2013 (12) TMI 922 - AT - Income Tax

Penalty under Income Tax Act deleted as no inaccurate particulars furnished. Rule 8D not applicable.

The Tribunal upheld the CIT(A)'s decision to delete the penalty imposed under Section 271(1)(c) of the Income Tax Act, noting that the disallowance under ... Deletion of penalty u/s 271(1)(c) of Income Tax Act, 1961 - Disallowance of expenses under section 14A – Inaccurate particulars of income furnished – Held that:- The penalty levied u/s 271(1)(c) of the Act was on the facts of the case and the law has rightly been deleted by the Ld. CIT(A) - the information and details in respect of exempt income and expenses incurred during the relevant year were available in the audited accounts filed with the A.O. - the information and details have not been found by the AO to be false or factually incorrect - Relying upon Godrej & Boyce Mfg. Co. Ltd. vs. Dy.CIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] - Rule 8D will not be applicable and the very foundation of levy of penalty in the present case i.e. Rule 8D for making disallowance u/s 14A in the assessment year under consideration stands demolished and therefore, penalty cannot survive. There is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false – Thus, there would be no question of inviting the penalty u/s 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 – Decided in favour of Assessee. Issues Involved1. Deletion of penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.2. Applicability of Rule 8D of the Income Tax Rules, 1962, for disallowance under Section 14A.3. Whether the assessee furnished inaccurate particulars of income.Issue-Wise Detailed Analysis1. Deletion of Penalty Imposed Under Section 271(1)(c) of the Income Tax Act, 1961:The Revenue challenged the order of the CIT(A) that deleted the penalty of Rs. 66,65,451/- imposed by the Assessing Officer (AO) under Section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) held that no inaccurate facts were furnished by the assessee and the disallowance was based on a bonafide difference of opinion, which cannot be penalized under Section 271(1)(c). The CIT(A) also stated that the failure to contest the disallowance under Section 14A does not automatically imply that the assessee furnished inaccurate particulars.2. Applicability of Rule 8D of the Income Tax Rules, 1962, for Disallowance Under Section 14A:The AO invoked Section 14A and computed a disallowance of Rs. 1.98 crores as per Rule 8D, which was not contested by the assessee. The CIT(A) noted that Rule 8D was not applicable during the impugned year (assessment year 2007-08) as it was introduced in March 2008 and held that the disallowance was incorrect in law. The CIT(A) further stated that the AO did not establish a proximate nexus between the exempt income and the expenditure incurred, which was required by the decisions of the Hon'ble Mumbai High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. Dy.CIT and the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. vs. CIT.3. Whether the Assessee Furnished Inaccurate Particulars of Income:The Revenue argued that the assessee furnished inaccurate particulars by not computing disallowance under Section 14A. However, the assessee contended that all relevant facts were disclosed and no incorrect particulars were furnished. The assessee argued that the disallowance was based on a bonafide difference of opinion and cited several judicial decisions supporting the view that penalty cannot be imposed for disallowance made on estimation basis. The CIT(A) and the Tribunal found that the disallowance was made on an estimate basis and that the AO did not establish any factual inaccuracy in the particulars furnished by the assessee.ConclusionThe Tribunal upheld the CIT(A)'s decision to delete the penalty imposed under Section 271(1)(c), noting that the disallowance under Section 14A was made on an estimate basis and Rule 8D was not applicable for the assessment year 2007-08. The Tribunal also observed that there was no finding of inaccurate particulars furnished by the assessee and that mere disallowance of a claim does not amount to furnishing inaccurate particulars of income. The appeal of the Revenue was dismissed.