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TMI Blog2021 (2) TMI 574X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessment year under dispute, assessee filed its return of income on 30-07-2013 declaring total income at Rs. 35,36,06,013/-. As observed by the Assessing Officer, during the year under consideration, the assessee did not carry out any business activity. However, it had income under the head "Income from other sources" as well as long term capital gain, besides exempt income. The details of such income earned by the assessee are as under:- Nature of Income Amount (Rs.) Interest income from Debentures 42,75,54,197 Interest on bank fixed deposits 61,70,936 Dividend on Portfolio investments 1,31,39,574 Dividend on current investment 7,19,81,047 Gain on sale / redemption of portfolio investments - shares 18,08,84,485 Gain on sale / redemption of current investments - Debentures 14,64,50,203 Total 86,41,80,443 As against income earned of Rs. 84,61,80,843/-, the assessee claimed expenditure under various heads aggregating to Rs. 30,07,72,878/-. Out of the total expenditure, the assessee apportioned an amount of Rs. 27,62,69,137/- towards earning of interest and other investment income which was offered to tax. Further, the assessee disallowed an amount of Rs. 2,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose penalty of Rs. 4,06,40,587/- under section 271(1)(c) of the Act alleging furnishing of inaccurate particulars of income. Though, the assessee challenged the penalty order before learned Commissioner (Appeals), however, it was unsuccessful. 3. Shri Farrokh V. Irani, the learned Counsel appearing for the assessee submitted, the assessee being a fund, basically undertakes investment activities and in the process has invested both in equity share yielding exempt income as well as in FDRs, debentures, etc. giving rise to taxable income. He submitted, in the return of income assessee has computed disallowance of expenditure under section 14A of the Act for earning the exempt income. He submitted, in the note attached to the computation of total income, the assessee has very clearly provided the basis of computation of disallowance under section 14A of the Act r.w.r. 8D. He submitted, the Assessing Officer, on purely estimate basis, has apportioned a part of fee paid to AMC towards expenditure for earning exempt income. He submitted, while doing so, the Assessing Officer has treated it as a direct expenditure under rule 8D(2)(i) for earning exempt income. He submitted, when the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxman 460A (SC) 5. The learned Departmental Representative strongly relying upon the observations of the Assessing Officer and learned Commissioner (Appeals) submitted, the assessee has deliberately not included fee paid to the AMC as direct expenditure while computing disallowance under section 14A of the Act r.w.r. 8D in the computation of total income. Further, he submitted, the very fact that the assessee has not contested the disallowance made by the Assessing Officer proves that the assessee has furnished inaccurate particulars of income. Thus, he submitted, the penalty imposed has to be sustained. 6. We have considered rival submissions in the light of decisions relied upon and perused the materials on record. Undisputedly, though, in the assessment order the Assessing Officer has initiated proceedings for imposition of penalty under section 271(1)(c) of the Act for both the limbs i.e. furnishing of inaccurate particulars of income and concealment of income, however, in the penalty order passed under section 271(1)(c) of the Act, he has ultimately held that "assessee has furnished inaccurate particulars of income". Thus, it is evident, the Assessing Officer himself was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apportioned the aforesaid expenditure purely on estimate basis, we fail to understand how it can be treated as direct expenditure for earning the exempt income as per rule 8D(2)(i). A direct expenditure, as contemplated under rule 8D(2)(i), is an expenditure which must have direct and proximate nexus with the exempt income earned. It cannot be some expenditure which has to be computed on apportionment basis. For such kind of disallowance, the legislature has put in place Rule 8D(2)(ii) and (iii). Admittedly, the Assessing Officer has accepted the suo motu disallowance made by the assessee under rule 8D(2)(iii) at Rs. 2,05,92,611/-. 8. Though, at this stage, we are not called upon to decide the merits of the disallowance made by the Assessing Officer under section 14A r.w.r. 8D, however; we have to examine whether such disallowance made by the Assessing Officer can lead to the conclusion that assessee has furnished inaccurate particulars of income so as to visit it with penalty under section 271(1)(c) of the Act. In this context, we find substantial force in the submissions of the learned Counsel for the assessee. When the disallowance under rule 8D(2)(i) r.w.s. 14A of the Act has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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