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TMI Blog2017 (10) TMI 823X X X X Extracts X X X X X X X X Extracts X X X X ..... eved by the penalty imposed by the CIT(A) on the quantum enhancement towards disallowance of expenditure incurred in terms of section 14A read with Rule 8D of the Income Tax Rules, 1962. 3. We shall take the assessee's appeal in ITA No.2903/Ahd/2015 for AY 2008-09 as the lead case. 4. The ground of appeal raised by the Assessee reads as under:- 1. The Learned Commissioner of Income Tax(Appeals)-2, Ahmedabad has erred in law and on facts of the case by holding that the Appellant has committed the default u/s.271(1)(c) and accordingly has erred in levy penalty of Rs. 1,08,41,183/- u/s.271(1)(c) of the Income Tax Act, 1961. 5. The assessee is a Housing Finance Company in which public are substantially interested and the main object of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antum proceedings, penalty order was passed under s.271(1)(c) of the Act by the CIT(A) vide order dated 16/09/2015. The penalty was quantified by the CIT(A) at Rs. 1,08,41,183 on aforesaid enhancement of income of Rs. 3,28,52,06/-. 7. Aggrieved by the aforesaid order of the CIT(A) towards imposition of penalty, the assessee has preferred appeal before the Tribunal. 8. The Ld.AR for the assessee submitted at the outset that the penalty imposed under s.271(1)(c) of the Act for alleged default in computation of disallowance as per Rule 8D of the IT Rules, 1962 by the CIT(A) is misdirected in law. The Ld.AR submitted that this was the first year of applicability of Rule 8D of the IT Rules where the law on the applicability and computational a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure incurred on loan bearing funds as attributable to mutual funds giving rise to tax free income. The Ld.AR in this connection emphasized that the assessee is holding its own capital to the tune of Rs. 190.26 crores at the end of the financial year which is substantially in excess of investment in mutual funds of around Rs. 16.64 corres. Thus, interest-free capital of assessee outweighs the corresponding investment by nearly twelve times. Hence, the assessee was under bonafide belief of no disallowance attributable on such investments towards interest expenses. 8.3. The Ld.AR next submitted that the assessee has preferred appeal before the Jurisdictional High Court against the order of the ITAT endorsing part confirmation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39 SOT 570 (Ahd.) and of Deloitte Consulting India Pvt.Ltd. (2014) 151 ITD 454 (Mum.) for the proposition that express violation of provision of law in making computation whereby chargeable income has escaped assessment warrants imposition of penalty. The Ld.DR accordingly relied upon the order of the CIT(A) for imposition of penalty. 10. We have carefully considered the rival submissions. The assessee has agitated the imposition of penalty by CIT(A) on quantum disallowance carried out by the CIT(A) under s.14A in exercise of its enhancement powers. It is the case of the Revenue that the disallowance has been carried out under Rule 8D(2)(i) of the I.T. Rules where it was factually found that interest bearing funds were deployed towards cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the ITAT is stated to have been admitted for adjudication on merits in the appeal filed under s.260A of the Act. The assessee has shown existence of mitigating circumstances in the form of own funds which substantially exceeds the application of interest-bearing funds towards mutual funds. In these facts, one cannot attribute motive for violation of Rule 8D(2)(i) when tested on distinct parameters of penalty proceedings. The issue involved cannot also be said to be entirely free of any debate whatsoever in view of admission of substantial question of law by the Hon'ble Jurisdictional High Court. Coupled with this, as noted earlier, the assessee has taken the shelter of availability of own funds at its disposal. Under these circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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