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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI D.T. GARASIA & SHRI O.P. MEENA
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.
The assessee has taken the following grounds of
appeal :-
That the ld. CIT(A) erred in levying the penalty of Rs. 67,480/- u/s 271(1)(c) of the Income-tax Act, 1961, during the appeal proceedings on the addition made u/s 14A of the Income-tax Act, 1961. During the assessment proceedings.
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.
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.
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.
That the penalty levied is unlawful and not based on the facts of the case.
I.T.A.Nos. 422/Ind/2015 A.Y.2006-07 –Smt.Padma Kalani, Page 3 of 13 Indore.
Briefly stated the facts as culled out from the lower
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.
Being aggrieved, the assessee has filed the appeal
before the ld. CIT(A).
Before him, the same arguments were advanced by the
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/-.
Being aggrieved by the order of the CIT(A), the
assessee has filed this appeal before the Tribunal.
The Ld. Counsel for the assessee submitted that
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).
On the other hand, the ld. Departmental
Representative relied on the order of the CIT(A).
We have considered the facts, rival submissions and
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.
In the result, the grounds of appeal taken by the
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*