2012 (7) TMI 1010

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....diture u/s.14A. 2. The A.O. has levied the penalty on several accounts, however the issue before us is only the issue of penalty on disallowance of Rs. 66,31,05,360/- made u/s.14A out of administrative and other expenses for earning the exempt dividend income of Rs. 23,77,75,384/- and exempt interest income of Rs. 2,32,81,13,284/-. The assessee had made elaborate submission on this issue and explained before the A.O. that it had not incurred any expenditure for earning the exempt income during the assessment proceedings. 3. During the course of the penalty proceedings also the assessee had submitted that investment giving rise to exempt income were made out of internal accrual and owned funds and, therefore, no part of the interest an....

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....ation to tax free income, they were under bonafide belief that no disallowance is possible. To my mind, it is not justified. Appellant has substantial tax free income amounting to Rs. 194.23 crores. It cannot be said that none of expenses can be attributed to earning of this income. There is nothing bonafide about the claim that there were no direct expenses. Consequently, the disallowance made by Assessing Officer is directly hit by Explanation 1 to section 271(1)(c). The penalty on the disallowance out of administrative expenditure is, therefore, held to be justified. The order of this extent is confirmed." 5. The learned Sr. Counsel on behalf of the assessee submitted that the assessee's explanation has not been found to be incorrect ....