2017 (1) TMI 1142 - AT - Income Tax

Penalty under section 271(1)(c) - addition on Dividend stripping u/s. 94(7) - Held that - There was a boanfide mistake on the part of the assessee in not examining the provisions of section 94(7) of the Act in respect of the concerned transactions. We, therefore uphold the learned CIT(A) s order in deleting the penalty levied under section 271(1)(c) of the Act for furnishing of inaccurate particulars of income on this issue, since the disallowance under section 94(7) of the Act was made on the basis of details and particulars already furnished by the assessee. Disallowance u/s 14A - Held that - The said disallowance, we observe, has been increased by the AO to the extent of ₹ 18,39,11,187/- and subsequently on appeal has been reduced by the learned CIT(A) to ₹ 3,68,74,513/-; all this due to different interpretations and formulae adopted by these authorities. In this context, we notice that for making the said disallowance under section 14A r.w. Rule 8D, which is a statutory disallowance, all details have been disclosed by the assessee and the quantum of disallowance has varied only due to different interpretations by the AO and learned CIT(A) and not on account of any furnishing of inaccurate particulars of income. In this factual matrix of the case, as discussed above, we are of the considered view that penalty under section 271(1)(c) of the Act is not leviable in the case on hand and therefore uphold the finding of the learned CIT(A) in deleting the penalty levied under section 271(1)(c) of the Act on this issue of disallowance under section 14A r.w. Rule 8D of the Act in the case on hand. - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of penalty levied under section 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2008-09.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) for Addition under Section 94(7):

The Revenue's appeal contested the deletion of the penalty imposed by the Assessing Officer (AO) under section 271(1)(c) related to the addition made under section 94(7) of the Income Tax Act. The assessee, a company engaged in trading shares and securities, had its income assessed at ?2,54,54,98,190/- after adding ?50,03,626/- under section 94(7) for dividend stripping. The CIT(A) observed that the provisions of section 94(7) were applicable but held that it did not automatically attract penalty under section 271(1)(c) as there was no furnishing of inaccurate particulars or concealment of income. The CIT(A) relied on Tribunal decisions in similar cases to delete the penalty. The Tribunal concurred, noting that the assessee's omission was a bona fide mistake in its first year of operations, with no malafide intention, and upheld the CIT(A)'s order.

2. Deletion of Penalty under Section 271(1)(c) for Disallowance under Section 14A r.w. Rule 8D:

The AO also imposed a penalty for disallowance under section 14A r.w. Rule 8D amounting to ?3,68,74,513/-. The CIT(A) noted that the disallowance was due to statutory provisions and changes in interpretation at different stages. The assessee had disclosed all details and provided a working of the disallowance. The CIT(A) deleted the penalty, reasoning that the disallowance was statutory and varied due to different interpretations, not due to inaccurate particulars or concealment of income. The Tribunal agreed, observing that the assessee had suo moto disallowed ?21,85,29,427/- and the variations were due to different interpretations by the AO and CIT(A). The Tribunal upheld the CIT(A)'s order, finding no merit in the Revenue's grounds.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order deleting the penalty levied under section 271(1)(c) for both the addition under section 94(7) and the disallowance under section 14A r.w. Rule 8D. The Tribunal found that the disallowances were based on statutory provisions and bona fide mistakes without any malafide intention or inaccurate particulars, thus not warranting penalty under section 271(1)(c).