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2014 (3) TMI 1161

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....as the CIT(A) has accepted assessee's argument qua the latter head. 3. The assessee is a 'company' engaged in the business of strategic investment and consultancy services. On 31.10.2007, it had filed its return disclosing income of Rs. 58,52,69,148/- which was 'summarily' processed. Thereafter, the Assessing Officer framed assessment in its case u/s 143(3) r.w.s 92CA further r.w.s 144C(10) of the Act. Therein, he noticed the assessee to have declared 'exempt' income arising from mutual funds of Rs. 47,46,25,883/-. The assessee had claimed interest expenses of Rs. 28,00,34,434/- during the relevant accounting period. On its own, it had disallowed a sum of Rs. 9,12,24,848/- qua 'exempt' income. In assessment order dated 30.10.2011, the Assessing Officer proceeded to make disallowance to the tune of Rs. 8,22,92,012/- in addition to the one already made. Accordingly, the impugned addition was made in assessee's income. The Assessing Officer further observed that assessee's act in not computing appropriate disallowance amounted to concealment and furnishing of inaccurate particulars of income which attracted initiation of penalty proceedings u/s 271(1)(c) of the Act. There is no dispu....

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....filed by the AR of the appellant, the appellant stated that the assessee went in appeal against the order of assessment dated 24.12.2010 passed u/s 143(3) r.w.s 92CA(4) r.w.s144C(10) of the IT Act, 1961 and Hon'ble ITAT in ITANo.2161/Mds/2011 deleted the disallowance of interest of Rs. 6,99,13,379/- and restricted the disallowance of expenditure u/s 14A from Rs. 8,22,92,012/- to Rs. 2,00,00,000/-and further claimed that the penalty is not leviable on the issues which were deleted in the appeal. It is further stated by the AR of the appellant, the penalty u/s 271(1)(c) is not valid even on the disallowance confirmed by the ITAT on the ground that the issue is debatable and subject to more than one interpretation. The AR of the appellant relied upon the ratio of the Apex Court decision in the case of M/s Reliance Petroleum P Ltd. 230 CTR 320 where the Hon'ble Court held that mere rejection of the claim of the tax payer cannot be subjected to penalty. On the other hand the AO levied penalty on the upward adjustment of Rs. 6,99,13,379/- and also on the disallowance of expenditure Rs. 8,22,92,012/- u/s 14A. In the assessment order, the AO has computed the proportionate expenses ....

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....erest expenditure which was already disallowed in the return of income. The relevant portion of section 14A and the provisions of the sec.271(1)(c) of the IT Act is reproduced herewith for ready reference: Sec. 14A(1): For the purpose of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act. (2)The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3)The provisions of sub-section(2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act. sec.271(1)(c) : 271(1) If the Assessing Of....

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....is liable for penalty u/s 271(1)(c) of the IT Act under clause B of explanation 1 to the section 271(1)(c) of the IT Act on the amount of concealment of Rs. 2,00,00,000/-. While doing so, the reliance is placed on the ratio of Hon ' ble Supreme Court decision In the case of Sri K.P.Madhusudhan vs. CIT reported in 251 ITR 99 (SC). The facts of the case decided by Apex Court in the case of Reliance Petro Products Ltd. 230 CTR 320 are different from the facts of the present in the case. The Apex Court; in the case of Reliance Petro Products has considered the second limb of the section 271(1)(c) ie. whether the assessee furnished inaccurate particulars of income and arrived at the conclusion on the basis of the facts already in the return and found that no fault has been found with the particulars submitted by the assessee in its return. In the present case, the appellant claimed that no management expenses were incurred for earning exempt income while filing return of income when in fact the assessee had huge infrastructure facility and claimed huge expenditure in the P&L account which was also meant for earning exempt Income. Such claim of huge expense was not reflected in the r....