DCIT, NEW DELHI vs. M/S. MOHAN EXPORTS (INDIA) PVT. LTD., NEW DELHI

Briefly stated, the facts are that the Assessing Officer made disallowance u/s 14A to the tune of Rs.35,71,978/- on the basis of which the instant penalty was imposed. The ld. CIT(A) deleted the penalty.

After considering the rival submissions and perusing the relevant material on record, we find that the only basis for the imposition of the penalty is disallowance u/s 14A of the Act. The assessee made a claim before the Assessing Officer that no expenditure was incurred in relation to the exempt income and, hence, no disallowance was called for u/s 14A. It was further submitted that at the time of filing the return, there was a controversy as to whether the computation under Rule 8D was ultra vires or not. Since the assessment proceedings and penalty proceedings are distinct from each other, the mere fact that addition has not been challenged n the quantum proceedings or it has been affirmed in appeal, cannot lead to automatic imposition or confirmation of penalty. The authorities need to take cognizance of the facts independently in the penalty proceedings for finding if the case falls within the parameters laid down u/s 271(1)(c) of the Act. In the given facts and circumstances, we are of the considered opinion that the mere disallowance u/s 14A would not attract penalty u/s 271(1)(c) of the Act 2

for the reasons stated above. We, therefore, hold that the ld. CIT(A) was justified in deleting the penalty imposed by the Assessing Officer.

In the result, the appeal filed by the Revenue is dismissed.