2022 (2) TMI 172 - AT - Income Tax

Levy of penalty u/s.271(1)(c) - Disallowance u/s 14A r.w.r. 8D - HELD THAT - Assessee has disclosed primary facts in respect of various expenditure and income, including exempt income earned for the year. The facts borne out from records further indicate that the assessee has made suo motu disallowance of expenditure relatable to exempt income - Assessing Officer was not satisfied with suo motu disallowance made by the assessee and has invoked Rule 8D of Income Tax Rules, 1962 to determine disallowance of expenses relatable to exempt income u/s.14A. What is clear is that the assessee has disclosed necessary facts in relation to various expenses including expenditure relatable to exempt income for the year and thus, we are of the considered view that mere disallowance of expenditure u/s.14A by invoking Rule 8D of I.T. Rules, 1962 is not a ground to hold that the assessee has furnished inaccurate particulars of income. When the assessee makes a claim of any expenditure, it is for the authorities to accept the claim in the return of income or not, but merely because the assessee had claimed expenditure which was not accepted or was not acceptable to the Revenue, that by itself would not attract penalty u/s.271(1)(c). As decided in RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT that merely because claim of assessee was not accepted that by itself would not attract penalty u/s.271(1)(c) of the Income Tax Act, 1961. Also see SHRI S. MARTIN 2019 (1) TMI 91 - ITAT CHENNAI - Decided in favour of assessee.

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars of income.
2. Disallowance of expenditure under Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules.
3. Applicability of the Supreme Court judgment in CIT vs. Reliance Petroproducts Pvt. Ltd. to the present case.
4. Interpretation and applicability of CBDT Circular No. 25/2015 dated 31/12/2015 regarding penalty under Section 271(1)(c).
5. Assessment of income under Section 115JB (Minimum Alternate Tax) and its implications on penalty provisions.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) for Furnishing Inaccurate Particulars of Income:
The Revenue contended that the assessee furnished inaccurate particulars of income by not calculating the disallowance as per Section 14A read with Rule 8D, which led to the initiation of penalty proceedings under Section 271(1)(c). The Assessing Officer (AO) levied a penalty of ?1,05,16,056, equivalent to 100% of the tax sought to be evaded. The AO's findings were based on the assessee's failure to provide detailed explanations and supporting documents during the appellate proceedings, leading to the conclusion that the assessee had concealed income.

2. Disallowance of Expenditure under Section 14A read with Rule 8D:
The AO disallowed ?3,40,53,520 under Section 14A read with Rule 8D, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee had initially disallowed ?20,00,000 suo moto for earning exempt income. The AO's additional disallowance was based on the assessee's failure to provide date-wise and quantity-wise details of shares sold and purchased, and the position of funds in bank accounts.

3. Applicability of Supreme Court Judgment in CIT vs. Reliance Petroproducts Pvt. Ltd.:
The CIT(A) deleted the penalty by relying on the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd., which held that mere disallowance of a claim does not entail penalty under Section 271(1)(c). The CIT(A) observed that the assessee had disclosed all primary facts and that the disallowance under Section 14A read with Rule 8D was debatable, thus not attracting penalty provisions.

4. Interpretation and Applicability of CBDT Circular No. 25/2015:
The Revenue argued that the assessee misinterpreted the CBDT Circular No. 25/2015, which clarified that no penalty under Section 271(1)(c) would be attracted where the income tax payable under regular provisions was less than the tax payable under Section 115JB. The CIT(A) did not specifically address this contention, but the assessee's interpretation was found to be incorrect as the Circular also mentioned that penalty would depend on the nature of adjustments made in the income computed for MAT purposes.

5. Assessment of Income under Section 115JB and its Implications on Penalty Provisions:
The assessee contended that since the tax liability under Section 115JB was higher than under normal provisions, no penalty could be levied on disallowances made under regular provisions. The CIT(A) upheld this view, noting that the assessee had disclosed all relevant facts and that the disallowance under Section 14A was a matter of opinion, not concealment.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the penalty, agreeing that the assessee had disclosed all primary facts and that mere disallowance of a claim did not constitute furnishing inaccurate particulars of income. The Tribunal also dismissed the Revenue's appeal and the assessee's cross objections, concluding that the CIT(A) had correctly applied the Supreme Court's ruling in CIT vs. Reliance Petroproducts Pvt. Ltd. and that the penalty provisions under Section 271(1)(c) were not applicable in this case.

Order:
The appeals filed by the Revenue and the cross objections filed by the assessee for both assessment years were dismissed. The order was pronounced in the open court on 31st January 2022.

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