2013 (6) TMI 464 - AT - Income Tax

Tribunal upholds decision on penalty imposition for disallowance under section 14A

The Tribunal dismissed both the Revenue's appeal and the Assessee's Cross Objection, upholding the Ld. Commissioner's decision to delete the penalty ... Penalty u/s. 271(1)(c) - disallowance u/s. 14A - Held that:- Addition on account of disallowance u/s. 14A amounting to Rs. 8,21,690/-. However, the penalty was imposed on the total disallowance amounting to Rs. 10,38,677/-. Thus, the penalty levied was arrived at Rs. 3,53,047/-. However, if the penalty is levied correctly on the actual disallowance by the AO the penalty will fall under a sum of Rs. 3 lacs being the limit fixed by the CBDT for filing the Appeal before the Tribunal, thus the total tax effect of the deletion made by the CIT(A), will fall under the sum of Rs. 3 lacs. In that situation, the Appeal by the Revenue before the Tribunal cannot be made, as per necessary CBDT Circular in this regard. The penalty in this case has been levied on account of disallowance made in accordance with Rule 8D read with section 14A. There has been no concealment or furnishing of inaccurate particulars by the assessee in this case. The disallowance has been made by computing the sums which were duly disclosed in the return and accounts of the assessee. See Hindustan Steel vs. State of Orissa [1969 (8) TMI 31 - SUPREME Court] & CIT vs. Reliance Petro Products Ltd. [2010 (3) TMI 80 - SUPREME COURT] wherein held that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the assessee. In favour of assessee. Issues:Penalty under section 271(1)(c) for disallowance u/s. 14A - Correctness of levy and justification.Analysis:The appeal and cross-objection arose from the order of the Ld. Commissioner of Income Tax (A) for the assessment year 2008-09. The Revenue raised grounds questioning the correctness of the penalty imposed under section 271(1)(c) for disallowance u/s. 14A. The Assessing Officer had initiated penalty proceedings based on the disallowance of expenditure related to exempt income, leading to a total disallowance amounting to Rs. 10,38,677. The penalty was computed at Rs. 3,53,047. The assessee contended that there was no concealment of income or furnishing of inaccurate particulars, as all details were disclosed in the return of income. The Ld. Commissioner of Income Tax (A) agreed with the assessee's submissions and deleted the penalty. The Revenue appealed against this decision.Upon review, the Tribunal found that the penalty was imposed on the total disallowance amount, whereas it should have been restricted to the disallowance u/s. 14A only. The correct penalty amount should have been Rs. 3,00,000, falling under the CBDT limit for appeal. On the merits, the Tribunal observed that there was no concealment or inaccurate particulars furnished by the assessee regarding the disallowance made under Rule 8D read with section 14A. Section 271(1)(c) requires the presence of contumacious conduct for penalty imposition, which was absent in this case. The Tribunal upheld the Ld. Commissioner's order, citing the Apex Court's decision in Hindustan Steel vs. State of Orissa and CIT vs. Reliance Petro Products Ltd. as precedents.In conclusion, the Tribunal dismissed both the Revenue's appeal and the Assessee's Cross Objection, upholding the Ld. Commissioner's decision to delete the penalty imposed under section 271(1)(c) for the disallowance u/s. 14A. The Tribunal found no infirmity in the Ld. Commissioner's order and emphasized the importance of judicial discretion in penalty imposition for statutory obligations.