2014 (3) TMI 1161 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance u/s 14A pertaining to exempt income - HELD THAT - As perused the case file and nothing is forthcoming right from the assessment proceedings or till lower appellate order in penalty case which could suggest that the disallowance u/s 14A had been computed after rejecting the particulars filed by the assessee before the Assessing Officer. Thus, we hold that even the estimated disallowance u/s 14A has been made only on the basis of particulars furnished and not otherwise. In these circumstances, we observe that present is a case of mere estimated addition made in view of the overall circumstances of the case and not based on the particulars of income, which does not warrant imposition of penalty. It is a trite proposition of law that each and every case of disallowance/addition based on the facts and circumstances does not lead to imposition of penalty. Accordingly, we accept assessee s contentions and delete penalty in question. - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Disallowance under section 14A of the Income-tax Act pertaining to 'exempt' income.
3. Assessment of whether the assessee concealed or furnished inaccurate particulars of income.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The primary issue in this case is whether the CIT(A) erred in confirming the penalty under section 271(1)(c) of the Income-tax Act, 1961, concerning the disallowance made under section 14A. The penalty was initially imposed by the Assessing Officer (AO) on the grounds of concealment and furnishing inaccurate particulars of income. The CIT(A) restricted the penalty to the extent of Rs. 2 crores, which was confirmed by the ITAT as reasonable expenditure towards earning dividend income.

2. Disallowance under Section 14A:
The assessee, a company engaged in strategic investment and consultancy services, had declared exempt income from mutual funds amounting to Rs. 47,46,25,883. The assessee claimed interest expenses of Rs. 28,00,34,434 and voluntarily disallowed Rs. 9,12,24,848 towards exempt income. The AO, however, made an additional disallowance of Rs. 8,22,92,012, leading to the impugned addition in the assessee's income. The tribunal partly confirmed the disallowance to the extent of Rs. 2 crores, deeming it a reasonable amount for managing the investment portfolios.

3. Assessment of Concealment or Furnishing Inaccurate Particulars:
The AO initiated penalty proceedings under section 271(1)(c), asserting that the assessee's failure to compute appropriate disallowance amounted to concealment and furnishing inaccurate particulars of income. The CIT(A) upheld the penalty for the Rs. 2 crores disallowance, referencing the ITAT's decision and the Supreme Court's ruling in the case of Reliance Petroleum Ltd., which held that mere rejection of a taxpayer's claim does not warrant a penalty. The CIT(A) concluded that the assessee's claim of no management expenses for earning exempt income was factually incorrect, as the assessee had significant infrastructure for managing a large investment portfolio.

Conclusion:
The tribunal observed that the disallowance under section 14A was based on the particulars furnished by the assessee and not on any material that falsified the assessee's computation. The tribunal held that the estimated disallowance was made considering the overall circumstances and not on the basis of inaccurate particulars of income. Therefore, the tribunal concluded that the case did not warrant the imposition of a penalty, as it was a mere estimated addition and not a case of concealment or furnishing inaccurate particulars. Consequently, the tribunal deleted the penalty and allowed the assessee's appeal.

Order:
The assessee's appeal was allowed, and the order was pronounced on Friday, the 21st of March, 2014, at Chennai.