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 Section 14A was based on estimation and Rule 8D was not applicable for the relevant assessment year. It was found that no inaccurate particulars of income were furnished by the assessee, and the mere disallowance of a claim did not amount to inaccurate particulars. The Revenue's appeal was dismissed.

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Issues Involved
1. 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 Analysis

1. 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.

Conclusion

The 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.

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