2024 (7) TMI 719 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee had not been able to deny that the administrative expenses or indirect common expenses include amount spent in relation to earn exempt income - penalty has been imposed because the assessee has neither made any disallowance u/s. 14A nor computation of income for administrative expenses/indirect common expenses incurred in relation to earn exempt income HELD THAT - What is concealment of income or inaccurate particulars of such income as contemplated by Section 271(1)(c), has been explained by the Hon'ble Supreme Court in the case of the CIT Vs. Reliance Petro Products (P.) Ltd. 2010 (3) TMI 80 - SUPREME COURT wherein held that making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. Therefore, it is obvious that it must be shown that the conditions u/s 271(1)(c) must exist before the penalty is imposed. In this case assessee is maintaining the separate books of accounts for all his proprietorship concerns where the expenditures are debited separately; the fund flow statement indicates that the investments have been made from own capital and same is reflected in the personal balance sheet; Interest payments are made to finance company for the purchase of trucks etc. which were used for business of the assessee; direct expenditure for earning exempt income has been debited to his personal accounts. Above submissions and the explanation given by the assessee is an admitted fact as find recorded in the order of the Ld. AO. Thus, admittedly no information in the return was found to be incorrect or inaccurate. Further, statement made or any detail supplied was not found to be factually incorrect. Thus, the fact and circumstances of the case is covered by the ratio of Hon ble Supreme Court judgment in CIT Vs. Reliance Petro Products (P.) Ltd. referred (supra). The facts and circumstances are also covered by the case of ITAT Delhi in M/s. Mohair Investment and Trading Company (P.) Ltd 2015 (12) TMI 299 - ITAT DELHI where it was held that it is clear that the present issue, related to application of section 14A, especially in relation to shares held as trading assets, was clearly debatable and so it cannot be visited with penalty under section 271(1)(c). Further we find that the assessee has furnished all the details relating to the earning of dividend income. So, it cannot be said that the assessee had concealed income or furnished incorrect particulars of income. Hence, penalty u/s 271(1)(c) is not sustainable. Revenue has failed to show that the assessee has concealed the particulars of income or has furnished the incurred particulars of such income and the case of the assessee is not covered u/s. 271(1)(c) - Decided in favour of assessee.

Summary

Issues:
1. Appeal against order of Learned Commissioner of Income Tax (Appeals)
2. Challenge of penalty imposition under section 271(1)(c) of the Income Tax Act, 1961
3. Proper opportunity of being heard during appellate proceedings
4. Justification for penalty imposition based on inaccurate particulars of income
5. Disallowance under section 14A r.w.r. 8D and its impact on penalty imposition

Issue 1: Appeal against order of Learned Commissioner of Income Tax (Appeals)

The appellant/assessee filed an appeal against the order of the Learned Commissioner of Income Tax (Appeals) for the A.Y. 2009-10. The grounds of appeal included challenges regarding the proper opportunity of being heard during the appellate order and the confirmation of penalty imposition under section 271(1)(c) of the Income Tax Act, 1961. The appellant contended that the order of the Learned Commissioner of Income Tax (Appeals) was framed in breach of statutory provisions.

Issue 2: Challenge of penalty imposition under section 271(1)(c) of the Income Tax Act, 1961

The penalty imposition under section 271(1)(c) was challenged by the appellant on various grounds. The appellant argued that the penalty was levied based on inaccurate particulars of income and that the conditions for initiating penalty proceedings were not fulfilled. The appellant also contended that the penalty could not be justified as the disallowance made under section 14A r.w.r. 8D was on an estimation basis only.

Issue 3: Proper opportunity of being heard during appellate proceedings

The appellant raised concerns regarding the lack of proper, effective, and fair opportunity of being heard during the appellate proceedings. It was argued that the appellant was not granted sufficient opportunity to present their case before the appellate authority, leading to a violation of the principles of natural justice.

Issue 4: Justification for penalty imposition based on inaccurate particulars of income

The penalty proceedings under section 271(1)(c) were initiated for concealment of income/furnishing inaccurate particulars of income. The appellant clarified that the penalty was not warranted as the additions were made on an estimated basis. The appellant maintained separate accounts for shares accounting and had provided necessary documents during the proceedings.

Issue 5: Disallowance under section 14A r.w.r. 8D and its impact on penalty imposition

The disallowance under section 14A r.w.r. 8D was a key factor in the penalty imposition. The appellant's submissions regarding the disallowance and the nature of expenses incurred in relation to earning exempt income were considered during the penalty proceedings. The authorities concluded that the appellant had furnished inaccurate particulars of income, leading to the penalty imposition.

In the final judgment, the Tribunal analyzed the case in light of relevant legal precedents and observed that the appellant had not concealed income or furnished incorrect particulars of income. The Tribunal held that the penalty imposed under section 271(1)(c) was not sustainable and deleted the penalty. The appeal was allowed in favor of the assessee, emphasizing the importance of strict adherence to the provisions of the Income Tax Act, 1961 and the principles of natural justice.