TaxTMI 
TaxTMI 
2015 (10) TMI 2369
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.... appreciate that the penalty was initiated and imposed by the Assessing Officer on the disallowance of legal charges u/s 40A(2)(b) of the Act, treating the payment to related party. (d) He ought to have appreciated that imposition of penalty by the Assessing Officer was on account of not being satisfied about the reasonableness of the expenses incurred on account of legal charges. (e) He further failed to appreciate that no penalty was imposed by Assessing Officer on disallowances u/s 14A on account of concealment or misstatement. (f) He ought to have appreciate that all documents, necessary information and records were disclosed and placed on the record in relation to earning of exempt income and expenditure thereof. (g) He ought to have appreciate that prior to insertion of Rule 8D, there was no methodology provided in Income Tax Act for computing the disallowance under Section 14A. Rule 8D did not exist at the time of filing Return of Income. Therefore, the question of disallowance and its qualification were debatable giving rise to difference of opinion. He ought to have appreciate that the expenditure incurred by the Assessee Company was in the ordinary course of bus....
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.... in view of the provisions of section 14A of the Act, the expenses relatable to such exempt income were to be disallowed. The Assessing Officer was of the view that 5% of the exempt income was to be disallowed, which works out to Rs. 65,72,708/-. But the assessee had incurred total expenditure of Rs. 21,22,688/- out of which Rs. 19,70,000/- was already disallowed and hence balance of Rs. 1,52,688/- was disallowed. No initiation of penalty under section 271(1)(c) in this regard was made by the Assessing Officer. 5. The assessee went an appeal before the CIT(A) against the assessment order passed by the Assessing Officer. The CIT(A) vide order dated 05.03.2009 was of the view that where Shri S.A. Gundecha was not a related person in terms of the provisions of section 40A(2)(b) of the Act, the Assessing Officer was not justified in invoking the said provisions of the Act. Further, where the person was competent enough to give advice on legal matters and where he has admitted to have given the said services to the company and since the amount of Rs. 19,70,000/- has been offered to tax by him which, in turn, has been accepted by the Income Tax Department, there was no justification in ....
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....ee was difficult to be accepted as the assessee has failed to explain the addition of Rs. 19,70,000/- and consequently the provisions of section 271(1)(c) of the Act were applicable, as the explanation filed by the assessee has been rejected by the Assessing Officer as well as by the CIT(A). With regard to the contention of the assessee that addition of Rs. 1,52,688/- made under section 14A of the Act was not considered for levy of penalty under section 271(1)(c) of the Act and therefore, the CIT(A) had clubbed this addition of Rs. 19,70,000/- under section 14A of the Act, the said addition should also not be considered for penalty was a difficult proposition to be accepted. Accordingly, the CIT(A) upheld the levy of penalty of Rs. 7,06,738/-. 7. The assessee is in appeal against the said order of the CIT(A). 8. The Ld. Authorized Representative for the assessee pointed out that while passing the assessment order, the Assessing Officer had initiated the penalty proceedings only in respect of one of the disallowance i.e. the disallowance made under section 40A(2)(b) of the Act. No penalty proceedings were initiated in respect of the disallowance made under section 14A of the Act. ....
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....own that the satisfaction by the concerned officer has to be recorded in the course of any proceedings under the Act i.e. before levy of any penalty for concealment under section 271(1)(c) of the Act. The satisfaction has to be recorded by the officer in a proceeding which is separate from the penalty proceedings. The section empowers the Assessing Officer during the course of both the assessment or reassessment, the CIT(A) during the course of appellate proceedings, Principal Commissioner or Commissioner during the course of 263 proceedings or any proceedings which he is empowered to carry out and after recording such satisfaction, the assessee is given an opportunity to rebut the case put up by the Assessing Officer and thereafter the officer is to record a finding and come to the conclusion whether the assessee has concealed its income or furnished inaccurate particulars of income. 11. Coming to the facts of the present case, while completing the assessment under section 143(3) of the Act, the Assessing Officer had made two additions i.e. (i) on account of disallowance of Rs. 19,70,000/- by invoking provisions of section 40A(2)(b) of the Act; and, (ii) on account of disallowanc....