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TMI Blog2017 (2) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of estimated expenditure under Rule 8D 2(iii). This expenditure came to be disallowed by the operation of law but not on account of the reason that the assessee furnished inaccurate particulars or concealment of income. Hence no penalty is attracted for such disallowance. Addition made towards short term capital gains - Held that:- The bonafide explanation of the assessee that it is an inadvertent mistake and bonafide error while computing the capital gains is not proved to be false by the assessing officer. The assessing officer could not prove that the explanation of the assessee was not genuine. The assessee computed long term capital gain taking the sale proceeds of entire investments which were shown in the profit and loss accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee preferred appeal before the Ld. CIT (Appeals) in respect of the disallowance made under Section 14A with reference to Rule 8D and accepted the addition made towards short term capital gain. The Ld. CIT (Appeals) partly sustained the disallowance under 14A of the Act. 3. The assessing officer initiated penalty proceedings under 271(1)(c) on the disallowance sustained by the Ld. CIT (Appeals) and on the addition made towards short term capital gains. With respect to the disallowance made under Section 14A, the assessee contended that it had incurred an amount of ₹ 60,265/- for earning exempt income and the same was disallowed by the assessee in its computation. Incurring of this expenditure was also disclosed in tax audit report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. DR and dispose of the appeals on merits. 6. The Ld. DR vehemently submits that the Ld. CIT (Appeals) is not justified in deleting the penalty in respect of the disallowance made under Section 14A read with Rule 8D(ii) and further supported the orders of the Ld. CIT (Appeals) in sustaining the penalty in respect of the disallowance made under Section 14A read with Rule 8D (iii) and the addition made towards the short term capital gains. 7. We have heard the Ld. DR and perused the orders of the authorities below, the assessee while computing the disallowance under Section 14A disallowed ₹ 60,265/- as direct expenditure incurred for earning exempt income. The Assessing Officer however computed the disallowance at ₹ 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of sec.14 A r.w. Rule 8D i.e. by making disallowance u/s.14 A by invoking rule 8 D as envisaged by the decision of Hon'ble Bombay High Court in the case of Godrej and Boyce Pvt. Ltd. 43 DTR 177. Since the assessee has not declared correct amount of expenditure incurred in earning of exempt income, therefore it has not furnished correct particulars of income, hence liable for levy of penalty u/s.271(1)(c). On the other hand, the appellant has primarily contented before the AO as well as in the present appeal proceedings that (i) disallowance u/s.14 A is highly debateable issue (ii) though similar disallowance was worked out and made by the AO in immediately preceding year, 2007-08 but no penalty proceedings were initiated in that year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s investment have come out of own funds and not from borrowed funds, therefore; penalty levied on disallowance u/s.Rule 8 D (ii) of ₹ 92,25,260/- is directed to be deleted. As regards the penalty levied on the addition on account of disallowance under Rule 8D(iii), I agree with the contention of the AO that in A.Y 2008-09 i.e. the current year, once it was certain that the appellant has incurred administrative expenses for earning of its huge exempt income, then in the light of the decision of Hon'ble Bombay High Court in the case of M/ s. Godrej Boyce Ltd. (Supra) it was required to work out the disallowance under Rule 8 D (iii). Since the appellant has failed to do so, this conduct of the appellant tantamount to furnishing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment proceedings, the assessee itself given the computation u/s 14A for disallowance of estimated expenditure under Rule 8D 2(iii). This expenditure came to be disallowed by the operation of law but not on account of the reason that the assessee furnished inaccurate particulars or concealment of income. Hence no penalty is attracted for such disallowance. 9. Coming to the addition made towards short term capital gains, the assessee in the course of assessment proceedings submitted that while computing the total income for the assessment year, it has taken profit on sale of investments as per profit and loss account which included short term as well as long term capital gains and the short term capital gains and computed capital gains a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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