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Rejection of any expenditure claimed by the assessee is per se insufficient to attract penalty u/s 271(1)(c): ITAT

2019-TIOL-1653-ITAT-DEL

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘A’ NEW DELHI

ITA No.5709/Del/2016
Assessment Year: 2009-10

M/s APPOLLO FINANCE LTD
414/1, 4TH FLOOR, DDA COMMERCIAL COMPLEX
DISTT CENTER, JANAKPURI, NEW DELHI
PAN NO: AAACA5354J

Vs

DEPUTY COMMISSIONER OF INCOME TAX
CIRCLE-3(1), NEW DELHI

Amit Shukla, JM & O P Kant, AM

Date of Hearing: August 06, 2019
Date of Decision: August 09, 2019

Appellant Rep by: Shri Manu K Giri, Adv.
Respondent Rep by: 
Shri Manoj Kumar Mahar, Sr. DR

Income Tax – Sections 14A, 271(1)(c) & Rule 8D

Keywords – Exempt income – Furnishing inaccurate particulars of income – Penalty

(A) THE assessee had filed its return for the relevant AY. During the assessment proceedings, the assessee had made suomotu disallowance of Rs 1 lacs made by the assessee in the return. The AO completed the assessment u/s 143(3) after making disallowance of Rs 6.55 cr u/s 14A. On appeal, the CIT(A) restricted by the disallowance. On further appeal, the Tribunal set aside the order of the CIT(A) and restored the issue to the file of the AO.

(B) In consequent assessment proceedings, the assessee accepted the disallowance u/s 14A and therefore, the AO in the order passed u/s 143(3) r/w section 254 made disallowance as expenses pertaining to earning exempt income and initiated penalty proceedings u/s 271(1)(c). Subsequently, the AO levied penalty u/s 271(1)(c). On appeal, the CIT(A) observed that the provisions of section 14A have been amended with enforcement from AY 2008-09 and law has provided working of disallowance in terms of rule 8D and thus, he sustained the penalty for filing inaccurate particulars of the income.

On appeal, the Tribunal held that,

Whether merely because the assessee claims the expenditure and the same is not acceptable to the Revenue, would not per se, attract penalty u/s 271(1) (c) – YES: ITAT

++ disallowance in the assessment order passed consequent to the order of the Tribunal has been made in view of the decision of the Delhi High Court in the case of Joint Investment Private Limited v. CIT and not strictly as per computation of Rule 8D. Further, the scheme u/s 14A, the apportionment of the expenditure attributable to earning exempt income, was difficult for identifying exactly on the precise, numerical and mathematical basis and to have rationality in the disallowance, the rule 8D has been introduced by the CBDT, but that too is a kind of estimate only. In such scenario, the difference between the suo-motu disallowance by the assessee in the return and the amount upheld by the AO, can be termed as variation in the estimate of expenditure attributable to earning exempt income by the assessee and by the AO and it cannot be tantamount to furnishing of any inaccurate particulars of income;

++ merely making a claim, which is held as non-sustainable under the law, would not lead to penalty u/s 271(1)(c), when the assessee had furnished details of particulars in the return. The assessee is not found to be involved in camouflaging or filing inaccurate details of expenses. Every disallowance does not justify levy of penalty u/s 271(1)(c). The Supreme Court in the case of CIT v. Reliance Petro Products Private Limited held “…where no information given in the return of income is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars and by no stretch of imagination making an incorrect claim can tantamount to furnishing inaccurate particular of income….” Thus, the Tribunal is of the view the finding of the CIT(A) are set aside and the penalty levied u/s 271(1)(c) is cancelled.

Assessee’s appeal allowed

Cases followed:

CIT v. Reliance Petroproducts (P) Ltd – 2010-TIOL-21-SC-IT

Joint Investment Private Limited v. CIT- 2015-TIOL-574-HC-DEL-IT

ORDER

Per: O P Kant:

This appeal by the assessee is directed against order dated 09/08/2016 passed by the Ld. Commissioner of Income-tax (Appeals)-I, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2009-10 in relation to penalty levied by the Assessing Officer in terms of section 271(1)(c) of the Income Tax Act, 1961 (in short ‘the Act’). The grounds raised in the appeal are reproduced as under:

1. That the order passed by the learned Commissioner of Income Tax (Appeals) is bad in law, equity and justice.

2. That the learned Commissioner of Income Tax (Appeals) erred in confirming the levy of penalty u/s 271(1)(c) amounting to Rs.58,98,180/-, ignoring company’s contentions based on various judicial pronouncements.

2. Briefly stated facts of the case are that for the year under consideration the assessment under section 143(3) of the Act was completed on 11/03/2011 after making disallowance of Rs.6,55,61,826/- under section 14A of the Act as against suomotu disallowance of Rs.1,00,000/- made by the assessee in the return of income filed on 22/09/2009. The disallowance made by the Assessing Officer was restricted by the Ld. CIT(A) to Rs. 181.79 lakhs. On further appeal by the Revenue, The Income Tax Appellate Tribunal (in short the tribunal) set aside the order of the Ld. CIT(A) and restored the issue to the file of the Assessing Officer. In consequent assessment proceedings before the Assessing Officer, the assessee accepted the disallowance under section 14A of the Act at Rs.181.79 lakhs and accordingly, the Assessing Officer in the order passed under section 143(3) read with section 254 of the Act made disallowance of Rs.181.79 lakhs as expenses pertaining to earning exempt income and initiated penalty proceedings under section 271(1)(c) of the Act. Subsequently, the Assessing Officer levied penalty of Rs.58,98,177/-under section 271(1)(c) of the Act. Aggrieved, the assessee filed appeal before the Ld. CIT(A) and submitted that assessee had submitted all particulars in respect of the issue of disallowance and therefore no penalty should have been levied. However, the Ld. CIT(A) observed that the provisions of section 14A of the Act have been amended w.e.f. assessment year 2008-09 and law has provided working of disallowance in terms of rule 8D of Income Tax Rules, 1962 and thus, the decisions relied upon by the assessee pertaining to earlier assessment years, cannot be relied upon. Accordingly, he held the assessee responsible for not following the clear guidelines issued by the CBDT for quantifying the disallowance and sustained the penalty for filing inaccurate particulars of the income deliberately. Aggrieved, the assessee is before the Tribunal raising the grounds as reproduced above.

3. Before us, the Ld. counsel of the assessee filed a paper book containing pages 1 to 10 and submitted that disallowance under section 14A of the Act has been restricted to Rs.181.79 lakhs in view of the decision of the Hon’ble Delhi High Court in the case of Joint Investment Private Limited in ITA No. 117/2015 2015-TIOL-574-HC-DEL-IT dated 20/05/2015. According to him, merely making an incorrect claim would not tantamount to furnishing of inaccurate particulars of income, unless it is established that the assessee had acted with a malafide intention. He submitted that disallowance under section 14A of the Act has been upheld and restricted to the extent of the dividend income earned, which is purely an estimate and not an exact amount based on any investigation by the Assessing Officer. In support of his claim, he relied on the decision of the Hon’ble Supreme Court in the case of Commissioner of income tax versus Reliance Petroproducts (P) Ltd (2010) 322 ITR 158 (SC) = 2010-TIOL-21-SC-IT and Pricewaterhouse Coopers Private Limited versus Commissioner of Income Tax- Kolkata -1 (2012) (25 Taxman.com 400, SC) = 2012-TIOL-84-SC-IT.

4. On the contrary, the Ld. DR relied on the order of the lower authorities.

5. We have heard rival submissions and perused the relevant material on record. In the instant case the assessee made suomotu disallowance under section 14A of the Act amounting to Rs.1,00,000/-. The claim of the assessee was that only demat charges were incurred toward earning of exempted dividend income of Rs.1,81,79,000/-. In the original assessment proceeding, this claim of the assessee was rejected and disallowance was made invoking Rule 8D of Income Tax Rules, 1962 at Rs.6,55,61,826/-. That disallowance was restricted by the Ld. CIT(A) to Rs.181.79 lakhs. The order of the Ld. CIT(A) was set aside by the Tribunal and matter was restored to the Assessing Officer. In consequent proceedings before the Assessing Officer, the assessee itself accepted disallowance of Rs.181.79 lakhs equivalent to the amount of the exempt dividend income earned in view of the settled position of the law in the case of Joint Investment Private Limited (supra). The Assessing Officer accordingly made disallowance of the said amount of Rs.181.79 lakhs. The Assessing Officer levied penalty of the same and the Ld. CIT(A) upheld the penalty observing as under:

“I have considered the above cited judgments of Hon’ble Delhi High Court and ITAT, Delhi. However, it may be seen here that the above judgments cited by the appellant are pertaining to the cases of disallowance u/s 14A prior to AY 2008-09. From AY 2001-02 to AY 2007-08 provision of section 14A was debatable issue and no methodology was prescribed by the Department for quantifying the expenses pertaining to earning exempt income. Therefore, for those assessment years if any disallowance was made by the AO, the same was debatable and penalty was not leviable. The Finance Act, 2006 has incorporated sub section (2) in section 14A which has given power to the AO to examine and quantifying disallowance pertaining to exempt income. Simultaneously, the CBDT made the Rule 8D applicable from AY 2008-09 for quantifying the disallowance u/s 14A as per rule 8D. Therefore, the contention of the appellant that the issue was debatable in AY 2009-10 is not correct and ratio of the said judgment cited by the appellant and discussed above is not applicable in the case of appellant. The Department has given clear cut guidelines for quantifying such disallowance and most of the assessee’s were following the same. However, appellant deliberately avoided the provisions of section 14A r.w.r. 8D and did not disallow any expenses pertaining to earning exempt income. It was obligatory on the part of the appellant more so when appellant has earned dividend of Rs. 1,81,79,000/-. Hence, it is held that appellant had deliberately filed inaccurate particulars of income and given go by to the provision of section 14A r.w.r. 8D. Therefore, the penalty levied by the appellant of Rs.58,98,180/- is justified and same is upheld.”

6. Thus, according to the Ld. CIT(A), the assessee was required strictly to quantify the disallowance in terms of rule 8D of the Income Tax Rules, 1962 and not following the same, he has deliberately filed inaccurate particulars of income. However, we find that disallowance in the assessment order passed consequent to the order of the Tribunal has been made in view of the decision of the Hon’ble Delhi High Court in the case of Joint Investment Private Limited (supra) and not strictly as per computation of Rule 8D of Income-tax Rules, 1962. Further, under the very scheme under section 14A of the Act, the apportionment of the expenditure attributable to earning exempt income, was difficult for identifying exactly on the precise, numerical and mathematical basis and to have rationality in the disallowance, the rule 8D has been introduced by the CBDT, but that too is a kind of estimate only. In such scenario, the difference between the suo-motu disallowance by the assessee in the return of income and the amount upheld by the Assessing Officer, can be termed as variation in the estimate of expenditure attributable to earning exempt income by the assessee and by the Assessing Officer and same cannot be tantamount to furnishing of any inaccurate particulars of income. Merely making a claim, which is held as non-sustainable under the law, should not lead to penalty under section 271(1)(c) of the Act, when the assessee has furnished details of particulars in the return of income. The assessee is not found to be involved in camouflaging or filing inaccurate details of expenses. Every disallowance made does not justify and mandate levy of penalty under section 271(1)(c) of the Act. The Hon’ble Supreme Court in the case of CIT versus Reliance Petro Products Private Limited (supra) held that where no information given in the return of income is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars and by no stretch of imagination making an incorrect claim can tantamount to furnishing inaccurate particular of income.

7. In view of the aforesaid discussion, the finding of the Ld. CIT(A) are set aside and the penalty levied under section 271(1)(c) of the Act is cancelled. The grounds of the appeal of the assessee are accordingly allowed.

8. In the result, the appeal of the assessee is allowed.

(Order is pronounced in the open court on 09.08.2019)

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