M/S RAJASTHAN STATE INDUSTRIAL DEVELOPMENT AND INVESTMENT CORPORATION LTD.,JAIPUR vs. DCIT, CIRCLE-6, JAIPUR, JAIPUR

Particulars Addition/ Addition/ Addition/ Disallowance Disallowanceremained Disallowance made by AO after CIT(A) order remained after ITAT Order Contribution to State 20,00,000 Nil Nil Renewal Fund Contribution to 5,00,00,000 5,00,00,000 Nil construction of Rajasthan Bhawan Contribution to Center for 2,00,00,000 Nil Nil Development of Stones (CDOS) Prior period expenses 36,73,140 Nil Nil CSR expenses 6,41,42,000 6,41,42,000 1,41,42,000 Deduction u/s 80IA 15,33,95,189 Nil Nil Disallowance u/s 14A 71,75,575 71,75,575 71,75,575 Service Tax Receivable 1,93,00,000 1,93,00,000 Set aside Excess provision of IT 8,10,90,469 Nil Set aside written back Disallowance of deduction 3,72,56,000 Nil Set aside on account of reduction in nature of land under litigation Short credit of TDS 1,44,565 Nil Nil Thus after the order of ITAT dt.10.04.2018 (PB 18-83), following disallowance made by the AO stood confirmed:-

& 310/JPR/2025 RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORATION LTD VS DCIT, CIRCLE-6, JAIPUR Disallowance of CSR Expenses Rs.1,41,42,000/- Disallowance u/s 14A Rs. 71,75,575/- After the order of Hon’ble ITAT, AO again issued notice dt.14.02.2019 (PB 84) to show cause why penalty u/s 271(1)(c) may not be imposed. The assessee filed reply on 30.03.2019 (PB 85-92). However, AO rejected the explanation of the assessee and held that the assessee has concealed income of Rs.2,13,17,575/- (1,41,42,000 + 71,75,575/-) and thus imposed penalty of Rs.72,45,844/-, being 100% of the amount of tax sought to be evaded. 3.3 In appeal before Ld. CIT(A), assessee filed detailed submission challenging the legality of order passed by AO u/s 271(1)(c) and also on merits. The Ld. CIT(A), however, without deciding the legal ground of assessee, confirmed the levy of penalty by applying Explanation 1 to section 271(1)(c) by holding that the amount of Rs.2,13,17,575/- added or disallowed by the AO which has reached finality in computing the total income of the assessee shall, for the purpose of clause (c) of this sub-section (1) of section 271 be deemed to represent the income in respect of which particulars have been concealed. The relevant observation of the ld. CIT(A) at para 7.6 is reproduced as under:- ‘’7.6 In view of the discussion above and binding precedents, I am of the view that the issue involved in the appellant's case is attracting penalty u/s 271(1)(c)/Explanation of the Act. Under the facts and the circumstances of the case, the AO is justified in levying penalty u/s 271(1) (c) of the Act as the appellant had furnished inaccurate particulars of income and the appellant has offered an explanation which he has failed to prove to be bona fide and he has failed to prove that all the facts relating to the same and material to the computation of his total income have been disclosed by him. Therefore, the amounts of Rs. 2,13,17,575/- added or disallowed by the AO which has reached finality in computing the total income of the assessee shall, for the purpose of clause (c) of this subsection (1) of section 271, be deemed to represent the income in respect of which particulars have been concealed. Thus, I confirm the penalty levied by the AO of Rs. 72,45,844/- u/s: 27:1(1)(c) of the Act, being 100% of the tax sought to be evaded.’’ During the course of hearing, the ld. AR of the assessee has filed the 3.4 following detailed written submission with the prayer that the penalty confirmed by the ld. CIT(A) needs to be deleted. Submission:-

1.

1. At the outset it is submitted that in the body of the assessment order u/s 143(3) dt.31.12.2015 wherever any addition/ disallowance is made, there is no reference of initiation of penalty proceedings though in para 11 of the order penalty proceeding is stated to be initiated against certain additions for furnishing inaccurate particulars of income. Howeverat the end of the assessment order it is stated that penalty proceedings u/s 271(1)(c) have been initiated separately. Along with the assessment order, noticeu/s 274 r.w.s. 271(1)(c) dt. 31.12.2015(PB 17) is issued stating that it appears that assessee has concealed the particulars of income or furnished inaccurate particulars of income without specifying whether the charge is for concealment of income or for furnishing of inaccurate particulars of income. Thereafter in notice dt.14.02.2019 (PB 84) also the assessee was not made aware of the charge as to whether against the disallowance confirmed by Hon’ble ITAT, the charge is for concealment of income or for furnishing of inaccurate particulars of income. Thereafter atPg 11 of the penalty order AO held that the disallowance represent concealment of income and thus imposed penalty u/s 271(1)(c).

2. From the above facts it is abundantly clear that the AO did not specify as to under which limb of sec. 271(1)(c) the assessee is required to explain his case. In the notice issued u/s 274 read with sec. 271(1)(c), penalty proceedings u/s 271(1)(c) is initiated for concealment of income or furnishing of inaccurate particulars of income. Thus in the absence of any specific charge against the assessee in the penalty notice, consequent penalty imposed by AO is illegal and bad in law. Full Bench of Hon’ble Bombay High Court in case ofMohd. Farhan A. Shaikh Vs. DCIT &Anr. (2021) 200 DTR 65/ 434 ITR 1 (Case laws compilation index PB 1-6) after considering all the decisions available on this dispute till the date of this order held that even if the assessment order clearly records satisfaction for imposing penalty on one or the other or both grounds mentioned in section 271(1)(c), defect in the notice not striking off the irrelevant matter vitiates the penalty proceedings. The assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness. In the present case also, in the penalty notice it is not specified as to for what charge penalty proceedings has been initiated against the assessee. Hence in view of the above decision the penalty order passed by the AO be quashed.

3. Reliance in this connection is further placed on the following cases:- PCIT Vs. Unitech Reliable Projects (P.) Ltd. (2024) 300 Taxman 585 (SC)(Case laws compilation index PB 7) SLP dismissed against order of High Court that where AO had triggered penalty proceedings u/s 271(1)(c) against assessee, it was necessary for him to indicate broadly as to limb under which penalty proceedings were triggered. CIT Vs. SSA’S Emerald Meadows (2016) 242 Taxman 180 (SC)(Case laws compilation index PB 8) Where Tribunal relying on decision of Division Bench of Karnataka High Court rendered in case of CIT Vs. Manjunatha Cotton & Grinning Factory 359 ITR 565, allowed appeal of assessee holding that notice issued by AO u/s 274 r.w.s. 271(1)(c) was bad in law, as it did not specify under which limb of section 271(1)(c) penalty proceedings had been initiated, i.e. whether concealment of particulars of income or furnishing of inaccurate particulars of income and High Court on appeal held that matter was covered by aforesaid decision of Division Bench and therefore there was no substantial question of law arising for determination, there was no merit in SLP filed by revenue and same was liable to be dismissed. PCIT Vs. Blackroak Securities (P.) Ltd. (2024) 297 Taxman 69 (Delhi) (HC)(Case laws compilation index PB 9-13) Where AO initiated penalty proceedings u/s 271(1)(c) without specifying as to whether penalty was being levied on account of concealment of income or for reason that assessee had furnished inaccurate particulars, impugned penalty order had rightly been set aside by Tribunal. PCIT Vs. Shyam Sunder Jindal (2024) 462 ITR 501 (Delhi) (HC)(Case laws compilation index PB 14-15) Where penalty notice issued against assessee was not adverted to any specific limb of section 271(1)(c), thus, Assessing Officer was not clear whether he intended to levy a penalty on assessee for concealment of particulars of his income or furnishing inaccurate particulars, Tribunal was justified in quashing penalty proceedings u/s 271(1)(c) initiated against assessee.

4. It is further submitted that in Para 11 of the assessment order the penalty proceedings is stated to be initiated for “furnishing inaccurate particulars of income” but in the penalty order penalty has been imposed for “concealment of income”. Furnishing inaccurate particulars of income and concealing particulars of income are two separate breaches u/s 271(1)(c) and penalty cannot be imposed for one breach when satisfaction has been recorded for the other breach in the assessment order. Reliance in this connection is placed on the following cases:- Ventura Textiles Ltd. Vs. CIT (2020) 190 DTR 165 (Bom.) (HC) (Case laws compilation index PB 16-18) Proceedings were initiated for furnishing inaccurate particulars of income. However, in the order of penalty, AO held that assessee had concealed its income as well as furnished inaccurate particulars of income. It is trite that penalty cannot be imposed for alleged breach of one limb of sec. 271(1)(c) while penalty proceedings were initiated for breach of the other limb of sec. 271(1)(c). Penalty was therefore not sustainable. Harvinder Singh Vs. ITO (2019) 179 DTR 225 (Asr.) (Trib.) (TM) Where the AO has recorded the satisfaction as regards concealment of particulars of income while initiating the penalty proceedings under sec. 271(1)(c), imposition of penalty for furnishing inaccurate particulars of income is not sustainable. HPCL Mittal Energy Ltd. Vs. Addl.CIT (2018) 169 DTR 1 (Asr.) (Trib.) (TM) The AO cannot initiate penalty on the charge of 'concealment of particulars of income', but ultimately find the assessee guilty in the penalty order of 'furnishing inaccurate particulars of income' (and vice versa). In the same manner, he cannot be uncertain in the penalty order as to concealment or furnishing of inaccurate particulars of income by using slash between the two expressions. Such error is not procedural but goes to the root of the matter and is not saved by s. 292B. The error renders the penalty order unsustainable in law. CIT Vs. Shri Samson Perinchery (2017) 392 ITR 4 (Bom.) (HC) The relevant finding at Para 6 of the order reads as under:- “6. The above submission on the part of the Revenue is in the face of the decision of the Supreme Court in Ashok Pai v/s. CIT 292 ITR 11 [relied upon in Manjunath Cotton & Ginning Factory (supra)] – wherein it is observed that concealment of income and furnishing of inaccurate particulars of income in Section 271(1)(c) of the Act, carry different meanings/ connotations. Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under Section 271(1)(c) of the Act, for initiation of penalty proceedings will not warrant/ permit penalty being imposed for the other breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated/notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground of which the penalty proceedings has been initiated, and it cannot be on a fresh ground of which the Assessee has no notice.” In view of above, penalty levied is illegal and bad in law.

5. Without prejudice to above the penalty order passed by AO is barred by limitation. This is because section 275(1)(a) which provides the time period within which the penalty can be imposed reads as under:- “275. (1) No order imposing a penalty under this Chapter shall be passed— (a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A or an appeal to the Appellate Tribunal under section 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, whichever period expires later: Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A, and the Commissioner (Appeals) passes the order on or after the 1st day of June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, whichever is later; From the plain reading of the section it is evident that no penalty order can be passed after the six months from the end of the month in which the order of the CIT(A) or appellate tribunal is received by the commissioner, whichever periods expires later or after the expiry of the FY in which the proceedings for imposition of penalty has been initiated are completed or after one year from the end of the FY in which the order of CIT(A) is received by the commissioner whichever is later. In the present case, the order of the CIT(A) is dt.20.03.2017 and therefore the period of one year from the end of FY 16-17 expire on 31.03.2018. Further the order of Hon’ble ITAT dt.10.04.2018and therefore the period of 6 months expire on 31.10.2018. It may be further noted that once the Hon’ble ITAT passes the order the limitation period has to be determined with reference to section 275(1)(a) and not with the reference to the proviso to section 275(1)(a). Hence the penalty order should have been passed before 31.10.2018 and therefore the penalty order dt.31.03.2019 passed by AO is clearly barred by limitation.

DainikBhaskar Corporation Limited Rs. 10,00,000/- Rajasthan Skill Development Livelihood Rs.5,00,00,000/- Development Corporation Apparel Training Design Centre (Churu) Rs.1,31,42,000/- Total Rs.6,41,42,000/- The Hon’ble ITAT sustained the disallowance of Rs.1,41,42,000/- on account of contribution to Apparel Training & Development Centre and DainikBhaskar Corporation Limited holding that the assessee could not establish any nexus between the expenditure and the business activity of the assessee. (ii) The penalty imposed on CSR expenses is illegal as no satisfaction has been recorded for the same in the assessment order. The satisfaction recorded by the AO at Para 11 of the assessment order reads as under:- “11. I am satisfied that the assessee has furnished inaccurate particulars of income thereby concealed its taxable income with respect to the above additions made to the total income of the assessee from para no. (3) to (10) of the order above on account of claim of expenditure for State Renewal Fund, prior period expenditure, contribution to CDOS, incorrect claim of deduction u/s 80IA & disallowance u/s 14A. Penalty proceedings u/s 271(1)(c) of the I.T. Act have been initiated separately.” From the above it is clear that AO has not recorded any satisfaction for initiation of penalty proceedings in respect of disallowance of CSR expenses. Therefore penalty imposed on disallowance of CSR expenses is uncalled for. Reliance in this connection is placed on the following cases:- CIT Vs. Rampur Engg. Co. Ltd. (2009) 309 ITR 143 (Del.) (HC) (FB) The Hon’ble High Court at Para 9 of the order held as under:- “9. In our opinion, the legal position is well-settled in view of the Supreme Court decisions in S.V. AngidiChettiar’s case (supra) and D.M. Manasvi’s case (supra), that power to impose penalty under section 271 of the Act depends upon the satisfaction of the Income-tax Officer in the course of the proceedings under the Act. It cannot be exercised if he is not satisfied and has not recorded his satisfaction about the existence of the conditions specified in clauses (a), (b) and (c) before the proceedings are concluded. It is true that mere absence of the words ‘I am satisfied’ may not be fatal but such a satisfaction must be spelt out from the order of the Assessing Authority as to the concealment of income or deliberately furnishing inaccurate particulars. In the absence of a clear finding as to the concealment of income or deliberately furnishing inaccurate particulars, the initiation of penalty proceedings will be without jurisdiction. In our opinion, the law is correctly laid down in Ram Commercial Enterprises Ltd.’s case (supra) and we are in respectful agreement with the same. The reference is answered accordingly.” Hindustan Coca Cola Marketing Co. Pvt. Ltd. Vs. DCIT (2019) 198 TTJ 513 (Del.) (Trib.)(Case laws compilation index PB 19-27) Penalty u/s 271(1)(c) having been initiated by AO specifically in respect of certain additions to the exclusion of other additions, penalty imposed by AO in respect of additions so excluded could not be sustained. (iii) Even on merit there is no dispute on the genuineness of the expenditure incurred. The entire expenditure is duly evidenced, accounted for and audited by the statutory auditor of the company. The expenditure for which disallowance is confirmed by the Hon’ble ITAT is for the purpose of business as explained by the assessee in course of assessment proceedings and also before ITAT as per Para 3.3 to 3.9, Pg -13 of the ITAT order (PB24-28). However the Hon’ble ITAT by following its decision in AY 2012-13 has confirmed the same. It may be pointed out that in AY 2012-13 the AO has not initiated any penalty proceedings on the disallowance made out of CSR expenditure and no penalty was imposed on the same. Hence the penalty imposed on the same facts in the year under consideration is unjustified and uncalled for. (iv) Otherwise also it is not a case of furnishing inaccurate particulars of income or concealing income. The assessee has a strong and bonafide belief that the expenditure is incurred for the purpose of the business and therefore deductible u/s 37(1). The disallowances made by the AO in the assessment order is solely on account of different view taken on the same set of facts and therefore, it could, at the most, be termed as difference of opinion but it has nothing to do with the furnishing of inaccurate particulars of income or concealing the income. Mere disallowance of claim in the assessment proceedings could not be the sole basis for levying penalty u/s 271(1)(c) of the Act. It is a settled law that mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars of income or concealment of income. Reliance in this connection is placed on the following cases:- CIT Vs. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158 (SC) (Case laws compilation index PB 28-36) “A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. … 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, in our opinion, attract the penalty under s. 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the AO for any reason, the assessee will invite penalty under s. 271(1)(c). That is clearly not the intendment of the Legislature. The Tribunal, as well as, the CIT(A) and the High Court have correctly reached this conclusion and, therefore, the appeal filed by the Revenue has no merits and is dismissed.” CIT Vs. U.P. State Bridge Corporation Ltd.(2018) 258 Taxman 63 (SC)(Case laws compilation index PB 37) SLP dismissed against High Court ruling that where assessee had furnished certain details regarding expenditure as well as income in return which were not found inaccurate nor could be viewed as concealment of income on part of assessee, merely because said claim was not accepted or was not acceptable to revenue, that by itself would not attract penalty u/s 271(1)(c). Kamal Enterprises and New Life Hospital Vs. DCIT (2024) 206 ITD 90 (Hyd.) (Trib.) Merely because assessee preferred a claim which was not acceptable to revenue, assessee could not be visited with proceedings u/s 271(1)(c) unless twin requirements u/s 271(1)(c) were satisfied. Quippo Telecom Infrastructure Pvt. Ltd. Vs. ACIT (2020) 185 ITD 275 (Del.) (Trib.) Where assessee furnished all particulars related to its claim of expenditure towards professional fees and interest paid on borrowed capital and none of evidences filed by assessee were incorrect, merely because issue was decided against assessee by instant court by confirming disallowance of these expenses, it could not result into levy of penalty u/s 271(1)(c) for furnishing inaccurate particulars. M/s Ajmer VidyutVitran Nigam Ltd.Vs. ACIT order dated 09.01.2020 (Jaipur) (Trib.) Once the assessee has produced and disclosed all the relevant facts, then mere disallowance of claim by the AO on the ground that the same is not allowable as per provisions of the Income Tax would not lead to conclusion that the assessee has furnished the inaccurate particulars of income or concealed the particulars of income. (b) Penalty on disallowance u/s 14A of Rs.71,75,575/- (i) The AO observed that the assessee has earned dividend income of Rs.2,32,25,630/- from shares. The assessee explained that the shares have been held as stock in trade and therefore no disallowance u/s 14A can be made. The AO, however, rejected the explanation of the assessee and made disallowance of Rs.71,75,575/- u/s 14A r.w.r. 8D(2). The same was sustained by CIT(A) and ITAT holding that section 14A would apply whether shares are held as investment or as stock in trade.

(ii) The CIT(A)/ITAT confirmed the disallowance on the ground that section 14A will also apply on the shares held as stock in trade. Thus simply because disallowance is confirmed in appeal does not mean that the assesse has concealed the particulars of income. All the facts relating to the investment in shares and exempt income earned therefrom are duly shown in the financial statement which was not found incorrect. The disallowanceso made was solely on account of different views taken on the same set of facts and therefore, they could, at the most, be termed as difference of opinion but it has nothing to do with the furnishing of inaccurate particulars of such income or concealing income. Mere disallowance of claim in the assessment proceedings could not be the sole basis for levying penalty u/s 271(1)(c) of the Act. It is a settled law that mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars of income or concealment of income. Reliance in this connection is placed on the case laws referred above. Further reliance is placed on the decision of Hon’ble Supreme Court in case ofPCIT Vs. Gruh Finance Ltd. (2018) 259 Taxman 420(Case laws compilation index PB 38-39)where SLP was dismissed against order of High Court where High Court upheld the decision of Tribunal deleting penalty u/s 271(1)(c) in respect of disallowance made u/s 14A because there was no evidence of furnishing inaccurate particulars of income. In view of above, penalty confirmed by Ld. CIT(A) is uncalled for and be deleted. To support the above mentioned written submission, the ld. AR of the assessee has filed following paper book. S.N. Particulars Page No. Filed before AO/CIT(A) 1. Copy of submission filed before ld CIT(A) 1-15 CIT(A) 2. Copy of Index of paper book filed before ld. CIT(A) 16 CIT(A) 3. Copy of penalty notice u/s 274 r.w.s. 271(1)© dated 17 Both 31-12-2015 4. Copy of ITAT order dated 10-04-2018 in assessee’s 18-83 Both own case for A.Y. 2013-14 & 2014-15 5. Copy of penalty notice ated 14-02-2019 84 Both 6. Copy of assessee’s reply dated 30-03-2019 in 85-92 Both response to above notice Besides above, the ld. AR of the assessee has filed list of following case laws:- Rajasthan State Industrial Development & Investment Corporation Ltd. 310/JPR/2025 Fixed on 28.05.2025 at A Bench Case laws compilation index S. No. Particulars Pg No.

3.6 We have heard the rival submission and gone through the material available on record. We note that at Para 11 of the assessment order the penalty proceedings & 310/JPR/2025 RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORATION LTD VS DCIT, CIRCLE-6, JAIPUR is stated to be initiated for “furnishing inaccurate particulars of income” but in the notice issued u/s 274 read with sec. 271(1)(c)dt. 31.12.2015, it is stated that it appears that assessee has concealed the particulars of income or furnished inaccurate particulars of income. Thus penalty notice is issued without specifying whether the charge is for concealment of income or for furnishing of inaccurate particulars of income. In subsequent notice dt. 14.02.2019 also, the assessee was not made aware of the charge as to whether against the disallowance confirmed by Hon’ble ITAT, the charge is for concealment of income or for furnishing of inaccurate particulars of income. Thus in the absence of any specific charge against the assessee in the penalty notice, the penalty imposed is bad in law in view of the various decision stated supra. We further note that in Para 11 of the assessment order the penalty proceedings is stated to be initiated for “furnishing inaccurate particulars of income” but in the penalty order penalty has been imposed for “concealment of income”. Penalty cannot be imposed for one breach when satisfaction has been recorded for the other breach in the assessment order as per the various decisions relied by Ld. A/R supra.

3.6.1 We also note that as per section 275(1)(a) no penalty order can be passed after the six months from the end of the month in which the order of the ld. CIT(A) or appellate tribunal is received by the commissioner, whichever periods expires & 310/JPR/2025 RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORATION LTD VS DCIT, CIRCLE-6, JAIPUR later. Further as per the proviso to this section, no penalty order shall be passed after the expiry of the F.Y. in which the proceedings, in course of which action for imposition of penalty has been initiated, are completed or after one year from the end of the F.Y. in which the order of ld. CIT(A) is received by the Commissioner whichever is later. We find that the order of ld. CIT(A) is dt. 20.03.2017 and therefore as per proviso to section 275(1), penalty could have been imposed on or before 31.03.2018. Further order of Hon’ble ITAT is dt. 10.04.2018 and therefore penalty could have been imposed within 6 months from the end of the month in which the order of ITAT is received by the Commissioner which expires on 31.10.2018. In the present case, once the order of Tribunal is received, the order of CIT(A) merges with the order of Tribunal and therefore, limitation period for imposition of penalty is 6 months from the end of the month in which the order of ITAT is received by the Commissioner. This period expires on 31.10.2018 and therefore the penalty order passed on 31.03.2019 is barred by limitation. 3.6.2 On merit also, we find that on disallowance of CSR expenditure of Rs.1,41,42,000/-, in Para 11 of the assessment order, no penalty proceedings has been imitated with reference to this disallowance and therefore when AO has not recorded any satisfaction for initiation of penalty proceedings in respect of & 310/JPR/2025 RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORATION LTD VS DCIT, CIRCLE-6, JAIPUR disallowance of CSR expenses, the penalty imposed on this disallowance is deleted. Further on disallowance u/s 14A of Rs.71,75,575/-, as held in various cases referred above, mere making of the claim, which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars of income or concealment of income. Hence penalty on this disallowance is not leviable. Thus, the appeal of the assessee is allowed both on law and on facts. 4.1 Now we take up the appeal of the assessee in 2014-15 for adjudication.

5.1 Brief facts of the case are that the assessee is a Rajasthan State Government undertaking engaged in industrial development in the state of Rajasthan and also providing long term finance for industrial development. It filed the revised return of income on 27.11.2014 declaring total income of Rs.74,71,31,440/-. The Assessment u/s 143(3) was completed on 07.10.2016 by making various additions and thereby assessing the total income at Rs.90,20,38,094/-. In the assessment order, the AO at Para 9, Pg27 of the order has recorded that the assessee has furnished inaccurate particulars of income thereby concealed its taxable income with respect to the above additions made to the total income of the assessee from para no. (3) to (8) of the order above on account of claim of expenditure for contribution to CDOS, prior period expenditure, CSR expenses, incorrect claim of & 310/JPR/2025 RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORATION LTD VS DCIT, CIRCLE-6, JAIPUR deduction u/s 80-IA and disallowance u/s 14A. Thereafter on the last page of the assessment order. it is mentioned that penalty proceedings u/s 271(1)(c) of the IT Act have been initiated separately. It is pertinent to mention that along with the assessment order, notice u/s 274 r.w.s 271(1)(c) dt.07.10.2016(PB 16) is issued. The details of the relevant narration are reproduced as under:- Office of :ACIT, Cir-6, JPR File No. 236 Dated: 07-10-2016 PAN: AABCR 4659J To M/s. Rajasthan State Industrial Development & Investment Corporation Ltd. Tilak Marg, Udyog Bhawan C-Scheme, Jaipur (Raj) 302 005 Sir/ Madam, ‘’Whereas in the course of proceedings before me for the assessment year 2014- 15 it appears that you have concealed the particulars of your income or furnished inaccurate particulars of such income. You are hereby requested to appear before me on 28-10-2016 at 11.30 AM and show cause why an order imposing a penalty on you should not be made under section 271(1)© of the Income Tax Act, 1961. If no one attends this office on the said date of hearing, the case shall be decided on the basis of the material available on records. Yours faithfully, Sd/- SEAL Office of : ACIT CIT-6,JPR Date and Time of Attending: 28 OCT 16 at 11.30 5.2 On further appeal, CIT(A)/ ITAT allowed part relief to the assessee. The following table indicates the additions made by AO, relief allowed by CIT(A)/ ITAT & final addition that remained after the order of ITAT:-

Particulars Addition/ Addition/ Addition/ Disallowance Disallowanceremained Disallowance made by AO after CIT(A) order remained after ITAT Order Contribution to Center for 2,00,00,000 Nil Nil Development of Stones (CDOS) Prior period expenses 36,44,553 Nil Nil CSR expenses 40,42,000 40,42,000 40,42,000 Deduction u/s 80IA 10,70,76,173 Nil Nil Disallowance u/s 14A 37,19,337 37,19,337 37,19,337 Service Tax Receivable 1,64,16,000 1,64,16,000 Nil Short credit of TDS 15,65,426 Nil Nil Thus after the order of ITAT dt.10.04.2018 (PB 25-94), following disallowance made by the AO stood confirmed:-

Disallowance of CSR Expenses Rs.40,42,000/- Disallowance u/s 14A Rs.37,19,337/- After the order of Hon’ble ITAT, AO again issued notice dt.14.03.2019 (PB 17) to show cause why penalty u/s 271(1)(c) may not be imposed. The assessee filed reply on 19.03.2019 (PB 18-24). However, AO rejected the explanation of the assessee and held that the assessee has concealed income of Rs77,61,337/- (40,42,000 + 37,19,337/-) and thus imposed penalty of Rs.26,38,078/-, being 100% of the amount of tax sought to be evaded. 5.3 In appeal before Ld. CIT(A), assessee filed detailed submission challenging the legality of order passed by AO u/s 271(1)(c) and also on merits. The Ld. CIT(A), however, without deciding the legal ground of assessee,confirmed the levy & 310/JPR/2025 RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORATION LTD VS DCIT, CIRCLE-6, JAIPUR of penalty by applying Explanation 1 to section 271(1)(c) by holding that the amount of Rs.77,61,337/- added or disallowed by the AO which has reached finality in computing the total income of the assessee shall, for the purpose of clause (c) of this sub-section (1) of section 271 be deemed to represent the income in respect of which particulars have been concealed. The observations as made by the ld. CIT(A) at para 7.6 of his order is reproduced as under:- ‘’7.6 In view of the discussion above and binding precedents, I am of the view that the issue involved in the appellant's case is attracting penalty u/s 271(1)(c)/ Explanation 1 of the Act. Under the facts and the circumstances of the case, the AO is justified in levying penalty u/s 271(1) (c) of the Act as the appellant had furnished inaccurate particulars of income and the appellant has offered an explanation which he has failed to prove to be bona fide and he has failed to prove that all the facts relating to the same and material to the computation of his total income have been disclosed by him. Therefore, the amounts of Rs. 77,61,337/-added or disallowed by the AO which has reached finality in computing the total income of the assessee shall, for the purpose of clause (c) of this subsection (1) of section 271, be deemed to represent the income in respect of which particulars have been concealed. Thus, 1 confirm the penalty levied by the AO of Rs. 26.38,078/-u/s: 271(1)(c)of the Act, being 100% of the tax sought to be evaded.’’ 5.4 During the course of hearing, the ld. AR of the assessee has filed the following detailed written submission with the prayer that the penalty confirmed by the ld. CIT(A) needs to be deleted. Submission:- 1. At the outset it is submitted that in the body of the assessment order u/s 143(3) dt.07.10.2016wherever any addition/ disallowance is made, there is no reference of initiation of penalty proceedings though in para 9 of the order penalty proceeding is stated to be initiated against certain additions for furnishing inaccurate particulars of income. Howeverat the end of the assessment order it is stated that penalty proceedings u/s 271(1)(c) have been initiated separately. Along with the assessment order, noticeu/s 274 r.w.s. 271(1)(c) dt.07.10.2016(PB 16) is issued stating that it appears that assessee has concealed the particulars of income or furnished inaccurate particulars of income without specifying whether the charge is for concealment of income or for furnishing of inaccurate particulars of income. Thereafter in notice dt.14.03.2019 (PB 17) also the assessee was not made aware of the charge as to whether against the disallowance confirmed by Hon’ble ITAT, the charge is for concealment of income or for furnishing of inaccurate particulars of income. Thereafter atPg3 of the penalty order AO held that the disallowance represent concealment of income and thus imposed penalty u/s 271(1)(c).

2. From the above facts it is abundantly clear that the AO did not specify as to under which limb of sec. 271(1)(c) the assessee is required to explain his case. In the notice issued u/s 274 read with sec. 271(1)(c), penalty proceedings u/s 271(1)(c) is initiated for concealment of income or furnishing of inaccurate particulars of income. Thus in the absence of any specific charge against the assessee in the penalty notice, consequent penalty imposed by AO is illegal and bad in law. Full Bench of Hon’ble Bombay High Court in case ofMohd. Farhan A. Shaikh Vs. DCIT &Anr. (2021) 200 DTR 65/ 434 ITR 1 (Case laws compilation index PB 1-6) after considering all the decisions available on this dispute till the date of this order held that even if the assessment order clearly records satisfaction for imposing penalty on one or the other or both grounds mentioned in section 271(1)(c), defect in the notice not striking off the irrelevant matter vitiates the penalty proceedings. The assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness. In the present case also, in the penalty notice it is not specified as to for what charge penalty proceedings has been initiated against the assessee. Hence in view of the above decision the penalty order passed by the AO be quashed.

Ventura Textiles Ltd. Vs. CIT (2020) 190 DTR 165 (Bom.) (HC) (Case laws compilation index PB 16-18) Proceedings were initiated for furnishing inaccurate particulars of income. However, in the order of penalty, AO held that assessee had concealed its income as well as furnished inaccurate particulars of income. It is trite that penalty cannot be imposed for alleged breach of one limb of sec. 271(1)(c) while penalty proceedings were initiated for breach of the other limb of sec. 271(1)(c). Penalty was therefore not sustainable. Harvinder Singh Vs. ITO (2019) 179 DTR 225 (Asr.) (Trib.) (TM) Where the AO has recorded the satisfaction as regards concealment of particulars of income while initiating the penalty proceedings under sec. 271(1)(c), imposition of penalty for furnishing inaccurate particulars of income is not sustainable. HPCL Mittal Energy Ltd. Vs. Addl.CIT (2018) 169 DTR 1 (Asr.) (Trib.) (TM) The AO cannot initiate penalty on the charge of 'concealment of particulars of income', but ultimately find the assessee guilty in the penalty order of 'furnishing inaccurate particulars of income' (and vice versa). In the same manner, he cannot be uncertain in the penalty order as to concealment or furnishing of inaccurate particulars of income by using slash between the two expressions. Such error is not procedural but goes to the root of the matter and is not saved by s. 292B. The error renders the penalty order unsustainable in law. CIT Vs. Shri Samson Perinchery (2017) 392 ITR 4 (Bom.) (HC) The relevant finding at Para 6 of the order reads as under:- “6. The above submission on the part of the Revenue is in the face of the decision of the Supreme Court in Ashok Pai v/s. CIT 292 ITR 11 [relied upon in Manjunath Cotton & Ginning Factory (supra)] – wherein it is observed that concealment of income and furnishing of inaccurate particulars of income in Section 271(1)(c) of the Act, carry different meanings/ connotations. Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under Section 271(1)(c) of the Act, for initiation of penalty proceedings will not warrant/ permit penalty being imposed for the other breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated/notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground of which the penalty proceedings has been initiated, and it cannot be on a fresh ground of which the Assessee has no notice.” In view of above, penalty levied is illegal and bad in law.

5. Without prejudice to above the penalty order passed by AO is barred by limitation. This is because section 275(1)(a) which provides the time period within which the penalty can be imposed reads as under:- “275. (1) No order imposing a penalty under this Chapter shall be passed— (a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A or an appeal to the Appellate Tribunal under section 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, whichever period expires later: Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A, and the Commissioner (Appeals) passes the order on or after the 1st day of June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, whichever is later; From the plain reading of the section it is evident that no penalty order can be passed after the six months from the end of the month in which the order of the CIT(A) or appellate tribunal is received by the commissioner, whichever periods expires later or after the expiry of the FY in which the proceedings for imposition of penalty has been initiated are completed or after one year from the end of the FY in which the order of CIT(A) is received by the commissioner whichever is later. In the present case, the order of the CIT(A) is dt.20.03.2017 and therefore the period of one year from the end of FY 16-17 expire on 31.03.2018. Further the order of Hon’ble ITAT dt.10.04.2018 and therefore the period of 6 months expire on 31.10.2018. It may be further noted that once the Hon’ble ITAT passes the order the limitation period has to be determined with reference to section 275(1)(a) and not with the reference to the proviso to section 275(1)(a). Hence the penalty order should have been passed before 31.10.2018 and therefore the penalty order dt.29.03.2019 passed by AO is clearly barred by limitation.

6. On merits it is submitted that the penalty has been imposed by the AO for concealment of income on two issues namely disallowance of CSR expenses and disallowance u/s 14A. On both the additions penalty levied by the AO is uncalled for as explained hereunder:- (a) Penalty on disallowance of CSR expenses of Rs.40,42,000/- (i) The assessee claimed deduction for CSR expenses amounting to Rs.40,42,000/- u/s 37(1) of the Act. Out of this CSR expenditure of Rs.29.60 lakhs was incurred by providing assistance to Apparel Training & Development Centre (ATDC) for the training provided by it at 6 Smart Centres at Jaipur, Bhilwara, Chittorgarh, Jodhpur& Hanumangarh in the field of textile. It also provided assistance of Rs.3,06,000/- to Anurag SangeetSanstha engaged in giving musical training to blind student, of Rs.3,54,000/- to Muskan Foundation for road safety and social issues and Rs.4,01,500/- for equipment to the Animal Husbandry Department as a good corporate citizen which enhances the image of the assessee in the society. The same was disallowed by the AO by holding that the same is not expended wholly and exclusively for the purpose of business. Ld. CIT(A) and Hon’ble ITAT confirmed the disallowance. (ii) There is no dispute on the genuineness of the expenditure incurred. The entire expenditure was duly evidenced and accounted for and was audited by the statutory auditor of the company. The Hon’ble ITAT at Para 13.1 at Page 67 of the order (PB 91) held that these expenditure are not allowable u/s 37(1) of the Act in absence of any nexus between the expenditure and the objects and business activity of the assessee. The said finding is based on the decision of Hon’ble ITAT for AY 2013-14 as per Para 3.11 to 3.13 of the ITAT order (PB 38-43). For AY 2013-14 the Hon’ble ITAT confirmed the above disallowance by following its decision in AY 2012-13. It may be pointed out that in AY 2012-13 the AO has not initiated any penalty proceedings on the disallowance made towards CSR expenditure and no penalty was imposed on the same. Hence the penalty imposed on the same facts in the year under consideration is unjustified and uncalled for.

(iii) Otherwise also it is not a case of furnishing inaccurate particulars of income or concealing income. The assessee has a strong and bonafide belief that the expenditure is incurred for the purpose of the business and therefore deductible u/s 37(1). The disallowances made by the AO in the assessment order is solely on account of different view taken on the same set of facts and therefore, it could, at the most, be termed as difference of opinion but it has nothing to do with the furnishing of inaccurate particulars of income or concealing the income. Mere disallowance of claim in the assessment proceedings could not be the sole basis for levying penalty u/s 271(1)(c) of the Act. It is a settled law that mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars of income or concealment of income. Reliance in this connection is placed on the following cases:- CIT Vs. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158 (SC) (Case laws compilation index PB 28-36) “A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. … 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, in our opinion, attract the penalty under s. 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the AO for any reason, the assessee will invite penalty under s. 271(1)(c). That is clearly not the intendment of the Legislature. The Tribunal, as well as, the CIT(A) and the High Court have correctly reached this conclusion and, therefore, the appeal filed by the Revenue has no merits and is dismissed.” CIT Vs. U.P. State Bridge Corporation Ltd.(2018) 258 Taxman 63 (SC)(Case laws compilation index PB 37) SLP dismissed against High Court ruling that where assessee had furnished certain details regarding expenditure as well as income in return which were not found inaccurate nor could be viewed as concealment of income on part of assessee, merely because said claim was not accepted or was not acceptable to revenue, that by itself would not attract penalty u/s 271(1)(c). Kamal Enterprises and New Life Hospital Vs. DCIT (2024) 206 ITD 90 (Hyd.) (Trib.) Merely because assessee preferred a claim which was not acceptable to revenue, assessee could not be visited with proceedings u/s 271(1)(c) unless twin requirements u/s 271(1)(c) were satisfied. Quippo Telecom Infrastructure Pvt. Ltd. Vs. ACIT (2020) 185 ITD 275 (Del.) (Trib.)

Where assessee furnished all particulars related to its claim of expenditure towards professional fees and interest paid on borrowed capital and none of evidences filed by assessee were incorrect, merely because issue was decided against assessee by instant court by confirming disallowance of these expenses, it could not result into levy of penalty u/s 271(1)(c) for furnishing inaccurate particulars. M/s Ajmer VidyutVitran Nigam Ltd.Vs. ACIT order dated 09.01.2020 (Jaipur) (Trib. Once the assessee has produced and disclosed all the relevant facts, then mere disallowance of claim by the AO on the ground that the same is not allowable as per provisions of the Income Tax would not lead to conclusion that the assessee has furnished the inaccurate particulars of income or concealed the particulars of income. (b) Penalty on disallowance u/s 14A of Rs.71,75,575/- (i) The AO observed that the assessee has earned dividend income of Rs.2,91,24,341/- from shares. The assessee explained that the shares have been held as stock in trade and therefore no disallowance u/s 14A can be made. The AO, however, rejected the explanation of the assessee and made disallowance of Rs.37,19,337/- u/s 14A r.w.r. 8D(2). The same was sustained by CIT(A) and ITAT holding that section 14A would apply whether shares are held as investment or as stock in trade. (ii) The CIT(A)/ITAT confirmed the disallowance on the ground that section 14A will also apply on the shares held as stock in trade. Thus simply because disallowance is confirmed in appeal does not mean that the assesse has concealed the particulars of income. All the facts relating to the investment in shares and exempt income earned therefrom are duly shown in the financial statement which was not found incorrect. The disallowanceso made was solely on account of different views taken on the same set of facts and therefore, they could, at the most, be termed as difference of opinion but it has nothing to do with the furnishing of inaccurate particulars of such income or concealing income. Mere disallowance of claim in the assessment proceedings could not be the sole basis for levying penalty u/s 271(1)(c) of the Act. It is a settled law that mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars of income or concealment of income. Reliance in this connection is placed on the case laws referred above. Further reliance is placed on the decision of Hon’ble Supreme Court in case ofPCIT Vs. Gruh Finance Ltd. (2018) 259 Taxman 420(Case laws compilation index PB 38-39)where SLP was dismissed against order of High Court where High Court upheld the decision of Tribunal deleting penalty u/s 271(1)(c) in respect of disallowance made u/s 14A because there was no evidence of furnishing inaccurate particulars of income.

In view of above, penalty confirmed by Ld. CIT(A) is uncalled for and be deleted.’’ To support the above mentioned written submission, the ld. AR of the assessee has filed following paper book. S.N. Particulars Page No. Filed before AO/CIT(A) 1. Copy of submission filed before ld CIT(A) 1-14 CIT(A) 2. Copy of Index of paper book filed before ld. CIT(A) 15 CIT(A) 3. Copy of penalty notice u/s 274 r.w.s. 271(1)© dated 16 Both 07-10-2016 4. Copy of penalty notice ated 14-03-2019 17 Both 5. Copy of assessee’s reply dated 19-03-2019 in 18-24 Both response to above notice 6. Copy of ITAT order dated 10-04-2018 in assessee’s 25-94 Both own case for A.Y. 2013-14 & 2014-15 5.5 During the course of hearing, the ld.DR filed the following written submission dated 18-04-2025 with the prayer to confirm the action of the Revenue.

‘’This submission is filed respectfully on behalf of the Revenue, opposing the assessee’s appeal in penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer has rightly levied, and the Ld. CIT(A) has correctly upheld, the penalty in view of the following legal and factual positions: 1. Assessee’s Explanation is Unsubstantiated and Not Bona Fide The explanation offered by the assessee for claiming deductions of CSR expenditure and for not making disallowance under Section 14A is self-serving and unsupported by any evidence. Both the Assessing Officer and the Ld. CIT(A) have:  Evaluated the factual matrix and held the explanation to be neither bona fide nor substantiated; & 310/JPR/2025 RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORATION LTD VS DCIT, CIRCLE-6, JAIPUR  Found that the assessee failed to make a fair and full disclosure of material particulars at the time of filing the return;  Rightly invoked Explanation 1 to Section 271(1)(c).

The assessee continues to merely reiterate the same untenable claims before this Hon’ble Tribunal, without placing any new material on record.

3. Disallowance of CSR Expenditure – Clear Misinterpretation of Settled Law The assessee claimed deduction for CSR expenses, despite the statutory bar under Explanation 2 to Section 37(1) inserted by the Finance Act, 2014. CSR expenditure is treated as application of income, not incurred for business, and is expressly non-deductible. Despite audited books, the assessee made this claim, ignoring the settled legal position and guidance under:  National Small Industries Corporation Ltd. v. CIT [2021] 124 taxmann.com 72 (Del Trib.)  Bharat Aluminium Co. Ltd. v. ACIT [2021] 125 taxmann.com 199 (Del Trib.)

& 310/JPR/2025 RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORATION LTD VS DCIT, CIRCLE-6, JAIPUR These cases held that claiming CSR deduction in violation of the statute justifies penalty under Section 271(1)(c), particularly when no supporting justification exists.

4. Section 14A Disallowance – No Disallowance Made Despite Earning Exempt Income The assessee earned exempt income and had substantial investments, yet failed to make any suo motu disallowance under Section 14A.This is contrary to:  PCIT v. Caraf Builders & Constructions (P.) Ltd. [2019] 414 ITR 122 (Del HC)  CIT v. State Bank of Patiala [2018] 99 taxmann.com 286 (SC)  DCIT v. B.T. Patil & Sons Belgaum (P.) Ltd. [2018] 94 taxmann.com 434 (Mumbai Trib.) These rulings affirm that disallowance under Section 14A is mandatory, and failure to do so constitutes furnishing inaccurate particulars, attracting penalty. CBDT Circular No. 5/2014 dated 11.02.2014 Ratio: Clarifies that Section 14A disallowance is mandatory where exempt income is earned, even if no expenditure is claimed by the assessee.

 Fails to offer an explanation, or  Offers one which is found to be false, or  Fails to substantiate the explanation with evidence, then the amount added or disallowed is deemed to represent income for which particulars have been concealed. The assessee has not demonstrated reasonable cause or bona fide conduct, and thus the presumption under Explanation 1 applies with full force.

The assessee has not shown any reasonable cause for the incorrect claims made. Hence, the immunity under Section 273B is not available, and the penalty levied is fully sustainable.

B. Cases Supporting Disallowance under Section 14A PCIT v. Caraf Builders & Constructions (P.)Ltd.

Citation: [2019] 414 ITR 122 (Delhi HC) Held:Even if no disallowance was made by the assessee, disallowance under Section 14A is mandatory where exempt income exists. Backs Revenue’s stand on 14A. CIT v. State Bank of Patiala & 310/JPR/2025 RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORATION LTD VS DCIT, CIRCLE-6, JAIPUR Citation: [2018] 99 taxmann.com 286 (SC) Held: If assessee earns exempt income, some disallowance under Section 14A is warranted, even if the investment was for business or strategic purpose. Supreme Court endorsement of 14A applicability.

DCIT v. B.T. Patil & Sons Belgaum (P.)Ltd.

Citation: [2018] 94 taxmann.com 434 (Mumbai - Trib.) Held: Non suo-motu disallowance u/s 14A when exempt income is earned constitutes furnishing of inaccurate particulars, inviting penalty under Section 271(1)(c).

C. More Penalty-Supporting Precedents Reliance PetroproductsPvt. Ltd. v. CIT Citation: (2010) 322 ITR 158 (SC) Note:This case is often cited by assessees for relief, but limited to cases where the claim was legally debatable and all facts were disclosed. Distinguishable in your case as the claim (CSR and 14A) is barred by statute and not disclosed fully.

The assessee’s conduct is squarely covered by judicial precedents where penalty under Section 271(1)(c) has been upheld for claiming CSR expenditure ( National Small Industries Corp. Ltd., Bharat Aluminium Co. Ltd.) and for failure to make 14A disallowance despite earning exempt income ( Caraf Builders, State Bank of Patiala). These precedents clearly establish that such claims are not innocent errors but represent inaccurate particulars and concealment. Each of these cases supports penalty where the assessee fails to disclose true particulars or claims inadmissible deductions despite knowledge of the law.

In view of the above, it is most respectfully prayed that this Hon’ble Tribunal may kindly: 1. Reject the explanation filed by the assessee as false, unsubstantiated, and lacking bona fides; 2. Uphold the penalty levied under Section 271(1)(c) and confirmed by the CIT(A); 3. Hold that this is a clear case of concealment of income and furnishing of inaccurate particulars, not a mere legal dispute; 4. Dismiss the assessee’s appeal and confirm the action of the Revenue.’’ We have heard the rival submission and gone through the material available 5.6 on record. We note that at Para 9of the assessment order the penalty proceedings is stated to be initiated for “furnishing inaccurate particulars of income” but in the notice issued u/s 274 read with sec. 271(1)(c) dt.07.10.2016, it is stated that it appears that assessee has concealed the particulars of income or furnished inaccurate particulars of income. Thus penalty notice is issued without specifying whether the charge is for concealment of income or for furnishing of inaccurate particulars of income. In subsequent notice dt. 14.03.2019 also, the assessee was not made aware of the charge as to whether against the disallowance confirmed by Hon’ble ITAT, the charge is for concealment of income or for furnishing of inaccurate particulars of income. Thus in the absence of any specific charge against & 310/JPR/2025 RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORATION LTD VS DCIT, CIRCLE-6, JAIPUR the assessee in the penalty notice, the penalty imposed is bad in law in view of the various decision stated supra. We further note that in Para 9 of the assessment order the penalty proceedings is stated to be initiated for “furnishing inaccurate particulars of income” but in the penalty order penalty has been imposed for “concealment of income”. Penalty cannot be imposed for one breach when satisfaction has been recorded for the other breach in the assessment order as per the various decisions relied by Ld. A/R supra.

5.6.1 We also note that as per section 275(1)(a) no penalty order can be passed after the six months from the end of the month in which the order of the CIT(A) or appellate tribunal is received by the commissioner, whichever periods expires later. Further as per the proviso to this section, no penalty order shall be passed after the expiry of the FY in which the proceedings, in course of which action for imposition of penalty has been initiated, are completed or after one year from the end of the FY in which the order of CIT(A) is received by the commissioner whichever is later. We find that the order of CIT(A) is dt. 20.03.2017 and therefore as per proviso to section 275(1), penalty could have been imposed on or before 31.03.2018. Further order of Hon’ble ITAT is dt. 10.04.2018 and therefore penalty could have been imposed within 6 months from the end of the month in which the order of ITAT is received by the Commissioner which expires on 31.10.2018. In & 310/JPR/2025 RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORATION LTD VS DCIT, CIRCLE-6, JAIPUR the present case, once the order of Tribunal is received, the order of CIT(A) merges with the order of Tribunal and therefore, limitation period for imposition of penalty is 6 months from the end of the month in which the order of ITAT is received by the Commissioner. This period expires on 31.10.2018 and therefore the penalty order passed on 29.03.2019 is barred by limitation.

5.6.2 On merit also, we find that disallowance of CSR expenditure of Rs.40,42,000/- is confirmed by Hon’ble ITAT by holding that same is not allowable u/s 37(1) of the Act in absence of any nexus between the expenditure and the objects and business activity of the assessee. The said finding is based on the decision of Hon’ble ITAT for AY 2013-14 as per Para 3.11 to 3.13 of the ITAT order.For AY 2013-14 the Hon’ble ITAT confirmed the above disallowance by following its decision in AY 2012-13. It may be pointed out that in AY 2012-13 the AO has not initiated any penalty proceedings on the disallowance made towards CSR expenditure and no penalty was imposed on the same. In these facts, more particularly when the claim is bonafide and all the facts relating to the claim of CSR expenditure is available on record, it would not amount to furnishing of inaccurate particulars of income or concealment of income. Hence the penalty imposed on disallowance of CSR expenditure is deleted. Further on disallowance u/s 14A of Rs.71,75,575/-, as held in various cases referred above, mere making of & 310/JPR/2025 RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORATION LTD VS DCIT, CIRCLE-6, JAIPUR the claim, which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars of income or concealment of income. Hence penalty on this disallowance is not leviable. Thus the appeal of the assessee is allowed both on law and on facts. 6.0 In the result, both the appeals of the assessee are allowed as indicated hereinabove. Order pronounced in the open court on 06 /08/2025.