TaxTMI 
TaxTMI 
2010 (10) TMI 1072
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....cts of the case are that the assessee had filed its return of income on 25.10.2005 declaring total loss of Rs. 1,01,17,371/-. The return was accompanied by audited accounts and the tax audit report. Assessment u/s 143(3) was completed on 24.08.2007 computing the total income at Rs. 6,16,980/-. The major reason for the difference in returned and assessed income is on account of disallowance u/s 14A. The AO disallowed interest expenditure of Rs. 95,63,346/- as relatable to the dividend income. Further, he disallowed a sum of Rs. 11,70,941/- out of other expenses attributed to earning of the dividend income on proportionate basis, the proportion being decided on the basis of the composition of the total income. The reasons mentioned in respect....
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....s to funds borrowed for investments yielding dividend income and long term capital gains exempt from tax. The wordings of section 14A of the I.T. Act also clear that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income. In view of the facts of the case discussed and clear provision of the law difference of interest received and paid i.e., Rs. 1,10,02,323/-- Rs. 14,38,977= Rs. 95,63,346/- is disallowed u/s 14A of the IT Act and added back to the income of the assessee company." 2.1 Penalty proceedings were also initiated in the course of assessment proceedings. These proceedings were disposed off on 30.3.2009, levying a penalty of Rs. 39,27,976/-,....
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....showing the manner in which claim of various expenses was admissible. Thereafter, the question as to whether any amount was disallowable u/s 14A was to be decided by the AO. Any disallowance in this regard will not lead to the inference of concealment of income or furnishing inaccurate particulars of income for the reason that various claims and composition of income were clearly indicated in the return and the accompanying documents. 4.1 In order to support the aforesaid contention, it was submitted that section 14A was inserted in the Act by Finance Act, 2001, retrospectively from 1.4.1962. The section was amended by Finance Act, 2006 with effect from 1.4.2007 providing for mode and method of disallowance to be made under this section. F....
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....es. Therefore, there was no question of levy of penalty u/s 271(1)(a) of the Act. 4.3 Further, reliance was placed on the decision of Hon'ble Calcutta High Court in the case of CIT Vs. Calcutta Credit Corporation (1987) 166 ITR 29. In that case, the cash credit appearing in the books of the assessee was added to the total income from other sources. The claim of interest paid on the credit was also disallowed. The AAC deleted the addition but the Tribunal partly restored the addition. The finding of the court was that two opinions were possible on the facts of the case and, therefore, penalty was not leviable. 4.4 Reliance was also placed on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Ajaib Singh & Company (2....
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....nditure incurred for earning the income but it is appropriation of income. Such, however, is not the case in respect of disallowance u/s 14A. The disallowance is contentious in nature particularly before introduction of Rule 8D in the Income-tax Rules, 1962. The ground had also referred to the decision of Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd. (2010) 322 ITR 158. It was submitted that this decision goes in favour of the assessee. The decision is that if all particulars regarding a claim have furnished and no falsity is found therein, then the disallowance of the claim does not lead to inference of furnishing inaccurate particulars of income. 5. We have considered the facts of the case and submissions....
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....ts does not lead to inference of concealment of income and (c) the penalty is not leviable when there is honest difference of opinion between the assessee and the authorities in respect of admissibility of a claim. 5.1 In so far as proposition at (a) above is concerned, the same stands displaced by the decision of Hon'ble Supreme Court in the case of Union of India Vs. Dharmendra Textile Processors (2008) 306 ITR 277. It has been held in this case that the penalty is levied for compensating the revenue on account of a wrong claim made by the assessee and it is civil in nature. Coming to the proposition at (b) above, claim of interest and expenditure finds a mention in the profit and loss account. As such no further facts have been furnishe....