2016 (12) TMI 554 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance on account of Rule 8D r.w.s. 14A - Held that - he action of the AO in making disallowance of expenditure incurred by the assessee in relation to earning of exempt income in the afore-stated manner without complying with the provisions of Section 14A of the Act to identify the expenditure incurred by the assessee in relation to earning of exempt income having regards to the accounts of the assessee or coming to the conclusions that it is not possible to identify the amount of expenditure incurred by the assessee in relation to earning of exempt income keeping in view the manner in which the accounts are maintained by the assessee , the mandate for levying of penalty u/s 271(1)(c) of the Act is not fulfilled more-so it was the contention of the assessee that no expenditure has been incurred by the assessee in relation to earning of exempt income which does not form part of the total income . The contention of the assessee was that no expenditure was incurred by the assessee for earning of exempt income and it was all the more incumbent on the authorities below to have identify and ascertained the expenditure incurred by the assessee in relation to earning of exempt income having regard to the accounts of the assessee, which exercise to ascertain disallowance having regard to the accounts of the assessee was unfortunately had not been undertaken by the authorities below and in the absence thereof, we are afraid penalty proceedings u/s 271(1)(c) of the Act are not sustainable despite the fact that the assessee voluntarily came forward with the amount of disallowance as per Section 14A of the Act read with Rule 8D and did not file appeal against the additions so made by the AO in assessment proceedings. Thus penalty deleted. - Decided in favour of asssessee

Summary

Issues:
1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961 for disallowance under Rule 8D r.w.s. 14A.

Detailed Analysis:
The appeal was filed by the assessee company against the penalty order passed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961, related to disallowance under Rule 8D r.w.s. 14A for the assessment year 2009-10. The AO had disallowed expenditure incurred in relation to earning exempt income, which the assessee voluntarily accepted and disclosed. The AO applied Rule 8D of Income Tax Rules, 1962, resulting in a disallowance of ?4,68,166. The assessee contended that there was no concealment or inaccurate particulars of income, citing various legal precedents to support their argument. However, the AO levied a penalty of ?1,59,130, which was confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)).

The CIT(A) upheld the penalty, stating that the assessee had furnished inaccurate particulars of income by not disallowing expenditure related to exempt income as mandated under section 14A r.w.r. 8D. The CIT(A) emphasized strict liability on the assessee for concealment or providing inaccurate particulars of income. The CIT(A) noted that the AO had distinguished the case laws relied upon by the assessee, leading to the confirmation of the penalty.

The Tribunal, upon hearing the case, found that the AO's disallowance of expenditure lacked proper analysis and scrutiny of the assessee's accounts. The Tribunal observed that the AO did not adequately identify the expenditure incurred in relation to earning exempt income, as required by Section 14A of the Act. The Tribunal noted that the assessee had voluntarily disclosed the disallowance amount but did not challenge the addition in the assessment order. The Tribunal concluded that the penalty under section 271(1)(c) was not justified due to the lack of proper identification and ascertainment of the expenditure by the authorities. Therefore, the penalty of ?1,59,130 was deemed unsustainable and ordered to be deleted.

In conclusion, the Tribunal allowed the appeal filed by the assessee for the assessment year 2009-10, highlighting the inadequacy in the AO's assessment of the disallowance under Rule 8D r.w.s. 14A and the lack of proper grounds for imposing the penalty under section 271(1)(c) of the Income Tax Act, 1961.