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TMI Blog2024 (11) TMI 491X X X X Extracts X X X X X X X X Extracts X X X X ..... wance cannot exceed the exempt income. No reason to interfere with the decision so rendered by the ld. CIT(A) on this issue. Decided in favour of the assessee. Allowable business expenditure - penal charges paid to NHB - HELD THAT:- According to the letter dated 08.10.2020 issued by National Housing Bank (NHB) and addressed to the assessee company, an amount has been directed to be paid as penalty for violating the various non-compliances/directions. Similarly, another letter dated 26.02.2021 issued by the NHB and addressed to the assessee company, penalty in respect of various non-compliances, has further been imposed upon the assessee. As per these two letters issued by the NHB, the total amount is the penal charges, which are said to have been paid by the appellant assessee are incidental to the business of the assessee and cannot be held to be an offence or infraction of law. CIT(A) has thus rightly held that such penal charges are to be allowable as business expenditure Decided in favour of the assessee. - Shri Br Baskaran, Accountant Member And Shri Sunil Kumar Singh, Judicial Member For the Assessee : Shri. K. Gopal a/w Shri. Om Kandalkar For the Revenue : Shri. Krishna Ku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. Penalty of Rs. 24,10,000/- imposed by NHB was also disallowed u/s. 37 of the Act and added in the income of the assessee. 3. Aggrieved assessee preferred an appeal before learned CIT(A), who partly allowed assessee s appeal with direction to assessee to give bifurcation of investments that earned exempt income and that did not result into exempt income before assessing officer and also directed assessing officer to compute disallowance u/s. 14A, taking average investments that have yielded the exempt income earned by the assessee. 4. Appellant revenue has raised following grounds under appeal: i. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that investment which yielded exempt income are only to be considered for the purpose of disallowance u/s. 14A r.w.r. 8D(2) and to exclude such investment which did not earn exempt income from the total investment for the purpose of computation of disallowance u/s. 14A, thereby ignoring the clarificatory Explanation of section 14A(1) inserted vide the Finance Act2022 that the provisions of this section shall apply and shall be deemed to have always applied even in a case whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t had earned exempt income and excluded those investments which were capable of generating exempt income. 11. The essential component of above referred Section 14A is that, for making disallowances from the total income of the assessee, there has to be an expenditure incurred in relation to the exempt income. Assessee submitted before learned assessing officer that no dividend income were earned by the assessee from investments on shares, during the year under consideration. The assessee further submitted that as per amended provisions of the finance Act 2020-21, dividend income became taxable in the hands of the recipient of dividend. Learned assessing officer rejected the claim of assessee and taking support from the CBDT circular no. 5/2014 dated 11.02.2014, concluded that disallowance u/s. 14A can be invoked even if no exempt income is earned during financial year under consideration. Learned CIT(A) in para 6.16 of the impugned order referred his predecessor s view, who, while deciding the appeal of the assessee for A.Y. 2017-18, took the view that the disallowance u/s. 14A is to be restricted to the exempt income earned during the year. Further, taking support from the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n.com 391 held that the penalty levied by stock exchange on stock broker for failure to maintain KYC form etc. being compensatory in nature was allowable as deduction u/s. 37(1). Learned AR has further referred (ii) EON Hadapsar, Infrastructure (P) Ltd. V ACIT. Central circle-2(1), Pune, [2016] 71 taxmann.com 115(Pune-Trib), wherein the co-ordinate Pune bench of this Tribunal has held that the explanation to section 37(1) of the Act was inserted in respect of any expenditure incurred for any purpose, which was an offence or which was prohibited by law. The circular of Reserve Bank of India itself provided that where the assessee had committed an irregularity while dealing foreign earnings or expenditure outgoes, than such action of the applicant could be compounded as per rules and regulations provided in the said circular. It is not in case where the assessee has been held to have committed an offence or the amount has been paid for purpose, which was prohibited in law, hence, the provisions of explanation to section 37(1) of the Act are not detected. 16. In the instant case, learned CIT(A) has deleted the aforesaid disallowance made by learned assessing officer on the strength of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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