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TMI Blog2023 (5) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... and no positive evidence has been led in this regard and in absence thereof, the penalty cannot be levied on the assessee. The matter is squarely covered by the decision of Reliance Petroproducts Ltd [ 2010 (3) TMI 80 - SUPREME COURT] wherein an identical matter relating to levy of penalty u/s 271(1)(C) on disallowance u/s 14A was under consideration and it was held that the same cannot lead to satisfaction of charge of furnishing of inaccurate particulars of income and the penalty was held not sustainable in the eyes of law - thus e levy of penalty u/s 271(1)(c) is hereby directed to be deleted. Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ty wherein, the appeal of the assessee was partly allowed and various additions were deleted except addition under Section 14A read with Rule 8D. 3. It was submitted that for addition u/s 14A read with Rule 8D sustained by the ld CIT(A), the assessee preferred further appeal before the Chandigarh Benches of the Tribunal wherein the addition made u/s 14A was restricted to a lump sum amount of Rs. 5,00,000/- only. 4. It was submitted that as against the original addition of Rs.1,42,26,765/- on account of disallowance u/s 14A of the Act, which was later on reduced to Rs. 63,21,654/- by the Assessing Officer by passing order u/s 154, the final addition sustained was Rs.5,00,000/- only by the Tribunal, which was also on an estimated and lump sum basis. 5. It was submitted that the A.O initially issued a show-cause notice on 30/12/2016 and thereafter a fresh show cause notice u/s 271(l)(c) was issued on 10.06.2021 which was replied by the assessee on 28.07.2021. The A.O. again issued a show cause notice u/s 271(l)(c) on 12.08.2021, without taking into account reply of the assessee filed on 28.07.2021 and the assessee again replied to this show cause notice on 13.08.2021. The A.O. ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income the particulars of which have been concealed. 2. Therefore, from the above, it is clear that the section lays down two primary conditions for the levy of penalty and three other conditions which provide for deemed concealment of income. The submissions herein have been made, keeping in view the above conditions and we trust you would appreciate that where the above conditions are not satisfied, then the instant case would not be a case fit for levy of penalty. 3. The brief facts regarding the disallowance made by the Ld. AO u/s 14A of the Act, against which penalty have been levied are that during the course of the assessment proceedings, the assessee duly submitted that the investments on which the disallowance u/s 14A have been calculated are old investments and it has also been categorically submitted that the assessee had more than sufficient amount of own funds in the years in which the investments have been made and as per the law settled by various judgments including the judgment of the Hon'ble jurisdictional High Court it is clear that no addition u/s 14A can be made if the amount of investments have been made from own funds and moreover, it is also a settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed on the following judgments: • The Hon'ble jurisdictional Punjab & Haryana High Court in the case of Commissioner of Income Tax Vs Ajaib Singh & Co. (2002) 253 ITR 630 (P&H) held that: "Tribunal having rightly cancelled the penalty under s. 271(1)(c) vis-a-vis the addition partly sustained in appeal holding that the disallowance of expenses was made on estimate basis and the admissibility of payment of sales tax/penalty was debatable, no substantial question of law arises; appeal under s. 260A dismissed." • Yogesh R. Desai vs. ACIT (2010) 38 DTR 101 (Mum.) (Trib.) Assessing Officer having disallowed assessee's claim for expenses on estimation basis and the Tribunal has sustained the addition partly, it cannot be said that there was conscious act of concealment of income or furnishing of inaccurate particulars of income and therefore levy of penalty under section 271 (1 )(c) is not justified. • The Karnatka High Court in the case of CIT vs. Parasamal Babulal Jain dated: 14-09-2011, ITA NO. 20 OF 2006 in which it has been held as under: "Penalty cannot be levied on the disallowance of expenses made on estimate basis. If no facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Hon'ble Apex Court rendered in the case of Dharmendra Textiles (supra), mens rea is not essential for levy of penalty but even then, it has to be seen that there is concealment. In our opinion, mere ad hoc disallowance does not establish concealment. Hence, penalty is not justified. • Kamal Sahdev Vs ACIT, ITAT New Delhi- Disallowance made on adhoc basis does not imply concealment of income and penalty is not justified 6. It is further submitted here that the addition made by the Ld. AO have been made by taking into consideration the interest expenditure incurred by the assessee and whereas in the order of the Hon'ble Bench of the ITAT the addition has been sustained out of the administrative expenditure incurred by the assessee which duly depicts that there is a definite difference of opinion on the basis of the addition sustained as there is no direct expenditure that has been incurred for earning of exempt income. All the details were filed with the AO substantiating the fact that no expenditure to earn the exempt income has been incurred. It is only on account of difference of opinion on the basis of which addition has been made. Therefore, merely on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particulars of income. Hence penalty u/s 271 (1) (C) is not sustainable. • CITv. Liquid Investment and Trading Co. [ITA 240/2009 dated 5/10/2010 -Del HC] • The DCIT vs Hycron Electronics, ITA 1194 a 1195/CHD/2016, ITAT Chd. • Skill Infrastructure Ltd. v.AC/T[2013] 157 TTJ 565 (Mum.)(Trib.) • ACIT vs Manish Jain ITAT Delhi in ITA No. 5999/Del/2012 • ACT vs M/s Kajaria Ceramics Limited in ITA No. 4320/Del/2014 ITAT Delhi. • CIT v. Jindal Equipment Leasing and Consultancy Services Ltd. ITA NO. 68/2012 (Del) (HC), • CIT v. Liquid Investments Ltd. ITA No. 2401/2009 (Del) (HC), • DCIT v. Nalwa investment Ltd. ITA No. 3805/2010(Del) (ITAT) • ACIT v. A.T. Invofin India (P) Ltd. ITA No. 4479/2013. 7. Further, it is submitted that the assessee has duly disclosed all the material facts i.e. the exempt income received has duly been reflected in the profit and loss account, the details and the amount of the investments outstanding at the opening and closing of the relevant assessment year, the amount of the expenditures in the nature of interest and administrative has duly been reported in the profit and loss account. Furthermore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m made by assessee under a bona fide belief that it is maintainable in law, cannot by itself, lead to imposition of penalty under s. 271(1)(c) especially when there is no finding of the AO that the assessee has furnished inaccurate particulars. ❖ DCIT vs. INTERCONTINENTAL TRADING AND INVESTMENT COMPANY LTD. as reported in (2012) 32 CCH 066 Del Trib Where there is no finding that the details furnished by assessee in its return were found to be incorrect or erroneous or false, there would not be any question of inviting penalty u/s 271(1) (c). Mere claim of deduction which is not sustainable in law does not amount to furnishing of inaccurate particulars of income and hence, penalty cannot be imposed. ❖ DEPUTY COMMISSIONER OF INCOME TAX vs. NOKIA INDIA (P) LTD. as reported in (2009) 124 TTJ (Del) 145 AO having disallowed 25 per cent of assessee's claim on account of provision for obsolescence of inventory on estimate basis on the ground that old models of cellular phones can be easily sold in the market, it cannot be said that the claim was false and, therefore, penalty under s. 271(1)(c) is not leviable in respect of said disallowance. ❖ MIMOSA INVE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bull; CIT vs. Ajaib Singh & Co. (2002) 253 ITR 630 (P&H) • CIT vs. Chelan Doss Lachhman Dass (1995) 214 ITR 726 (Delhi) • Harijan Co-op. I. C Society Ltd. (2007) 34 I.T. Rep 540 In view of the above submissions, it is humbly requested that the penalty levied in the case of the assessee may kindly be deleted and oblige." 9. Per contra, the Ld. Sr. DR has relied on the order of the lower authorities. It was submitted that the Tribunal in the quantum proceedings has upheld the applicability of provisions of Section 14A r.w. Rule 8D of the Act and as against the addition of Rs. 1,42,26,765/- made by the AO, the addition is restricted to Rs. 5,00,000/-. Therefore there is no dispute that the provision of Section 14 r.w. Rule 8D are applicable and which has not been applied by the assessee while filing its return of income, and only where the AO during the course of assessment proceedings has inquired about the investments and dividend income and the corresponding expenditure, the details have been furnished and basis that the provisions of Section 14 r.w. Rule 8D were held applicable and which has been affirmed by the Tribunal. It was submitted that it is therefore a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the findings of the AO for levy of minimum penalty amounting to Rs. 1,54,500/- under section 271(1)(c) of the Act. 12. We therefore find that both the AO as well as the Ld. CIT(A), NFAC has decided the matter regarding levy of penalty under section 271(1)(c) merely on account of the fact that the addition have been confirmed by the Tribunal in the quantum proceeding. However, we do not find any specific finding recorded by either of the lower authorities as to how the disallowance so made by the AO and which has been upheld by the Tribunal though with a restricted amount leads to charge of furnishing of inaccurate particulars of income by the assessee. 13. Having said that, even on perusal of the order passed by the Coordinate Bench in the quantum proceedings, it is relevant to note the findings of the Coordinate Bench where it was held that as per provisions of Section 14A, before the AO proceed to calculate the disallowance under Rule 8D(2)(iii), he is supposed to consider the assessee's submission and examine the accounts of the assessee and has to record his findings/reasoning that he is not satisfied with the submissions of the assessee and in the instant case, no such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly rectified by the AO to a figure of Rs. 63,21,654/- and finally which has been sustained to the extent of Rs. 5,00,000/- by the Co-ordinate Bench. We therefore find that the computation under Rule 8D(2)(iii) is basically a mechanism to work out various administrative expenses incurred by the assessee for managing the investment on which interest free income is earned by the assessee. However the same has been worked out as a percentage of average value of investment which goes on to show that the same has no linkage to the expenditure actually incurred by the assessee during the relevant financial year. Even in the findings of the lower authorities, we do not see any specific finding which has been recorded by the AO stating that the assessee has claimed certain administrative expenditure in the P&L Account and which has not been disallowed in terms of Rule 8D(2)(iii) of the Act. The investments have been considered by the AO as disclosed in the books of accounts. Even on perusal of the order of the Coordinate Bench, we find that considering the submissions of the assessee that not much effort has been made to manage old investments and major chunk of dividend income was earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same read as under: "7. As against this, Learned Counsel appearing on behalf of the respondent pointed out that the language of Section 271(1)(c) had to be strictly construed, this being a taxing statute and more particularly the one providing for penalty. It was pointed out that unless the wording directly covered the assessee and the fact situation herein, there could not be any penalty under the Act. It was pointed out that there was no concealment or any inaccurate particulars regarding the income were submitted in the Return. Section 271(1)(c) is as under:- "271(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person- (c) has concealed the particulars of his income or furnished inaccurate particulars of such income." A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise. In Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. [2007(6) SCC 329], this Court explained the terms "concealment of income" and "furnishing inaccurate particulars". The Court went on to hold therein that in order to attract the penalty under Section 271(1)(c), mens rea was necessary, as according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that Clause (iii) of Section 271(1) provided for a discretionary jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as:- "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript". We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. 10. It was tried to be suggested that Section 14A of the Act specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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