concealment or furnishing of inaccurate particulars of income, not merely for making an untenable claim.

2. The CIT(A) noted that penalty and assessment proceedings are distinct, and while an addition may be warranted in the assessment, a penalty requires proof of concealment or furnishing inaccurate particulars. The CIT(A) highlighted that the assessee disclosed all material, and non-acceptance of a claim does not automatically lead to penalty under section 271(1)(c). Citing various cases, including CIT Vs Reliance Petro Products Pvt. Ltd., the CIT(A) emphasized that rejection of a claim does not imply concealment or furnishing inaccurate particulars of income.

3. The department contended that the penalty was justified, supported by the A.O's observations and previous cases. However, the assessee argued that the disallowance difference did not amount to concealment or furnishing inaccurate particulars. The ITAT considered both arguments and found that the assessee had disclosed all details regarding dividend income and disallowance under section 14A. The ITAT referenced the Supreme Court's decision in CIT Vs Reliance Petro Products Pvt. Ltd., emphasizing that a mere incorrect claim does not constitute furnishing inaccurate particulars.

4. Ultimately, the ITAT upheld the CIT(A) order, ruling that the disallowance disagreement did not indicate concealment or inaccurate particulars of income. Following the precedent set by the Supreme Court, the ITAT concluded that the penalty under section 271(1)(c) was not justified solely based on the non-acceptance of the assessee's claim. Therefore, the department's appeal was dismissed, affirming the deletion of the penalty by the CIT(A).