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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM & SHRI OM PRAKASH KANT, AM
O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the assessee against the order of the Ld. CIT(A)(NFAC) dated 27.08.2021 for the assessment years 2013-14 & 2014-15 confirming the penalty levied u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter “the Act”). Since the facts and law involved are similar/identical, the order of AY 2013-14 will be followed in the case of AY 2014-15.
Brief facts of the case are that the assessee had filed return of income for A.Y 2013-14 on 14.09.2013 disclosing total income of Rs. Nil. Later, the case was selected for scrutiny. The AO framed the assessment order u/s 143(3) of the Act on 11.03.2016 determining assessed income of Rs.9,37,440/- by making an addition of Rs.21,49,641/- to the total income of the assessee on account of disallowance made u/s 14A of the Act r.w. Rule 8D of the Income Tax Rule, 1962 (hereinafter “the Rules”). Aggrieved, the assessee preferred
ITA Nos. 1881 & 1882/Mum/2021 A.Y. 2013-14 & 2014-15 Radhika Dipan Mehta an appeal before the Ld. CIT(A) who confirmed the action of the AO. Aggrieved, the assessee preferred an appeal before this Tribunal; and the Tribunal vide its order in dated 26.07.2018 directed the AO to delete excess disallowance of interest to the tune of Rs.9,53,279/- by giving credit for the investment made out of the interest free funds borrowed from the spouse. Thus, the Tribunal confirmed the addition only under the under Rule 8D(2)(iii) of the Rule. Thus, the Tribunal allowed the quantum appeal of the assessee partly. Thereafter, the AO initiated penalty u/s 271(1)(c) of the Act and issued the notice dated 22.02.2019 which was served upon the assessee on 27.02.2019 wherein there was a direction for the assessee appear on the same day i.e 27.02.2019 and that the penalty order u/s 271(1)(c) of the Act was passed on 28.02.2019 the very next day. The assessee for AY 2013-14 has exempt income (dividend) to the tune of Rs.30,37,730/- and suo moto made disallowance of Rs.10,481/- which was not accepted by the AO who applied Rule 8D and added Rs.21.49 lakhs. The Tribunal directed deletion of Rs.9,53,279/- computed under Rule 8D(2)(ii) of the Rules because the Tribunal noted that assessee had made investment out of interest free funds borrowed from her spouse. According to Ld. AR, first of all, the AO has passed the penalty order u/s 271(1)(c) of the Act without giving sufficient time to the assessee and it was brought to our notice that the AO had not given any effect to the order of the Tribunal dated 26.07.2018 wherein part relief was granted to the assessee as discussed (supra) and according to him, the AO has erroneously held that the assessee had furnished inaccurate particulars of income chargeable to tax to the tune of & 1882/Mum/2021 A.Y. 2013-14 & 2014-15 Radhika Dipan Mehta Rs.10,21,310/- and levied 100% tax sought to be evaded at Rs.3,15,585/- u/s 271(1)(c) of the Act. According to Ld AR, the AO ought not to have levied penalty when disallowance was made merely by applying the formula given in Rule 8D, and for that proposition the Ld. AR relied on the decision of the Hon’ble supreme Court in the case of CIT vs. Reliance Petroproducts (P.) Ltd. (2010) 322 ITR 158 (SC) wherein the head-note reads as under: - “For the relevant assessment year, the assessee-company filed its return of income claiming interest expenditure in respect of loan incurred by it for purchasing shares by way of its business policies. The Assessing Officer disallowed said expenditure under section 14A and simultaneously levied penalty under section 271(1)(c) on account of concealment of income/furnishing of inaccurate particulars of income. On appeal, the Commissioner (Appeals) deleted the penalty. The Tribunal confirmed the order of the Commissioner (Appeals). The revenue's appeal to the High Court was also dismissed. On appeal to the Supreme Court: HELD A glance of provision of section 271(1)(c) would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The instant case was not the case of concealment of the income. That was not the case of the revenue either. It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars. [Para 7] ITA Nos. 1881 & 1882/Mum/2021 A.Y. 2013-14 & 2014-15 Radhika Dipan Mehta Therefore, it must be shown that the conditions under section 271(1)(c ) exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed, because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. [Para 8] The word 'particulars' must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c). A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. [Para 9] The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was argued that the falsehood in accounts can take either of the two forms: (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. Such contention could not be accepted as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that, by itself, would not attract the penalty under section 271(1)(c). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature. [Para 10] Therefore, the appeal filed by the revenue had no merits and was to be dismissed.”
The Ld. AR also drew our attention to the decision of the Co- ordinate bench of this Tribunal in wherein similar disallowance u/s 14A of the Act was made by the AO and & 1882/Mum/2021 A.Y. 2013-14 & 2014-15 Radhika Dipan Mehta consequently penalty proceedings were initiated and levied u/s 271(1)(c) of the Act which was confirmed by the CIT(A) and this Tribunal was pleased to delete the same. The Tribunal was pleased to delete the penalty levied u/s 271(1)(c) of the Act on the issue of disallowance u/s 14A of the Act on the ground that the issue relating to the disallowance u/s 14A of the Act was debatable.
In the light of the aforesaid case laws, the Ld. AR wants us to delete the penalty for both the assessment years. Per contra, the Ld. DR supported the decision of the lower authorities and contended that the penalty has been rightly levied against the assessee and does not wants us to interfere with the order of the Ld. CIT(A).
We have heard both the parties and perused the records. We note that the issue relating to the disallowance to be made u/s 14A of the Act though brought in the statute by Finance Act, 2001 and Rule 8D of the Rules is not applicable prior to 2007 when this Rule was inserted and has been held to be prospective in nature and the nuances of section 14A and Rule 8D was settled by the Hon’ble Supreme Court only after the decision of the Hon’ble Supreme Court on February 12, 2018 in the case of Maxopp Investment Ltd. Vs. CIT reported in (2018) 402 ITR 640 (SC) and the assessment years before us are that of AYs 2013-14 & 2014-15 wherein penalty has been levied u/s 271(1)(c) of the Act. We note that the assessee had furnished the details relating to the earning of dividend income to the tune of Rs.30,37,730/- and suo-motto had offered Rs.10,481 for earning of exempt income and contented that she was the promoter/director of a company M/s. Axis Capital Market Ltd. and being the promoters has & 1882/Mum/2021 A.Y. 2013-14 & 2014-15 Radhika Dipan Mehta made strategic investment to have controlling interest only and earning exempt income was not the intention per-se of the assessee and on the aforesaid back drop, the assessee claimed that no expenditure was incurred on the strategic investment made and therefore offered suo motto expences to the tune Rs 10,481/- and objected to disallowance u/s 14A r.w. Rule 8D and relied on the decision of this Tribunal J.M. Financial Ltd. Vs. ACIT 4(3) & Garware Wall Ropes Ltd. Vs. CIT - 5(11) Mumbai. However, in the quantum assessment, the AO did not accept the contention and he was of the opinion which he has discussed as under: - “4,4 The contention of the assessee is perused. The case-laws referred to by the assessee are also considered. In the case of JM Financial Ltd as referred above, the court has held that since the no expenditure was incurred for maintaining the 98% of the strategic investment made in the subsidiary companies, the disallowance made by the AO is not justified. In the case of Garware Wall Ropes Ltd, the Hon'ble (ITAT has held that since the investment in the group concerns were made by the assessee long back, the assessee did not incur any expenditure for the relevant f year in holding these Investments,. The facts of this case are entirely different from the cases relied upon by the assessee.”
And thereafter the AO after perusal of the balance-sheet (which he has reproduced), computed the disallowance by applying Rule 8D(2)(ii) to the tune of Rs.25,02,256/- & 8D(2)(iii) of Rs.18,16,140/- (total of Rs.21,49,641/)-. On appeal, Ld. CIT(A) confirmed it. And the Tribunal directed AO to reduce the interest free funds borrowed from assessee’s spouse and thus the total disallowance comes to Rs.10,21,310/-. Thus, assessee got part relief. But AO has levied penalty u/s 271(1)(c) of the Act alleging furnishing of inaccurate & 1882/Mum/2021 A.Y. 2013-14 & 2014-15 Radhika Dipan Mehta particulars of income chargeable to tax and levied Rs.3,15,585/-. However, we do not countenance this action of AO/CIT(A). We are unable to find that the assessee had furnished inaccurate particulars of income. The only basis of levying the penalty u/s 271(1)(c) of the Act was that the claim of the assessee that expenditure incurred for earning exempt income was only to the tune of Rs.10,481/- and no disallowance was warranted because investment was for strategic control of M/s. Axis Capital where she was promoter director. And her claim was based on the ratio of the decision Tribunal in two cases cited (supra), which was not acceptable to AO. So it was urged before us that assessee’s claim of no disallowance to earn exempt income was based on Tribunal view in similar cases (supra), so it is debatable issue. And the Hon’ble Supreme Court settled the issue that disallowance in such cases may be made (strategic investment) u/s 14A of the Act only after 12 Feb, 2018 (Refer Maxopp supra). So the question of levy of penalty u/s 271(1)(c) of the Act on a debatable issue when the levied was not settled is unsustainable simply because the claim of expenses u/s 14A of the Act was not accepted by the AO. Moreover, we note that the Hon’ble Supreme Court has held in the case of CIT vs. Reliance Petroproducts (P.) Ltd. (2010) 322 ITR 158 (SC) that the “…..The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot be the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing of inaccurate & 1882/Mum/2021 A.Y. 2013-14 & 2014-15 Radhika Dipan Mehta particulars……” In the light of the facts and case laws discussed, we note that AO/CIT(A) could not point out as to what was the inaccurate particulars furnished by the assessee’s while claiming during quantum assessment proceedings that only Rs.10,481/- was expended to earn the exempt income of Rs.30,37,730/-. The AO did not accept the claim and applied Rule 8D for computing the disallowance u/s14A of the Act, and after picking up figures from the balance sheet filed by the assessee, had computed the disallowance by applying the formula given in Rule 8D, which was in-turn reduced by the ITAT. In such a scenario, in the absence of AO/CIT(A) spelling out what was the inaccurate particulars furnished by the assessee regarding expenses incurred for earning exempt income, just because they don’t agree with the claim of assessee that only Rs 10,481/- was incurred as expenses for earning exempt income, cannot be the basis for levy of penalty u/s 271(1)(c) of the Act especially because there was no inaccurate particulars filed by the assessee. Mere claim of assessee on this issue which was not accepted by the AO/CIT(A) cannot per-se invite penalty u/s 271(1)(c) of the Act as held by Hon’ble Supreme Court in Reliance Petro-products (supra). Therefore, the penalty levied u/s 271(1)(c) of the Act was not sustainable. So the penaly levied u/s 271(1)(c) of the Act is directed to be deleted. For AY 2014-15 since the facts and law are the same, the assessee’s appeal is allowed and therefore we direct the deletion of penalty for AY 2014-15 also. & 1882/Mum/2021 A.Y. 2013-14 & 2014-15 Radhika Dipan Mehta 7. In the result, the appeals of the assessee are allowed. Order pronounced in the open court on this 24/06/2022.