2020 (3) TMI 1142 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance u/s 14A on estimated basis made proportionately out of the finance charges - HELD THAT - Assessee has shown all the expenses in the Profit Loss account and there is no dispute about the particulars provided in the books of accounts nor the A.O has rejected the book results since no such finding is appearing in the penalty order as well as appellate order. There is no mandatory rule that for earning exempt income assessee has to incur any expenditure. It is only when the A.O is satisfied about the type and amount of expenses which have been incurred specifically for earning the exempt income and has been debited to Profit Loss account for claiming expense against the revenue liable to be taxed. In the instant case the disallowance u/s 14A is on estimated basis made proportionately out of the finance charges. There is no case of concealment of particulars of income or furnishing of inaccurate particulars of income since the amount has been duly debited as expenses in Profit Loss account. Since no bonafide intention or mensrea on the part of the assessee is appearing on the face of the record placed before us, we are of the considered view that A.O was not justified in levying the penalty u/s 271(1)(c) - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act 1961.

Analysis:
The appeal pertains to the Assessment Year 2006-07 and challenges the penalty imposed under section 271(1)(c) of the Income Tax Act. The appeal was filed against the orders of the Ld. Commissioner of Income Tax (Appeals)-1 and ACIT-4(1), Bhopal. The assessee did not attend the hearing before the authorities, and the penalty of ?1,03,870 was confirmed by the Ld. CIT(A).

During the assessment, the assessee declared a total income of ?3,89,297 and claimed exempt income of ?71,33,689. The initial assessment under section 143(3) accepted the returned income without any observation of concealment or inaccurate particulars. Subsequently, a reassessment was done under section 147, resulting in a disallowance under section 14A relating to finance charges. This disallowance led to the initiation of penalty proceedings, culminating in the imposition of a penalty of ?1,03,807.

The assessee contended that all expenses were duly shown in the Profit & Loss account, and there was no concealment or inaccurate reporting. The disallowance under section 14A was based on estimates and not specific expenses incurred for earning exempt income. As there was no evidence of mala fide intent on the part of the assessee, the Tribunal held that the penalty under section 271(1)(c) was unjustified. Consequently, the penalty of ?1,03,870 was deleted, and the appeal of the assessee was allowed.

In conclusion, the Tribunal set aside the findings of the Ld. CIT(A) and held that the penalty under section 271(1)(c) was unwarranted in the absence of any concealment or inaccurate reporting of income, ultimately ruling in favor of the assessee.