2016 (1) TMI 895 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance u/s 14A - technique adopted for disallowance - Held that - While disallowing the interest expenses incurred in relation to the exempt income, the assessee adopted the gross current assets in the balance sheet whereas, the AO had taken the net assets (current assets less current liabilities) and on account of assessing the indirect expenses, the assessee had applied 0.5% of average investment or actual dividend received whichever was lower. Thus, the assessee had followed the ratio that if no dividend is actually received, no disallowance is to be made and when dividend is received, expenses deemed to be incurred for earning such income cannot exceed the exempt income itself. The view taken by the assessee is supported by certain legal decisions. The assessee itself disallowed an amount of ₹ 52,39,420/- in its computation of income as per tax audit report. Without going into so much of technicality, if, it is assumed that the claim of the assessee is wrong, then, no doubt, the claim of the assessee is not to be considered as a case of furnishing of inaccurate particulars or concealment of income. The decision relied upon by the assessee in the case of CIT Vs Reliance Petrochemicals (P) Ltd. (2010 (3) TMI 80 - SUPREME COURT) is applicable in the present case. Thus we are unable to agree with the order of the learned CIT(A) confirming the penalty levied by the AO u/s 271 (1) (c) of the Act - Decided in favour of assessee.

Summary

Issues:

1. Penalty under section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars of income.

Analysis:

The case involved an appeal by the assessee against the order of the Commissioner of Income Tax (Appeals) concerning the levy of a penalty under section 271(1)(c) of the Income Tax Act. The assessee, a company engaged in pharmaceutical manufacturing and trading, had filed its return of income for the assessment year 2009-10, disclosing total income. The Assessing Officer (AO) disallowed certain expenses related to exempt income of dividends, not in accordance with Rule 8D. The AO added an amount to the total income, initiating penalty proceedings under section 271(1)(c). The penalty was imposed on the grounds of inaccurate particulars of income furnished by the assessee.

During the penalty proceedings, the AO concluded that the assessee failed to compute the disallowance under Rule 8D accurately, constituting inaccurate particulars of income. The assessee argued that it had made a suo moto disallowance and followed a specific approach in disallowing expenses under Rule 8D. The assessee contended that the penalty was not justified as it had acted in good faith and followed a reasonable interpretation of the law. The assessee cited legal precedents and the decision of the Hon'ble Supreme Court in support of its arguments.

The Departmental Representative opposed the assessee's contentions, alleging that inaccurate particulars were furnished to evade tax payment. After considering the arguments and evidence, the ITAT noted discrepancies in the AO's and assessee's approaches to disallowances under Rule 8D. The ITAT found merit in the assessee's arguments, supported by legal decisions, emphasizing that even if the assessee's claim was incorrect, it did not amount to furnishing inaccurate particulars or concealment of income. The ITAT referred to a previous ITAT decision and the Supreme Court's ruling to support its conclusion.

Ultimately, the ITAT set aside the penalty imposed by the AO, directing its deletion. The ITAT found that the assessee's actions did not warrant the penalty under section 271(1)(c) of the Income Tax Act. The appeal of the assessee was allowed, and the order was pronounced in the open court on November 4, 2015.