SMT. PADMA KALANI,INDORE vs. THE DCIT 1(1), INDORE

आदेश /O R D E R

PER O.P. MEENA, ACCOUTANT MEMEBR. This appeal is filed by the assessee against the order of

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

I.T.A.Nos. 422/Ind/2015 A.Y.2006-07 –Smt.Padma Kalani, Page 2 of 13 Indore.

referred to as the CIT(A)] dated 21.01.2015, for imposition of

penalty amounting to Rs. 67,480/- and pertains to

assessment year 2006-07.

appeal :-

I.T.A.Nos. 422/Ind/2015 A.Y.2006-07 –Smt.Padma Kalani, Page 3 of 13 Indore.

authorities are that the assessee is an individual and belongs

to Kalani Group. A search action u/s 132 of the Act was

carried out at the residential premises of the assessee on

16.04.2009. Accordingly, the proceedings u/s 153A were

initiated by issue of notice u/s 153A dated 22.10.2010, in

response to which return of income was filed on 06.12.2010

declaring total income at Rs. 3,87,839/- for the assessment

year 2006-07, which was assessed u/s 143(3) read with

Section 153A on 27.12.2011 by determining total income at

Rs. 11,020/- for the assessment year 2006-07 by making

disallowances at Rs. 3,98,857/- u/s 14A of the Act for the

assessment year 2006-07. Penalty proceedings u/s 271(1)(c) of

the Act were also initiated vide notices u/s 274 read with

Section 271(1)(c) dated 27.12.2011. It was explained by the

assessee that the assessee has declared an amount of Rs.

5,20,000/- for assessment year 2006-07 as admitted during

the course of search u/s 132(4) of the Act and the same has

been disclosed in the returns of income filed u/s 153A of the

I.T.A.Nos. 422/Ind/2015 A.Y.2006-07 –Smt.Padma Kalani, Page 4 of 13 Indore.

Act. However, the assessee has not considered this income in

her return of income filed u/s 139(1) on 24.07.2006.

Accordingly, the penalty u/s 271(1)(c) of the Act is leviable.

The AO was of the view that as per Explanation (5A) to Section

271(1)(c) of the Act, the assessee shall be deemed to be

concealed income where due date for filing of the return is

expired u/s 139(1), but the same is included in the return filed

after search u/s 139(4) of the Income-tax Act, 1961.

Accordingly, the AO invoked the provisions of Explanation (5A)

to Section 271(1)(c) of the Act and levied a minimum penalty of

Rs. 1,60,000/- for assessment year 2006-07 as against the

minimum penalty worked out at Rs. 67,480/- u/s 271(1)(c) of

the Act.

before the ld. CIT(A).

assessee, which are reproduced by the ld. CIT(A) in his

appellate order. The ld. CIT(A) noted that there is no dispute

on the facts that after search, the assessee admitted certain

I.T.A.Nos. 422/Ind/2015 A.Y.2006-07 –Smt.Padma Kalani, Page 5 of 13 Indore.

un-accounted income, which was duly incorporated in the

returns filed u/s 153A and tax and interest paid on it. The AO

has raised a technical point that disclosure of income made in

the statement u/s 132(4) of the Income-tax Act, 1961, was a

combined disclosure of entire group against which letter of

name-wise bifurcation was submitted. This was done by the

assessee in consonance with the statement recorded during

search u/s 132(4) of the Act, where in reply to question

reproduced in the assessment order, the main person of the

group stated that he disclosing Rs. 30 crores on behalf of

individual of Kalani Family and their Company to cover

undisclosed income, receipts and valuable articles found and

seized. Therefore, subsequent bifurcation of such disclosure

in the names of various individuals and companies was an

extension of such statement only. The statement also give

basis of disclosure which was “undisclosed income receipts”.

The AO accepted that disclosed as such without any objection

and even basis of earning such income was also not disputed

by the AO. In fact, the AO has himself written in assessment

I.T.A.Nos. 422/Ind/2015 A.Y.2006-07 –Smt.Padma Kalani, Page 6 of 13 Indore.

order that income returned in the return filed u/s 153A was

as such accepted and no further addition was made.

Therefore, the ld. CIT(A) held that no penalty can be levied on

the amount disclosed by the assessee at Rs. 5,20,000/- and

duly reflected the same in the return. However, there is an

addition of Rs. 3,98,857/- u/s 14A of the Income-tax Act,

1961. For making various investment out of borrowed fund

and since this addition is not challenged in appeal that itself is

a proof of concealment of such income as held in the case of

Chirag Metal Rolling Mills Private Limited, 305 ITR 29 (MP).

Such amount was not disclosed during search but was

detected by the AO during assessment. Therefore, such

disallowances had twin elements – there was a clear case of

diversion of borrowed funds in various statement and on such

diversion disallowance of interest expenses u/s 14A of the Act

was not made suo motu by the assessee. According to the

CIT(A), there was a clear case of concealment of such income

and non levy of penalty of such amount was a mistake

apparent from record, which is being rectified here by the

I.T.A.Nos. 422/Ind/2015 A.Y.2006-07 –Smt.Padma Kalani, Page 7 of 13 Indore.

undersigned by using co-terminus powers of CIT(A), as a

result penalty of Rs. 67,480/- is levied on the addition of Rs.

3,98,857/-.

assessee has filed this appeal before the Tribunal.

penalty proceedings u/s 271(1)(c) of the Act were initiated on

the amount of Rs. 5,20,000/- surrendered during the course

of search proceedings by the assessee on which penalty of Rs.

1,60,000/- was levied. The assessee filed an appeal before the

ld. CIT(A), who has deleted the penalty levied of Rs.1,60,000/-

u/s 271(1)(c) of the Act, but erred in levying the penalty of Rs.

67,480/- u/s 271(1)(c) of the Act on the disallowance of Rs.

3,98,857/- 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 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

I.T.A.Nos. 422/Ind/2015 A.Y.2006-07 –Smt.Padma Kalani, Page 8 of 13 Indore.

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 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

I.T.A.Nos. 422/Ind/2015 A.Y.2006-07 –Smt.Padma Kalani, Page 9 of 13 Indore.

incurred for the business purpose and there was no contrary

observation by the AO. Lastly disallowance made u/s 14A of

the Act is on account of legal provision on which facts and

figures were correctly disclosed in the return 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 decision of Tribunal in the case

of ACIT, Circle 30(1) vs. Manish Jain, I.T.A.No. 5999/Del/12

dated 14.6.2013, wherein penalty levied u/s 271(1)(c) on

I.T.A.Nos. 422/Ind/2015 A.Y.2006-07 –Smt.Padma Kalani, Page 10 of 13 Indore.

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. 5,20,000/- 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,

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

penalty for the assessment year under appeal on account of

I.T.A.Nos. 422/Ind/2015 A.Y.2006-07 –Smt.Padma Kalani, Page 11 of 13 Indore.

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

return of income. Therefore, the penalty u/s 271(1)(c) of the

Act for the assessment year under appeal is 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 false, there is no question of inviting penalty u/s

271(1)(c) of the Act. A mere making of a claim which is not

I.T.A.Nos. 422/Ind/2015 A.Y.2006-07 –Smt.Padma Kalani, Page 12 of 13 Indore.

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) for the

assessment year 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 nos. 1 to 5 for both the

assessment years are allowed.

I.T.A.Nos. 422/Ind/2015 A.Y.2006-07 –Smt.Padma Kalani, Page 13 of 13 Indore.

assessee for the assessment year under appeal are allowed. 11. In the result, the appeal of the assessee is 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.

CPU*