ACIT, ROHTAK CIRCLE, ROHTAK vs. PEAREY LAL & SONS (E.P.) PVT. LTD.,, NEW DELHI

Before us, ld. counsel for the assessee submitted that insofar as the issue of disallowance of depreciation is concerned, the same stands deleted by the Tribunal in order dated 31.01.2019. Thus, on this addition, no penalty is leviable.

On the issue of disallowance made u/s 14A, he submitted that out of total disallwocne of Rs.29,91,405/- made by the AO on which penalty has been levied, now the addition u/s 14A is restricted to only Rs.2,70,481/-. On this, he submitted that assessee’s claim before the AO was that no expenditure has been incurred for earning of exempt income, however, during the course of assessment proceedings, the assessee had calculated 0.5% of the average value of investment under Rule 8D(2)(iii) of Rs.2,70,481/- and nowhere it is found that assessee has submitted inaccurate particulars of income or concealed any income.

On the other hand, ld. DR for the Revenue relied upon the order of the AO and ld. CIT (A).

After considering the aforesaid submissions and on perusal of the impugned orders as well as order of ITAT, we find that here in this case, penalty has been levied by the AO on disallowance of depreciation of Rs.2,03,84,058/- which was added back on account of alleged double claim of depreciation; and Rs.29,91,405/- on account of disallowance made u/s 14A read with Rule 8D. Now, in the quantum proceedings, the Tribunal on the issue of disallowance of excess depreciation, the Tribunal has deleted the said disallowance holding that the AO had not understated the correct treatment of the book adjustment as the above item was credited to profit and loss account which is merely a book adjustment by which the profit in the books of account have gone up and it does not have any tax impact. Thus, on this addition/disallowance, penalty cannot be sustained and the same is directed to be deleted.

Insofar as disallowance u/s 14A is concerned out of total disallowance of Rs.29,91,405/-, the Tribunal has deleted most of the disallowance mainly on account of interest on the ground that assessee has huge surplus fund for making the investment on which no disallowance can be made, however the Tribunal directed to restrict the disallowance to Rs.2,70,184/- on account of indirect expenses which the assessee had offered during the course of assessment proceedings. From the perusal of the assessment order, we find that on the issue of indirect expenditure, the AO has not recorded any satisfaction as to why disallowance under Rule 8D(2)(iii) is to be made and he mechanically applied Rule 8D(2)(iii) simply because assessee has offered during the course of assessment proceedings but that does not mean assessee has furnished any inaccurate particulars of income or has concealed the income. Accordingly, no penalty is leviable on this addition also.

In the result, the appeal filed by the Revenue is dismissed. Order was pronounced on 3rd day of March, 2022.