2015 (11) TMI 916 - AT - Income Tax

Penalty levied under section 271(1)(c) - disallowance under section 14A - CIT(A) deleted penalty - Held that - Admittedly the assessee on its own had disallowed a sum of ₹ 2,43,670 under section 14A but the Assessing Officer computed the disallowance as per rule 8D at ₹ 35,71,608. The provision of rule 8D comes into play only when the Assessing Officer records a finding that having regard to the accounts of the assessee he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income, which does not form part of the total income under this Act. There are decisions as per which unless the necessary satisfaction is recorded by the Assessing Officer rule 8D cannot be invoked. Therefore, once the assessee has advanced its claim, the Assessing Officer may reject the same but that does not lead to the conclusion that the claim advanced by the assessee was a false claim. The Assessing Officer in the assessment order or in the penalty order nowhere states that the assessee s claim was false and he has invoked rule 8D for computing the disallowance under section 14A. Therefore, this was merely a difference of opinion between the assessee and the Department on the computation of disallowance under section 14A. The decision of the hon ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT) is squarely applicable to the facts of the case, wherein it has been held that where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false, there is no question of inviting penalty under section 271(1)(c). Mere making of a claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Also see Union of India v. Dharamendra Textile Processors 2008 (9) TMI 52 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) for inaccurate particulars of income.

Analysis:
The case involved appeals by the Revenue against the cancellation of penalties under section 271(1)(c) by the Commissioner of Income-tax (Appeals). The primary issue was the disallowance of expenses under section 14A and the subsequent penalty proceedings initiated by the Assessing Officer. The Assessing Officer computed a disallowance under section 14A, invoking rule 8D, leading to penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income. The assessee relied on the decision in the case of CIT v. Reliance Petroproducts P. Ltd., arguing that the disallowance was a matter of difference of opinion, not intentional misrepresentation.

The Tribunal analyzed the situation, emphasizing that the Assessing Officer's invocation of rule 8D for disallowance does not automatically imply that the assessee furnished inaccurate particulars. The Tribunal highlighted that the mere difference in computation methods between the assessee and the Department does not amount to deliberate concealment or furnishing of inaccurate particulars. Referring to the decision in Reliance Petroproducts P. Ltd., the Tribunal stressed that penalty under section 271(1)(c) requires a deliberate act of concealment or misrepresentation, not just a difference in interpretation of the law.

Furthermore, the Tribunal discussed the legal principles regarding penalties under section 271(1)(c), emphasizing the need for mens rea or deliberate intent for the imposition of penalties. Citing various Supreme Court judgments, the Tribunal clarified that penalties should not be imposed based on mere differences in interpretation or computation methods unless there is clear evidence of deliberate concealment or furnishing of inaccurate particulars. The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) to delete the penalty, concluding that the penalty was not justified in this case due to the absence of deliberate intent to conceal income or furnish inaccurate particulars.

Ultimately, the Tribunal dismissed the appeals filed by the Revenue, affirming the decision to cancel the penalties under section 271(1)(c) for inaccurate particulars of income. The judgment highlighted the importance of establishing deliberate intent or mens rea for the imposition of penalties under the Income-tax law, emphasizing that penalties should not be imposed based solely on differences in interpretation or computation methods without evidence of intentional misrepresentation.