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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 ..... owards interest disallowance made under s.14A appears to be satisfactory and is perceived to bear trappings of bonafide. The aforesaid disallowance under s.14A of the Act thus cannot be equated with any concealment of income. In the totality of the circumstances, we are of the view that discretion available to the CIT(A) for imposition of penalty ought to have been exercised judiciously and in favour of the assessee. Accordingly, the penalty so imposed by the Revenue is cancelled. - I.T.A. No.2903/Ahd/2015 And I.T.A. No.2904/Ahd/2015 - - - Dated:- 29-9-2017 - SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER For The Appellant : Ms. A.N. Shah, AR For The Respondent : Shri K. Madhusudan, Sr.DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed as exempt from taxation. It was further noticed by him that the assessee itself had disallowed an amount of ₹ 9,45,960/- under s.14A of the Act. The AO thereafter took note of the submissions made before the CIT in 263 proceedings as well as various replies filed before him in this regard and applied Rule 8D of the I.T.Rules 1962 for the purposes and computation of disallowance of expenditure incurred in relation to the exempt income. The AO computed the aggregate disallowance of ₹ 1,22,25,394/- as per Rule 8D in substitution of suo motu disallowance of ₹ 9,45,960/- made by the assessee. 5.2. The aforesaid action of the AO was challenged before the CIT(A). The CIT(A) however, enhanced the disallowance under s.14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d disallowance of ₹ 9,45,960/- was computed by allocation of administrative expenditure between the exempt income and taxable income on proportionate basis. Therefore, there was a rationale basis for arriving at suo motu disallowance. The Ld.AR next submitted that the disallowance giving rise to the penalty proceedings is on account of disallowance of direct expenditure towards interest costs of ₹ 3,28,52,064/-. The CIT(A) invoked Rule 8D(2)(i) based on the working of interest attributable on the interest bearing funds withdrawn from various bank accounts and invested in mutual funds temporarily. 8.1. The Ld.AR submitted that there was no opening and closing balance of mutual funds at the beginning or at the end of the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs itself is in debate and admittedly involves substantial question of law as recognized by the Hon ble High Court. 8.4. The ld.AR thereafter submitted in the alternative that the quantum of disallowance under s.14A was also reduced from ₹ 3,28,52,064/- to ₹ 1,89,42,065/- by the Tribunal. In tandem the penalty imposed also requires to be reduced in the alternative. 9. The Ld.DR for the revenue, on the other hand, submitted that the CIT(A) has established the direct nexus between interest-free fund and the corresponding mutual fund investment. The Ld.DR contended that while the assessee on one hand claimed deduction towards interest expenditure, the corresponding dividend income has been claimed exempt. The direct expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CIT(A) has also been confirmed by the ITAT in quantum proceedings. The assessee, on the other hand, claims that the interest bearing funds which could not be immediately deployed for the purposes of its investments were temporarily placed in mutual funds as a measure of commercial expediency. The assessee does not have any such opening investment or closing investment in its financial statement. The investment made is very temporary which has given rise to such exempt income. To buttress its view on non-imposition of penalty, the assessee contends that it has large chunk of own capital which is totally interestfree in comparison to a small portion of investment in mutual funds. The assessee also submits that the quantum addition has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serve that the assessee has itself made suo motu disallowance which is not totally devoid of any reasonable basis. Therefore, no culpability is attributable on the part of the assessee in the instant case. It is trite that a finding in the quantum proceedings on disallowance cannot be automatically adopted for the purposes of section 271(1)(c) of the Act. As noted above, the assessee have discharged primary burden lay upon it. The explanation offered by the assessee towards interest disallowance made under s.14A appears to be satisfactory and is perceived to bear trappings of bonafide. The aforesaid disallowance under s.14A of the Act thus cannot be equated with any concealment of income. In the totality of the circumstances, we are of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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