TaxTMI 
TaxTMI 
2017 (1) TMI 1142
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....ction 143(3) of the Act vide order dated 29.12.2010 wherein the assessee's income was determined at Rs. 2,54,54,98,190/- in view of, inter alia, the following additions/disallowances: - (i) Dividend stripping u/s. 94(7) Rs. 50,03,626/- (ii) Disallowance u/s. 14A r.w. Rule 8D Rs. 18,39,11,187/- Penalty proceedings under section 271(1)(c) of the Act were simultaneously initiated by the AO for furnishing of inaccurate particulars of income. 2.2 On appeal, the learned CIT(A) upheld the disallowance under section 14A r.w. Rule 8D to the extent of Rs. 3,68,74,513/- (i.e. Rs. 18,39,11,187 less Rs. 14,70,25,674). The AO's adverse findings under section 94(7) of the Act amounting to Rs. 50.03,626/- on account of dividend stripping was not challenged by the assessee. 3.1 In penalty proceedings, the AO vide order dated 25.03.2013 for A.Y. 2008-09 imposed penalty of Rs. 4,90,84,194/- under section 271(1)(c) of the Act on the assessee on two counts: - (i) Addition of Rs. 50,03,626/- under section 94(7) (ii) Disallowance of Rs. 3,68,85,513/- under section 14A r.w. Rule 8D 3.2 Aggrieved by the order of the AO levying penalty of Rs. 1,90,84,194/- under....
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....enalty u/s.271(1)(c) of the Income Tax Act, 1961 of Rs. 1,90,84,194/- imposed by the Assessing Officer without properly appreciating the factual and legal matrix of the case as clearly brought out by the Assessing Officer in the Order imposing penalty. (ii) The Learned CIT(A) has erred on facts and in law without appreciating the fact that if the case of the assessee had not been picked up for scrutiny the assessee would have not withdrawn the patently wrong claim of deduction and therefore ratio decendi of Supreme Court in case of Mak Data Pvt. Ltd. Vs. CIT 2013) 40 SCD 925 as reported in Civil appeal No.9772 of 2013 clearly applies. (iii) The Ld. CIT appeal has erred in law and on facts in not appreciating that the furnishing of inaccurate particulars /concealment of income is to be reckoned with reference to the returned income and the fact of withdrawal of loss claimed was irrelevant in this regard. 2. The Ld.CIT(A)'s order is contrary to law and on facts and deserves to be set aside and A.O 's order may be restored. 3. The appellant craves leave to amend or after any ground or add a new ground that may be necessary." 4.1 The learned D.R. for Revenue was ....
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....ed CIT(A) deleted the disallowance to the extent of Rs. 14,70,25,674/-. It is contended that in the factual circumstances as laid at above, it is nobody's case that this was a case of furnishing of inaccurate particulars of income or concealment of particulars of income on the part of the assessee. In support of this proposition reliance was also placed on the decision of the Hon'ble Apex Court in the case of Reliance Petroprodcuts Pvt. Ltd. (2010) 332 ITR 158 (SC). It is submitted by the learned A.R. of the assessee that in view of the above factual and legal position of the case, no penalty was leviable under section 271(1)(c) of the Act and prayed that the impugned order of the learned CIT(A) in deleting the penalty be upheld. 4.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. In the impugned order, the learned CIT(A) after considering the assessee's submissions, the AO's view in the matter and the judicial pronouncements cited, deleted the penalty of Rs. 1,90,84,194/- holding as under at paras 3 & 4 as under: - 3. By taking ground nos. 1 to 4, the appellant have basically ....
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....y regarding treating of short term capital gain as business income by the Assessing Officer. It is, therefore, pertinent to note that the assessee has accepted the decision taken by the A.O. in this regard also. Further the assessee by replying upon various judgements has tried to justify that there was no intentional concealment of income or furnishing inaccurate particulars of income." 3.2 Then the A.O. having relied upon decisions given in the case of Union of India vs. Dharmendra Textile Processors & Others (2008) 306 ITR 277 held that penalty being a civil offence mens rea is not required to be proved and hence the plea taken by the assessee that the deduction claimed by them or disallowance made by them u/s. 14A, though on the lower side were not willful and there is no falsehood in their accounts is not acceptable. The A.O. then relying upon the decision given in the case of CIT vs. Gates 91 1TR 467, Cement Distributors vs. CIT 60 ITR 586, CIT vs. Premier Breweries 244 ITR 598, CIT vs. Vilasben 192 ITR 214, CIT vs. Abdulgafur 199 ITR 827 and CIT vs. Vidhyagauri 238 ITR 91, levied penalty @ 100% of the tax sought to be evade so, at Rs. 1,90,84,194/-. 3.3 During....
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.... (a) any person buys or acquires any securities or unit within a period of three months prior to the record date ; (b) such person sells or transfers - (i) such securities within a period of three months after such date; or (ii) such unit within a period of nine months after such date (c) the dividend or income on such securities or unit received or receivable by such person is exempt, then the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend of income received or receivable on such securities or unit shall be ignored for the purposes of computing his income chargeable to tax." 3.6 In this case, facts on record show that the company came into existence on 10.07.2007, meaning thereby the first year of assessment was 2008-09. The appellant have also furnished details of shares purchased by them, which they considered as their investment. The record date and date of incorporation of the appellant are very much in proximity, so much so that any interval between the two is barely of two months. The appellant have also given the period of holding of these shar....
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....ferent interpretation. Again for the reason that Sec. 14A being a section attracting statutory disallowance does not attract penalty u/s.271(1)(c), as all the details were duly disclosed and in fact the working was also given by the appellant, where the quantum of disallowance changed due to different interpretations made by the A. O., which was reduced at the level of 1st Appellate authority itself. On these given facts and in these given circumstances, again 14A disallowances being statutory in nature, I am of the view that penalty u/s.271(1)(c) is not leviable and hence penalty levied by taking into account disallowances made u/s.14A r.w. Rule 8D are deleted. The ground nos.1,2,3 and 4 are allowed. 4. In the result, the appeal is allowed." 4.3.2 On an appreciation of the submissions put forth, the material on record, including the judicial pronouncements, it is seen that the year under consideration was the year in which the assessee company came into existence (i.e. w.e.f. 10.07.2007) and it was engaged in the business of trading in shares and securities, which activity was undertaken in large volumes. The facts of the activities carried out and income/loss declared in su....
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....ich were hit by the provisions of section 94(7) of the Act. The assessee, in response, worked out the details of the disallowance at Rs. 6,70,776/- and offered the same for tax. After making this disallowance, the A.O. initiated the penalty proceedings and imposed the penalty of Rs. 2,25,783/- @ 100% of the tax amount sought to be evaded. 3. It was argued by ld. AR that exactly similar issue was dealt by the Tribunal in the case of City Group Global Markets India Pvt. Ltd., ITA No.5352/Mum/2009, dated 13-12-2011, wherein penalty imposed u/s.271(1)(c) for additions made with reference to disallowance made under Section 94(7) was deleted after having the following observations :- "5. In our view this does not attract penalty under section 271(1)(c). First of all the assessee is regularly purchasing and selling shares as part of business activity in large volumes and only in these two cases there is a declaration of dividend and sale of shares immediately thereafter, which attracted the provisions of section 94(7). But for the declaration of dividend, the loss would have become business loss allowable otherwise in the course of its business activity of purchase and sale of....
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....point it out. However at the time of assessment proceedings, when the details of purchase and sale of shares and units were called for in the course of ordinary hearing, the assessee furnished complete particulars of transactions. During these proceedings, the said mistake was realized and the assessee agreed before the A.O. to disallow the said amount. Since assessee has agreed for disallowance, no show cause notice was issued by the A.O. in this regard. The disallowance was made as per the working submitted by the appellant, which has been accepted by the A.O. Also, against the said disallowance, no appeal is filed by the assessee. It is a case of an inadvertent mistake made by the assessee, and the assessee agreed for disallowance at the time of assessment proceedings. Accordingly, no penalty u/s.271(1)(c) of the Act was warranted. Putting these facts to the proposition of law discussed by coordinate bench in the case of City Group Global Markets India Pvt. Ltd(supra), we do not find any merit in the penalty so imposed by the AO u/s.271(1)(c) of the Act with respect to the disallowance made under of Section 94(7) of the Act. 5. Similar view has been taken by the ITAT Mumbai b....