SHRI MANISH KALANI,INDORE vs. THE DCIT 1(1), INDORE

आदेश /O R D E R

PER O.P. MEENA, ACCOUTANT MEMEBR. These appeals are filed by the different assessees of

Kalani group are directed against the separate orders of ld.

Commissioner of Income-tax (Appeals)-I, Indore [hereinafter

referred to as the CIT(A)] dated 15.01.2015 and 21.01.2015

respectively and pertain to assessment year 2009-10,

I.T.A.No. 420/Ind/2015: (Shri Saurabh Kalani):

I.T.A.Nos. 420 & 421/Ind/2015 Shri Saurabh Kalani and Shri Manish Kalani – A.Y.20-09-10 Page 3 of 13

were initiated by the ld. AO on the addition made during the assessment proceedings.

I.T.A.No. 421/Ind/2015: (Shri Manish Kalani):

2.That the ld. CIT(A) erred in levying the penalty without providing any opportunity to the assessee and as such penalty levied is against the natural law of justice.

3.That the ld. CIT(A) levied the penalty suo motu and without appreciating that no penalty proceedings were initiated by the ld. AO on the addition made during the assessment proceedings.

4.That the addition was made during the assessment proceedings due to difference of opinion on disallowance u/s 14A of the Income-tax Act and as such does not attract penalty which the ld. CIT(A) failed to appreciate.

Saurabh Kalani is an individual filed the return of income on

I.T.A.Nos. 420 & 421/Ind/2015 Shri Saurabh Kalani and Shri Manish Kalani – A.Y.20-09-10 Page 4 of 13

06.12.2010 in response to proceedings initiated under section

153A of the Income Tax Act vide notice under section 153A

dated 22.10.2010 declaring total income at Rs.56,11,170/-.

The search proceedings under section 132 of the Income Tax

Act were carried at the assessee’s premises on 16.04.2009 and

accordingly proceedings under section 153A of the Income Tax

Act were initiated. The case of the assessee was selected for

scrutiny and notice under section 143(2) and 142(1) of the

Income Tax Act were issued. The assessee furnished the

required information from time to time and the assessment

was completed under section 143(3) r.w.s. 153A of the Income

Tax Act at the total income of Rs.56,39,515/- after making the

disallowance/addition to the returned income. The penalty

proceedings under section 271AAA of the Income Tax Act were

initiated on the amount of Rs.50,00,000/- surrendered during

the course of search proceedings by the assessee. The

Assessing Officer passed penalty order levying penalty of

Rs.5,00,000/- under section 271AAA of the Income Tax Act on

I.T.A.Nos. 420 & 421/Ind/2015 Shri Saurabh Kalani and Shri Manish Kalani – A.Y.20-09-10 Page 5 of 13

the amount of Rs.50,00,000/- surrendered during the course

of search.

appeal before the Learned Commissioner of Income Tax

(Appeal)-I, Indore.

(Appeals)-I, Indore during the appeal proceedings accepted the

submission given by the assessee and deleted penalty levied of

Rs.5,00,000/- under section 271AAA of the Income Tax Act by

the Assessing Officer but erred in levying penalty of Rs.2834/-

under section 271AAA of the Income Tax Act on disallowance

made of Rs.28345/- under section 14A of Income Tax Act.

also an individual and filed the return of income on

06.12.2010 in response to proceedings initiated under section

153A of the Income Tax Act vide notice under section 153A

dated 22.10.2010 declaring total income at Rs.1,20,69,610/-.

The search proceedings under section 132 of the Income Tax

Act were carried at the assessee’s premises on 16.04.2009 and

I.T.A.Nos. 420 & 421/Ind/2015 Shri Saurabh Kalani and Shri Manish Kalani – A.Y.20-09-10 Page 6 of 13

accordingly proceedings under section 153A of the Income Tax

Act were initiated. The case of the assessee was selected for

scrutiny and notice under section 143(2) and 142(1) of the

Income Tax Act were issued. The assessee furnished the

required information from time to time and the assessment

was completed under section 143(3) r.w.s. 153A of the Income

Tax Act at the total income of Rs.1,22,35,098/- after making

following disallowance/addition. The penalty proceedings

under section 271AAA of the Income Tax Act were initiated on

the amount of Rs.75,00,000/- surrendered during the course

of search proceedings by the assessee. The AO passed penalty

order levying penalty of Rs.7,50,000/- under section 271AAA

of the Income Tax Act on the amount of Rs.75,00,000/-

surrendered during the course of search.

appeal before the ld. CIT(A) -I, Indore.

accepted the submission given by the assessee and deleted

penalty levied of Rs.7,50,000/- under section 271AAA of the

I.T.A.Nos. 420 & 421/Ind/2015 Shri Saurabh Kalani and Shri Manish Kalani – A.Y.20-09-10 Page 7 of 13

Income Tax Act by the Assessing Officer, but erred in levying

penalty of Rs.16,548/- under section 271AAA of the Income

Tax Act on disallowance made of Rs.1,65,488/- under section

14A of Income Tax Act.

order of the ld. CIT(A).

penalty proceedings u/s 271AAA of the Act were initiated on

the amount of Rs. 50 lakhs and Rs. 75 lakhs surrendered

during the course of search proceedings by the assessees on

which penalty of Rs. 5 lakhs and Rs. 7.50 lakhs was levied.

The assessee filed an appeal before the ld. CIT(A), who has

deleted the penalty levied of Rs. 5 lakhs and Rs. 7.50 lakhs

u/s 271AAA of the Act, but erred in levying the penalty of Rs.

2834/- and Rs. 16,548/- u/s 271AAA of the Act on the

disallowances of Rs. 28,345/- and Rs. 1,65,488/- made u/s

14A of the Act. The Ld. Counsel for the assessee contended

that the provisions of Section 251(1) of the Act talks of the

powers of CIT(A) to vary the quantum of penalty levied which

I.T.A.Nos. 420 & 421/Ind/2015 Shri Saurabh Kalani and Shri Manish Kalani – A.Y.20-09-10 Page 8 of 13

has already been levied. Therefore, the ld. CIT(A) has no power

to initiate and impose the penalty u/s 271(1)(c), where the AO

did not initiate or did not levy any penalty for concealment of

income, even the powers of the CIT(A) are co-terminus with the

powers of the AO, but he has no power to levy penalty. As

such penalty levied on the disallowance u/s 14A by the ld.

CIT(A) is unlawful and needs to be deleted. The Ld. Counsel

for the assessee also placed reliance in support of his

proposition in the case of Ajit Ramchandra Jadhav vs. Asstt.

Commissioner of Income Tax, I.T.A.No. 2104/PN/2013,

wherein the CIT(A) imposed the penalty on additional income

offered by the assessee in the return of income in pursuance of

certain action on which the AO has not levied the penalty, was

deleted by the Tribunal. Without prejudice to above, the Ld.

Counsel for the assessee further submitted that case law

relied by the ld. CIT(A) are not applicable because it is for

surrender and not for disallowance u/s 14A. Further, the ld.

CIT(A) levied the penalty suo motu and without appreciating

that no penalty proceedings will be initiated on the

I.T.A.Nos. 420 & 421/Ind/2015 Shri Saurabh Kalani and Shri Manish Kalani – A.Y.20-09-10 Page 9 of 13

disallowance u/s 14A of the Income-tax Act, 1961. The Ld.

Counsel for the assessee further submitted that the expenses

claimed by the assessee were genuine expenses incurred for

the business purpose and there was no contrary observation

by the AO. Lastly disallowances made u/s 14A of the Act are

on account of legal provision on which facts and figures were

correctly disclosed in the returns of income. Therefore, this

does not amount to furnishing of inaccurate particulars of

income. Further, the AO himself has not initiated penalty on

the disallowance u/s 14A of the Act nor levied any penalty on

this account. In support of his contention, the Ld. Counsel for

the assessee relied on the decision in the case of ACIT, Circle

36(1) vs. Global Associates, I.T.A.No. 4819/Del/2012 dated

28th June, 2013, wherein penalty levied on account of

disallowance u/s 40(a)(ia) and u/s 14A was deleted by

following the decision of Hon'ble Supreme Court in the case of

CIT vs. Reliance Petro Products Private Limited, 322 ITR 158

(S.C.) and Price Water Coopers Private Limited vs. CIT, 348

ITR 306 ( S.C.). The Ld. Counsel for the assessee further cited

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decision of Tribunal in the case of ACIT, Circle 301 vs. Manish

Jain, I.T.A.No. 5999/Del/12 dated 14.6.2013, wherein penalty

levied u/s 271(1)(c) on account of disallowance made u/s 14A

read with Rule 8D was deleted. Accordingly, the Ld. Counsel

for the assessee argued that the disallowances u/s 14A is

mere technical and legal and no penalty is leviable in both the

assessment years on account of decision of Hon'ble Supreme

Court in the case of Reliance Petro Products (supra).

Representative relied on the order of the CIT(A).

perused the material available on record. We find that the AO

has initiated penalty proceedings u/s 271(1)(c) on account of

income of Rs. 11 lakhs disclosed in the returns of income filed

in response to notice u/s 153A of the Act. The returns of

income are so filed were as such accepted except by making

disallowance u/s 14A of the Act. However, the AO levied the

penalty on the amount disclosed during the course of search,

which was came to be deleted by the ld. CIT(A). However,

I.T.A.Nos. 420 & 421/Ind/2015 Shri Saurabh Kalani and Shri Manish Kalani – A.Y.20-09-10 Page 11 of 13

during the appellate proceedings, the ld. CIT(A) has deleted the

penalty in both the assessment years on account of

surrendered income, but the ld. CIT(A) has levied a penalty on

account of disallowances u/s 14A of the Act. We find that the

disallowances u/s 14A have been made on the basis of facts

disclosed in the returns of income and the same are being

legal in nature nor on which the AO has initiated the penalty

proceedings u/s 271(1)(c) of the Act and levied the penalty on

such disallowances. Therefore, we are of the considered

opinion that disallowances are made on account of legal

provision as enumerated in Rule 8D read with Section 14A of

the Act, which has been made on the facts disclosed in the

returns of income. Therefore, the penalty u/s 271AAA of the

Act in both the assessment years are not sustainable on such

legal disallowances in the light of decision of Hon'ble Supreme

Court in the case of CIT vs. Reliance Petro Products P.Limited,

(2010) 322 ITR 158 ( S.C.), wherein it was held that where

there is no finding that any details supplied by the assessee in

its returns of income are found to be incorrect or erroneous or

I.T.A.Nos. 420 & 421/Ind/2015 Shri Saurabh Kalani and Shri Manish Kalani – A.Y.20-09-10 Page 12 of 13

false, there is no question of inviting penalty u/s 271AAA of

the Act. A mere making of a claim which is not sustainable in

law, by itself, will not amount to furnishing inaccurate

particulars regarding income of the assessee. Such a claim

made in the return cannot amount to furnishing inaccurate

particulars. This view is also supported by the decision of

Hon'ble Supreme Court in the case of Price Water Cooper

Private Limited vs. CIT, 348 ITR 306 ( S.C.). Therefore, we are

of the view that the assessee has offered an explanation, which

is found to be bona fide and substantiated by the facts relating

to the same as disclosed in the returns of income. Therefore,

the penalty levied by the CIT(A) in both the assessment years

under appeal on account of disallowances of expenses u/s 14A

read with Rule 8D is not sustainable in law. This view is also

supported by the decision in the case of ACIT, Circle 36(1) vs.

Global Associates (I.T.A.No. 4819/Del/2012 dated 28.06.2013

(Trib-Delhi) and ACIT, Circle 30(1) vs. Manish Jain ( I.T.A.No.

5999/Del/2012 dated 14.06.2013 (Trib-Del). Hence, the

penalty levied by the CIT(A) is cancelled. Accordingly, ground

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nos. 1 to 5 for both the assessment years are allowed. Hence, the same are cancelled. 13. In the result, the grounds of appeal taken by the assessee in both the assessment years are allowed. 14. In the result, the appeals of the assessees are allowed.

The order has been pronounced in open court on the 13th January. 2017.

Sd/- Sd/- (डी.ट�.गरा�सया) (ओ.पी.मीना) �या�यक सद�य लेखा सद�य (D.T.GARASIA) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER

�दनांक /Dated : 13th January, 2017.

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