2023 (5) TMI 826 - AT - Income Tax

Penalty overturned as inaccurate particulars not furnished. Specific findings crucial in penalty proceedings.

The Tribunal held that the penalty under Section 271(1)(c) for furnishing inaccurate particulars of income was unsustainable. It was concluded that the ... Penalty u/s 271(1)(c) - Addition u/s 14A r.w.r. 8D - HELD THAT:- We find that the mere fact that the provision of Section 14A r.w. Rule 8D(2)(iii) are held applicable and the claim of the assessee that it has not incurred any expenditure in relation to exempt income not being accepted cannot lead to a situation where the charge of furnishing of inaccurate particulars of income can be fastened on the assessee without leading any positive evidence to the effect that there is wrong furnishing of information vis-a-vis the investments which has yielded or can yield exempt income in future and secondly, there is actual incurrence of certain administrative expenditure for managing these investments during the year under consideration. As we have noted above, there is no finding recorded by the AO either during the assessment proceedings or even during the penalty proceedings to this effect and no positive evidence has been led in this regard and in absence thereof, the penalty cannot be levied on the assessee. The matter is squarely covered by the decision of Reliance Petroproducts Ltd [2010 (3) TMI 80 - SUPREME COURT] wherein an identical matter relating to levy of penalty u/s 271(1)(C) on disallowance u/s 14A was under consideration and it was held that the same cannot lead to satisfaction of charge of furnishing of inaccurate particulars of income and the penalty was held not sustainable in the eyes of law - thus e levy of penalty u/s 271(1)(c) is hereby directed to be deleted. Decided in favour of assessee. Issues Involved:1. Levy of penalty under Section 271(1)(c) of the Income Tax Act.2. Applicability of Section 14A read with Rule 8D.3. Disclosure of particulars of income and alleged concealment.4. Consideration of judicial precedents by the CIT(A).5. Specificity of charges framed against the assessee.6. Independent and specific findings by the AO and CIT(A).Summary:1. Levy of Penalty under Section 271(1)(c):The assessee challenged the confirmation of a penalty of Rs. 1,54,500/- under Section 271(1)(c) for furnishing inaccurate particulars of income. The assessee argued that no penalty is leviable on deeming provisions like Section 14A read with Rule 8D, especially when the addition was sustained on an ad-hoc basis.2. Applicability of Section 14A read with Rule 8D:The assessee's case was selected for regular assessment, resulting in an addition of Rs. 1,42,26,765/- under Section 14A read with Rule 8D, which was later reduced to Rs. 5,00,000/- by the Tribunal. The assessee contended that the addition was based on an estimated and lump sum basis, and no specific administrative expenses were identified.3. Disclosure of Particulars of Income:The assessee argued that all particulars regarding investments and expenses were fully disclosed in the balance sheet, and there was no concealment or furnishing of inaccurate particulars of income. The AO did not record any finding of inaccurate particulars.4. Consideration of Judicial Precedents by the CIT(A):The assessee claimed that the CIT(A) ignored binding judgments, including the Supreme Court's decision in CIT vs Reliance Petro Products (P) Ltd., which held that making an incorrect claim in law does not amount to furnishing inaccurate particulars.5. Specificity of Charges Framed Against the Assessee:The assessee contended that no specific charge of either concealment of income or furnishing inaccurate particulars was framed against them, as required by the judgment of the Full Bench of the Bombay High Court in Moh. Farhan.6. Independent and Specific Findings by the AO and CIT(A):The Tribunal found that both the AO and CIT(A) relied on the confirmation of the addition in quantum proceedings without recording independent findings justifying the charge of furnishing inaccurate particulars. The Tribunal emphasized that penalty proceedings are distinct and require specific findings.Conclusion:The Tribunal concluded that the AO did not demonstrate how the assessee furnished inaccurate particulars of income. The penalty was held to be unsustainable, particularly in light of the Supreme Court's decision in Reliance Petroproducts Ltd., which clarified that making an incorrect claim does not amount to furnishing inaccurate particulars. Therefore, the penalty under Section 271(1)(c) was deleted, and the appeal of the assessee was allowed.