SAI SHIPPING CO. P.LTD,MUMBAI vs. DCIT 5(3), MUMBAI

This appeal, filed by the assessee company, being 07th February, 2013 passed by learned Commissioner of Income Tax (Appeals)- 9, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2009-10, the appellate proceedings before the learned CIT(A) arising from the penalty order dated 28th June 2012 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 271(1)(c) of the Income Tax Act,1961 (Hereinafter called “the Act”).

The grounds of appeal raised by the assessee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-

Aggrieved by the penalty order dated 28-06-2012 passed by the AO u/s. 271(1)(c) of the Act , the assessee filed first appeal with learned CIT(A) which was dismissed by the learned CIT(A) vide orders dated 07-02-2013. The assessee mainly reiterated its submissions before the learned CIT(A) as were made before the AO which are not repeated again. The learned CIT(A) rejected the contentions of the assessee and held that the assessee did furnished inaccurate particulars of the income in the return of income filed with the Revenue w.r.t. statutory disallowance u/s 14A of the Act r.w.r. 8D of Income Tax Rules, 1962. The said disallowance as was made by the AO was accepted by the assessee and no appeal is filed against the assessment order of the AO which has attained finality. It was observed by the learned CIT(A) that the learned AO distinguished the case laws relied upon by the assessee. The learned CIT(A) held that these is an element of strict liability on the assessee for concealment for giving inaccurate particulars of income while filing the return of income with the Revenue. Thus, the learned CIT(A) confirmed the penalty as levied by the AO vide appellate order dated 07-02-2013.

Aggrieved by the appellate order dated 07-02-2013 passed by learned CIT(A) , the assessee preferred second appeal with the Tribunal.

None appeared before us on behalf of the assessee when the appeal was called for hearing. The learned DR relied on the orders of the authorities below.

We have heard the learned DR and gone through the orders of the authorities below including case laws referred to in the orders of the authorities below. The assessee earned exempt income while did not disallow the expenditure incurred in relation to the earning of the exempt income as mandated u/s 14A of the Act. The assessee claimed that no expenditure was incurred in relation to the earning of exempt income . The assessee on being ITA 3197/Mum/2013 6 asked to show cause as to why no expenditure was disallowed which was incurred in relation to the earning of income which does not form part of total income, came forward with voluntary disallowance of 0.5% of average investment which comes to Rs.4,68,166/- as per Section 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962. The AO held that he is not satisfied with the working of disallowance of expenditure incurred by the assessee in relation to the earning of exempt income as submitted by the assessee and recorded satisfaction to that effect and thereafter then proceeded to apply Section 14A(2) of the Act read with Rule 8D of Income Tax Rules, 1962 having regards to the accounts of the assessee whereby disallowance of Rs.4,68,166/- was made by the AO of the expenditure incurred by the assessee in relation to earning of exempt income in terms of Section 14A of the Act by applying Rule 8D(2)(iii) of Income Tax Rules, 1962 by adopting 0.5% of average investment held by the assessee in a stereo typed manner without looking into and analyzing the accounts of the assessee and thereafter working out of expenditure incurred by the assessee in relation to earning of exempt income which is the mandate of Section 14A of the Act or coming to a conclusion that it is not possible from the accounts maintained by the assessee to work out disallowance of expenditure as are incurred for earning exempt income before proceeding to apply Rule 8D of Income Tax Rules, 1962. No such finding is recorded by the AO that he made an attempt/effort to scrutinize the books of accounts and records of the assessee to identify the actual expenditure incurred by the assessee in relation to the earning of exempt income before invoking Rule 8D of Income Tax Rules, 1962 read with Section 14A of the Act. The assessee accepted the assessment order passed by the AO u/s 143(3) of the Act whereby no appeal was filed by the assessee against the addition of Rs.4,68,166/- made by the AO u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962 but that itself is not sufficient to fasten assessee with liability under penalty provisions as contained u/s 271(1)(c) of the Act without satisfying the mandate of Section ITA 3197/Mum/2013 7 271(1)(c) of the Act. Under the peculiar facts and circumstances of the case as detailed above, in our considered view, the action of the AO in making disallowance of expenditure incurred by the assessee in relation to earning of exempt income in the afore-stated manner without complying with the provisions of Section 14A of the Act to identify the expenditure incurred by the assessee in relation to earning of exempt income having regards to the accounts of the assessee or coming to the conclusions that it is not possible to identify the amount of expenditure incurred by the assessee in relation to earning of exempt income keeping in view the manner in which the accounts are maintained by the assessee , the mandate for levying of penalty u/s 271(1)(c) of the Act is not fulfilled more-so it was the contention of the assessee that no expenditure has been incurred by the assessee in relation to earning of exempt income which does not form part of the total income . The contention of the assessee was that no expenditure was incurred by the assessee for earning of exempt income and it was all the more incumbent on the authorities below to have identify and ascertained the expenditure incurred by the assessee in relation to earning of exempt income having regard to the accounts of the assessee, which exercise to ascertain disallowance having regard to the accounts of the assessee was unfortunately had not been undertaken by the authorities below and in the absence thereof, we are afraid penalty proceedings u/s 271(1)(c) of the Act are not sustainable despite the fact that the assessee voluntarily came forward with the amount of disallowance as per Section 14A of the Act read with Rule 8D of Income Tax Rules, 1962 and did not file appeal against the additions so made by the AO in assessment proceedings. Thus, in our considered view the penalty of Rs.1,59,130/- as levied by the AO u/s 271(1)(c) of the Act and as confirmed by the learned CIT(A) is not sustainable in the eyes of law and is hereby ordered to be deleted. We order accordingly.

In the result, appeal filed by the assessee in 2009-10 is allowed ..