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TMI Blog2011 (4) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... ished an explanation which is bona fide - It was inter alia mentioned that allocation of expenses is beset with a lot of problems and the issue was laid to rest by introduction of Rule 8D - Therefore, even in absence of any attempt on the part of the assessee to segregate the expenditure, it can be said that the questions of disallowance and its quantification are contentious, which leads to the inference that the difference of opinion between the assessee and the authorities is bona fide - It is held that the learned CIT(A) was right in deleting the penalty. - IT APPEAL NOS. 3808-3809 (DELHI) OF 2010 - - - Dated:- 21-4-2011 - C.L. SETHI, K.G. BANSAL, JJ. A.K. Monga for the Appellant. K. Sampath for the Respondent. ORDER K.G. Bansal, Accountant Member. Both these appeals of the revenue are directed against the consolidated order passed by the CIT(A)-VII, New Delhi, on 27-9-2007, in which penalties levied by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961, (the Act), have been deleted. Identical grounds have been taken in these appeals. The penalty amounts to Rs. 1,01,14,199 for assessment year 1999-00 and Rs. 45,44,158 for assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome at Rs. 4,10,049. Thus, the total loss was computed at Rs. 1,40,32,028. Penalty proceedings were also initiated under section 271(1)(c) of the Act. These proceedings were disposed off on 9-11-2009 by levying minimum penalty of Rs. 1,01,14,199. While doing so, reliance was placed on the provisions contained in Explanation 1 of section 271(1)(c) and it was held that the explanation tendered by the assessee is not bona fide, which has also not been substantiated. Thus, the claim was an attempt to evade tax. 3. The matter was agitated before the learned CIT(A) in quantum appeal. It was inter alia submitted that the expenditure has been incurred in the course of the business of the assessee of investing and dealing in shares and securities. The business is an indivisible business and for computation of its income all expenses have to be allowed. Therefore, the principle of apportionment of interest or expenditure is not applicable. It was further submitted that it would be incorrect to say the dividend income is tax-free. The Statute has merely changed the methodology of the taxation of the dividend income with a view to develop capital markets. The assessee has also been earning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which does not form part of the total income under this Act." 4.2 From the history of the provision, it is clear that at the time of filing the return, this provision did not exist on the Statute Book, although, it was later on inserted retrospectively with effect from 1-4-1962. Thus, at the time of filing of the return the assessee could not have been expected to make any disallowance in terms of the provision. Even the revised return was filed prior to insertion of this provision as seen on the basis of facts on record that the revised return was processed on 28-3-2001. Therefore, the assessee could not have taken the provision into account while filing even the revised return. Prior to the insertion, there was a genuine difference of opinion as to whether expenditure related to exempt-income could be disallowed if the same has been incurred for the purpose of the business of the assessee. The general trend of the decisions had been that if any expenditure has been incurred wholly and exclusively for the purpose of business, a part thereof could be disallowed by allocating the same towards earning of the exempt-income. It is an accepted principle of law that concealment of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore us. In this case interest expenditure of Rs. 95,00,000 and other expenses of Rs. 11,70,941 had been disallowed by taking recourse to the aforesaid provision and by relating these expenses to the earning of dividend income. Penalty was also levied under section 271(1)(c) of the Act by invoking the provision contained in Explanation 1 to section 271(1)(c). The penalty was deleted by the learned CIT(A) by holding that the disallowance is contentious in nature. Various arguments were made before the Tribunal. The learned counsel for the assessee placed reliance on the decision in the case of CIT v. G.D. Naidu [1987] 165 ITR 63/[1986] 24 Taxman 255 (Mad.); CIT v. Calcutta Credit Corpn. [1987] 166 ITR 29/[1986] 28 Taxman 530 (Cal.); CIT v. Ajaib Singh Co. [2002] 253 ITR 630/[2001] 119 Taxman 825 (Punj. Har.); CIT v. Harshvardhan Chemicals Minerals Ltd. [2003] 259 ITR 212/133 Taxman 320 (Raj.) and T. Ashok Pai v. CIT [2007] 292 ITR 11/161 Taxman 340 (SC). The Tribunal also considered the decision of Hon'ble Delhi High Court in the case of CIT v. Zoom Communications (P.) Ltd. [2010] 191 Taxman 179 and that of the Apex Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. As such no further facts have been furnished. No computation of disallowance was made under section 14A as no disallowance was made in the return of income. However, the accounts have been audited and the return was accompanied by the tax audit report. The latter did not suggest any disallowance under section 14A. Therefore, it can be inferred that all expenses were claimed in full as the auditors did not suggest disallowance of any part of the expenditure relating it to the dividend income. Thus, it can be concluded that the claim was made on the basis of tax audit report. There is no allegation by the Assessing Officer that there was any collusion between the auditor and the assessee to enhance the loss in the return of income by ignoring the provision contained in section 14A. Therefore, it can be said that the assessee has furnished an explanation which is bona fide. In regard to proposition at (c) above, the finding of the ld. CIT(A) is that the disallowance is disputable. The section, as it existed at the time of filing the return, does contain a provision for disallowance of expenditure which is related to non-taxable income. Therefore, it is expected of any assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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