SMT. AABHADEVI AGRAWAL,BURHANPUR vs. INCOME TAX OFFICER, BURHANPUR

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ITA 628/IND/2017Status: DisposedITAT Indore30 October 2018AY 2010-1113 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the penalty notice was defective as the AO failed to tick the relevant clause for the default. It also found merit in the assessee's contention that no expenses were incurred for earning exempt income, thus the AO was not justified in invoking Section 14A for penalty.

What were the facts?

The assessee's case was selected for scrutiny, and additions were made under Section 41(1) and Section 14A. The Assessing Officer (AO) initiated penalty proceedings under Section 271(1)(c). The CIT(A) deleted the penalty related to Section 41(1) but confirmed it for the Section 14A disallowance.

What were the issues?

Whether the penalty notice under Section 271(1)(c) was validly issued and whether penalty could be levied for disallowance under Section 14A when no expenses were incurred for exempt income.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 14A,Section 41(1)

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Income Tax Appellate Tribunal, INDORE BENCH, INDORE

Before: SHRI KUL BHARAT & SHRI MANISH BORAD

For Appellant: Shri S.N. Agrawal & Shri Pankaj
For Respondent: Shri Yogesh Mishra, DR
Hearing: 18.10.2018Pronounced: 31.10.2018

आदेश / O R D E R PER KUL BHARAT, J.M: This appeal by the assessee is directed against order of

the CIT(A)-II, Indore dated 8.6.2017 pertaining to the

assessment year 2010-11. Assessee has raised following

grounds of appeal:

1. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the penalty as levied by the Ld. A.O. u/s 271(1)(c) of the Income Tax Act on account of furnishing of inaccurate particulars of income even when the assessee has not furnished any inaccurate particulars. Hence, the very basis of levy of penalty was wrong, the same now requires to be cancelled in full. WITHOUT PREJUDICE TO THE ABOVE

2.

That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the penalty as levied by the A.O. u/s 271(1)(c) of the Income Tax Act on disallowance as made u/s 14A of the Act of Rs.1,83,889/- even when on the facts of the present case, the same is not justified. 3. The assessee reserves its right to add, modify or amend the grounds of appeal as and when required. 2. Briefly stated facts are that case of the assessee was

picked up for scrutiny assessment and the assessment u/s

143(3) of the Income Tax Act, 1961 (hereinafter called as

‘the Act’) was framed vide order dated 12.3.2013. While

framing the assessment, the A.O. made addition on

account of cessation of liability and addition on account of

invoking the provisions of section 14A of the Act. The A.O.

also initiated penalty proceedings u/s 271(1)(c) of the Act.

Subsequently, the A.O. vide order dated 23.12.2015 levied

penalty of Rs.9,63,740/- on these two additions. The

assessee aggrieved by this, preferred an appeal before Ld.

CIT(A), who after considering the submissions, partly

allowed the appeal. Thereby, the Ld. CIT(A) deleted the

penalty in respect of addition made u/s 41(1) of the Act as

in quantum proceedings, same was deleted by the

Tribunal. However, the addition made by invoking

provisions of section 14A of the Act of Rs.1,83,889/- was

retained. Against this, the assessee is in present appeal.

3.

Ground No.1 of the assessee’s appeal reads as under:

1.

That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the penalty as levied by the Ld. A.O. u/s 271(1)(c) of the Income Tax Act on account of furnishing of inaccurate particulars of income even when the assessee has not furnished any inaccurate particulars. Hence, the very basis of levy of penalty was wrong, the same now requires to be cancelled in full. Ld. Counsel for the assessee submitted that the

initiation of penalty and imposition thereof is bad in law.

He reiterated the submissions as made in the written

submissions. The synopsis of written submissions is

reproduced as under:

4. Ground No.1 of the assessee’s appeal is against validity of the notice issued for initiation of penalty u/s 271(1)(c) of the Act. It is stated that the initiation of penalty is bad in law as the initiation is based on furnishing of inaccurate particulars of income. It is also stated that in view of the judgement of the Hon'ble Karnataka High Court in the case of Shri S. Chandra Sekhar Vs. ACIT 336 of 2016 dated 15.2.2017, penalty cannot be sustained. The Ld. Counsel for the assessee has taken us through the penalty notice, which is enclosed at paper book 33, wherein there are three defaults mentioned and the A.O. has failed to tick the relevant clause.

5.

Ld. D.R. opposed these submissions.

6.

Under these facts, we find merit in the contention of the assessee that the notice issued is defective for initiation of penalty and is against ratio laid down by the Hon'ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton & Ginning Factory 359 ITR 565. Therefore, the proceeding so initiated is against the law laid down by the Hon'ble Karnataka High Court. Accordingly, Ground No.1 in the appeal of the assessee is allowed.

7. Ground No.2 is against confirming the penalty on the disallowance made u/s 14A of the Act. Ld. Counsel for the assessee reiterated the submissions as made in the written submissions. It is stated that the assessee is a proprietor of M/s. Narendra Cot Fiber Industries and declared proprietorship concern in the return of total income of Rs.74,095,70/-. In addition to the above, the assessee is also having income as share of profit from 3 different firms. It is stated that the assessee in the return of total income has not claimed any deduction against share of profit from firm. These facts can also be verified from the computation of total income. The assessee has not advanced any amount from her proprietorship concern as a capital contribution in any of her partnership firm. It is further stated that it is incumbent upon the A.O. to report the specific reasons whether any expenses in connection with capital contribution were debited in the books of accounts or not. A bear perusal of the assessment order, it is clear that no such finding was recorded by the A.O. in respect of expenses so incurred. Ld. A.R. further reiterated the submissions as made in the written submissions.

8. Ld. D.R. opposed the submissions and supported

the order of the authorities below.

9.

We have heard the rival submissions, perused the

materials available on record and gone through the orders

of the authorities below. It is stated by the assessee that

the A.O. by invoking the provisions of section 14A of the

Act has not recorded satisfaction as required u/s 14A of

the Act. It is submitted that no expenses were incurred for

earning the exempt income and therefore, the A.O. was not

justified in invoking the provisions and in levying penalty.

In support of this, the assessee has relied upon the

decision of the coordinate bench in the case of CIT Vs.

Nalwa Investments in ITA No.3805/Del/2010. The

coordinate bench of this Tribunal has decided the issue by

observing as under:

10.

Therefore, following the decision of the Tribunal,

we direct the A.O. to delete the penalty.

11.

In the result, the appeal filed by the assessee is

allowed.

Order was pronounced in the open court on 31 .10.2018.

Sd/- Sd/- (MANISH BORAD) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIALMEMBER

Indore; �दनांक Dated : 31/10/2018 VG/SPS

Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order

Assistant Registrar, Indore

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