2016 (2) TMI 194 - AT - Income Tax

Disallowance u/s 14A - Held that - Rule 8D of the I.T. rules is applicable only from the assessment year 2008-09 and is not applicable to the earlier assessment year. Applying the aforesaid legal position to the facts of the assessee s case, it is noticed that the assessee has, as stated above, claimed expenditure of only ₹ 5,32,48,929 out of the total expenditure of more than ₹ 27 crores. The composition of the said administrative expenses of ₹ 5,32,48,929 is found in Schedule 13 of the Audited Accounts. The said amount comprises of various expenses which are normally incurred by a company during the course of it s regular business activities. Further, the assessee has additionally itself disallowed a sum of ₹ 15,66,528 by proportionately disallowing expenses of some of the employees. There is nothing on record to controvert the submissions made on behalf of the assessee. The expenses claimed are also in the nature of day to day administrative expenses and cannot be held to be relatable to the exempt income. It was also find that that more than 80% of the total dividend received has been received from various HCL Group of Companies which the assessee is a promoter investor and has been stated to be holding shares in the said companies for more 15 to 25 years. Dividend income is also stated to be received directly by way of dividend warrant which gets credited to the bank of the assessee. In the background of the aforesaid discussions and precedents, we are in agreement with the finding of the Ld. CIT(A) in directing the AO to delete the disallowance of ₹ 1,99,09,856/- made u/s. 14A of the I.T. Act and by holding that Rule 8D is not applicable in this case. - Decided in favour of assessee Penalty u/s 271(l)(c) - Held that - When assessee furnished all the material in the return which was not found to be incorrect, it is upto the authorities to accept the claim in the return or not, but the same couldn t be considered as concealment or furnishing of inaccurate particulars. CIT(A) has rightly held that there is no concealment or inaccurate particulars of income where the addition and/or disallowance is based on bona-fide claims, debatable claims and difference of opinion as held inter-alia by the Hon ble Supreme Court in a recent judgment in the case of Commissioner of Income tax Vs. Reliance Petroproducts Pvt. Ltd. reported in (2010 (3) TMI 80 - SUPREME COURT )- Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of disallowance under Section 14A read with Rule 8D of the Income Tax Rules, 1962.
2. Deletion of penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 for two separate assessment years.

Issue-Wise Detailed Analysis:

1. Deletion of Disallowance under Section 14A read with Rule 8D:
The primary issue in ITA No. 3924/Del/2012 (AY 2007-08) concerns the deletion of disallowance of Rs. 1,99,09,856 made by the AO under Section 14A read with Rule 8D of the Income Tax Rules, 1962. The Assessee had filed a return declaring an income of Rs. 6,00,53,100, which was processed under Section 143(1). During the scrutiny assessment, the AO directed the Assessee to furnish details of financial and administrative expenses to ascertain disallowance under Section 14A. The Assessee argued that out of the total expenditure of Rs. 27.57 crores, Rs. 22.43 crores had already been disallowed, and an additional Rs. 15,66,528 was disallowed as expenditure related to exempt income. However, the AO did not accept this and applied Rule 8D, resulting in a further disallowance of Rs. 1,99,09,857.

The CIT(A) deleted this disallowance, stating that Rule 8D is applicable only from AY 2008-09, as held by the Bombay High Court in Godrej Boyce and the Delhi High Court in Maxopp Investment. The Tribunal upheld the CIT(A)'s decision, noting that the Assessee had already disallowed a reasonable amount and that the expenses claimed were regular business expenses not directly related to exempt income. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal.

2. Deletion of Penalty under Section 271(1)(c):
In ITA Nos. 6419/Del/2012 and 6420/Del/2012 (AY 2008-09), the issue was the deletion of penalties of Rs. 52,29,007 and Rs. 72,56,457, respectively, imposed by the AO under Section 271(1)(c). During the assessment, the AO noticed that the Assessee had earned a dividend income of Rs. 326.49 crores and had disallowed Rs. 82,15,899 under Section 14A. However, the AO applied Rule 8D and made an additional disallowance of Rs. 1,53,83,963, subsequently imposing penalties for filing inaccurate particulars of income.

The CIT(A) deleted the penalties, and the Tribunal upheld this decision. The Tribunal referred to the Supreme Court's rulings in Reliance Petroproducts and other cases, emphasizing that mere disallowance of a claim does not amount to furnishing inaccurate particulars. The Tribunal noted that the Assessee had made a bona fide claim and had already disallowed a substantial amount under Section 14A. The additional disallowance made by the AO was based on a different interpretation of Rule 8D, which does not justify a penalty under Section 271(1)(c). The Tribunal found that the conditions for imposing a penalty were not met and dismissed the Revenue's appeals.

Conclusion:
In conclusion, the Tribunal dismissed all three appeals filed by the Revenue. The disallowance under Section 14A read with Rule 8D was deleted as Rule 8D was not applicable for AY 2007-08. The penalties under Section 271(1)(c) were deleted as the Assessee had made a bona fide claim, and the additional disallowance was based on a different interpretation of the law, not amounting to furnishing inaccurate particulars.