2023 (6) TMI 523 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - disallowance u/s 14A as per Rule 8D and addition of interest of income tax refund u/s 244A - HELD THAT - There is no actual finding of any expenses incurred by the assessee for earning exempt income, and it is only on account of computational provision of Rule 8D read alongwith section 14A that the disallowance in the impugned case has been made - Investment made by the assessee was only in one share that too in the preceding year, and there is no finding of any actual incurrence of any expenses for earning income from the shares, the disallowance of expenses being made only on account of the computational provisions provided in the Rules, the assessee in such facts and circumstances, cannot be charged with having concealed or furnished inaccurate particulars of income vis- -vis the expenses disallowed. Penalty levied on account of the disallowance of expenses being administrative in nature u/s 14A of the Act is we hold not sustainable in law and is directed to be deleted. Levy of penalty - Failure to offer full amount of Interest earned on income-tax refund as taxable income - The same was returned in the succeeding year. - HELD THAT - it is only under a mistaken belief that the assessee failed to offer interest income during the impugned year, and the assessee otherwise was vigilant to have duly returned whatever interest it received on refund . Assessee in such circumstances cannot said to have concealed or furnished inaccurate particulars of income so as to levy penalty u/s 271(1)(c) - Penalty levied for this component of the addition is also held to be untenable in law, and therefore directed to be deleted. Decided in favour of assessee.

Summary

Issues:
The judgment involves the confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961 by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) for the Asst. Year 2014-15.

Disallowance under Section 14A and Interest Income under Section 244A:
The appeal raised concerns about the penalty confirmation for disallowance under Section 14A as per Rule 8D and the addition of interest of income tax refund under Section 244A. The appellant argued that there was no concealment or furnishing of inaccurate particulars of income as both expenses and income were disclosed in the Profit & Loss Account. The AO initially disallowed interest and administrative expenses under Rule 8D, but the ITAT deleted the disallowance of interest and confirmed the disallowance of administrative expenses. The Tribunal accepted that the investment leading to the disallowance was made from tax-free funds without any new investment during the year. As there was no actual finding of expenses incurred for earning exempt income, the disallowance based on computational provisions alone did not warrant a penalty under section 271(1)(c). Consequently, the penalty for disallowance of administrative expenses under Section 14A was deemed unsustainable and directed to be deleted.

Interest Earned on Income-Tax Refund:
Regarding the interest earned on income-tax refund, the appellant received a refund with an interest component, part of which was returned while the balance was added to income. The appellant acknowledged the mistake and did not contest the addition. It was revealed that the interest not returned in the impugned year was returned in the subsequent year. The failure to offer this interest income during the impugned year was due to a mistaken belief, and the appellant was otherwise compliant. As there was no intent to conceal or furnish inaccurate particulars of income, the penalty for the interest on income-tax refund was deemed untenable in law and directed to be deleted.

Conclusion:
Ultimately, the entire penalty under section 271(1)(c) of the Act was directed to be deleted, and the grounds of appeal of the assessee were allowed. The appeal of the assessee was consequently allowed by the Appellate Tribunal ITAT Ahmedabad on 9th June, 2023.