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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL
Before: SHRI R.S. SYALBEFORE SHRI R.S. SYALBEFORE SHRI R.S. SYALBEFORE SHRI R.S. SYAL
ORDER ORDER ORDER ORDER
This appeal by the Revenue arises out of the order passed by the learned CIT(A) on 12th May, 2014 deleting penalty of `5,32,830/- imposed by the Assessing Officer u/s 271(1)(c) of the Income-tax Act, 1961 in relation to assessment year 2008-09.
Briefly stated, the facts of the case are that the assessee is engaged in the business of manufacturing of ceramic glazed tiles and trading in tiles. The assessee furnished return declaring Nil income. The assessment was eventually completed at book profit of `19.37 crore u/s 115JB of the Act after making total additions of `2.74 crore. Certain reliefs were allowed by the learned CIT(A) in respect of the additions made by the Assessing Officer. Eventually, penalty of `5,32,830/- was imposed by the Assessing Officer on disallowance of foreign travelling expenses of relatives of directors amounting to 2 ITA-4320/Del/2014 `2,60,370/-; disallowance u/s 14A at `13,64,000/-; and disallowance out of credit card expenses to the tune of `1,00,000/-. The penalty so imposed by the Assessing Officer came to be deleted in the first appeal. The Revenue is aggrieved against the deletion of such penalty.
I have heard the rival submissions and perused the relevant material on record. It is observed that the assessee declared income of `19.27 crore which was adjusted against brought forward unabsorbed depreciation for earlier year and the net resultant income was Nil. The assessee also disclosed book profit u/s 115JB at `19.37 crore and tax was paid u/s 115JB at `2.27 crore. Even after order u/s 143(3) of the Act, the normal income of the assessee was assessed at ` Nil and income u/s 115JB at `19.37 crore.
Insofar as the three disallowances are concerned, I find that the first is the disallowance of foreign travelling expenses for which the Assessing Officer made an addition of `18.41 lakh and learned CIT(A) deleted the addition to the tune of `15.80 lakh, thereby confirming the part disallowance at `2.60 lakh. Thus, it is apparent that disallowance of foreign travel expenses has been considerably reduced in the first appeal. The assessee consistently took a stand that such foreign travelling expenses were incurred for the business purpose, which contention was albeit not accepted by the Assessing Officer. It goes without saying that penalty u/s 271(1)(c) of the Act can be imposed only when the assessee has concealed income or furnished inaccurate particulars of income. Where a deduction is claimed after making a proper disclosure, the mere fact that the disallowance has been made for a part of such deduction, it cannot be construed as a case covered u/s 271(1)(c) of the Act. The Hon'ble Supreme Court in the case of CIT
3 ITA-4320/Del/2014 Vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC) has held that no penalty can be imposed where a proper disclosure is made but the disallowance has been made by the Assessing Officer. In my considered opinion, the learned CIT(A) was justified in not upholding penalty on this amount of disallowance.
The second component of the penalty is disallowance u/s 14A amounting to `13,64,000/-. This disallowance was made by the Assessing Officer u/s 14A by applying Rule 8D. It is an admitted position that the assessee did not earn any exempt income during the year in question. The Hon'ble Jurisdictional High Court in a series of judgments including CIT Vs. Holcim India Pvt.Ltd. (2014) 90 CCH 081 (Del-HC) has held that in the absence of any exempt income, there cannot be any disallowance u/s 14A. In Joint Investment Pvt.Ltd. (2015) 372 ITR 674 (Del), the Hon'ble Jurisdictional High Court has held that disallowance u/s 14A cannot exceed the exempt income. These judicial pronouncements make it amply clear that there cannot be any disallowance u/s 14A if there is no exempt income. I am confronted with a situation in which the assessee has not earned any exempt income but the disallowance has been made to the extent of `13.64 lakh by applying Rule 8D. Despite there being no challenge to or sustenance of the disallowance u/s 14A, I am of the considered opinion that under no circumstance, such ill founded disallowance, not having any authority of law to stand on, can be considered for the purposes of imposition of penalty u/s 271(1)(c) of the Act. I, therefore, approve the view taken by the learned CIT(A) on this score.
The last component of the imposition of penalty is disallowance of `1 lakh out of credit card expenses. This disallowance was made by the Assessing Officer on ad-hoc basis which fact is borne out from the 4 ITA-4320/Del/2014 assessment order itself. There is hardly any need to highlight that no penalty can be imposed where the disallowance of expenses has been made on an ad-hoc basis. I, therefore, hold that the learned CIT(A) was justified in deleting the penalty on this account as well.
In the result, the appeal is dismissed. Decision pronounced in the open Court on 21st October, 2015.