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Facts
The assessee, a corporate entity, filed a return declaring a loss for AY 2015-16. The AO made a disallowance under Section 14A read with Rule 8D, which the assessee accepted as it was tax-neutral, resulting in a continued loss. Subsequently, the AO imposed a penalty of Rs. 70,81,990/- under Section 271(1)(c) for alleged concealment of income. The First Appellate Authority deleted the penalty, noting that the assessee had not earned any exempt income in the relevant year.
Held
The Tribunal held that since the assessee had not earned any exempt income during the year under consideration, no disallowance under Section 14A read with Rule 8D was warranted in the first place. The mere acceptance of the disallowance by the assessee due to a tax-neutral position does not alter this fact. Thus, the First Appellate Authority was justified in deleting the penalty imposed under Section 271(1)(c) of the Income Tax Act.
Key Issues
Whether the penalty imposed under Section 271(1)(c) for concealment of income is sustainable when the disallowance made under Section 14A was on account of expenses relating to exempt income, but the assessee had not earned any exempt income during the year.
Sections Cited
271(1)(c), 14A, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘A’ : NEW DELHI
Before: SHRI SAKTIJIT DEY & SHRI S RIFAUR RAHMAN
PER SAKTIJIT DEY, VP : This is an appeal by the Revenue against the order dated 27.01.2024 of the National Faceless Appeal Centre (NFAC), Delhi for assessment year 2015-16, deleting the penalty of Rs. 70,81,990/- imposed by the AO u/s. 271(1)(c) of the Income Tax Act, 1961. 2. Briefly stated facts are, the assessee is a resident corporate entity. For the assessment year in dispute the assessee filed its return of income on 22.09.2015 declaring loss of Rs. 2,93,44,537/-. While completing the assessment u/s. 143(3) of the Act, the Assessing Officer determined loss of Rs. 75,16,864/- after making disallowance of Rs. 2,18,27,673/- u/s. 14A of the Act read with Rule 8D. Though, the Assessee contested the aforesaid disallowance before Ld. First Appellate Authority, however, subsequently, the assessee accepted the disallowance considering the fact that there are no tax implication due to determination of loss.
Be that as it may, based on the disallowance made u/s. 14A of the Act read with Rule 8D, the Assessing Officer initiated proceedings for imposition of penalty u/s. 271(1)(c) of the Act and ultimately passed an order imposing penalty of Rs. 70,81,990/- u/s. 271(1)((c) of the Act, alleging concealment of particulars of income. Assessee contested the imposition of penalty before Ld. First Appellate Authority. In course of first appellate proceedings, it was the specific contention of the assessee that in the year under consideration it had not earned any exempt income whatsoever. Therefore, no disallowance u/s. 14A of the Act read with Rule 8D was required to be made. Appreciating the aforesaid factual position, Ld. First Appellate Authority deleted the penalty imposed under section 271(1)(c) of the Act.
We have considered rival submissions and perused the materials on record. The fact that the assessee had not earned any exempt income during the year under consideration remains uncontroverted before us. Therefore, in the first place, no disallowance u/s. 14A of the Act read with Rule 8D was required to be made. Merely because the assessee had accepted the disallowance due to tax neutral position, it cannot alter the position that disallowance u/s. 14A of the Act read with Rule 8D could not have been made. In the aforesaid factual scenario, in our considered opinion, Ld. First Appellate Authority was justified in deleting the penalty imposed u/s. 271(1)(c) of the Act. Accordingly, the Grounds raised by the Revenue are dismissed.
In the result, the appeal of the Revenue is dismissed.
Above decision was pronounced in the Open Court on 06th August, 2024.