M. PALLONJI & CO. P.LTD,MUMBAI vs. ADDL CIT RG 2(2), MUMBAI

In this appeal, the assessee has challenged the order dated 5th February 2014, passed by the learned Commissioner (Appeals)–5, Mumbai, upholding the imposition of penalty under section 271(1)(c)

Briefly the facts are, the assessee a company filed its return of income for the impugned assessment year on 31st October 2007, declaring total income of ` 51,54,75,956. During the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has declared dividend income of ` 12,70,858, which is claimed to be exempt under section 10(34) of the Act. Besides, the assessee also claimed exemption under section 10(35) of the Act of income earned from mutual funds amounting to ` 34,09,10,346. He also found that the assessee has made investment in tax FREE bond from which income of ` 1,08,67,131, was generated during the relevant previous year which has been claimed exempt under section 10(15) of the Act. He further noticed that the assessee himself disallowed expenditure of ` 2,11,525, under section 14A of the Act for earning the exempt income. On the basis of the above facts, the Assessing Officer called upon the assessee to explain why disallowance under section 14A should not be worked out in terms with rule 8D. In reply to the query raised by the Assessing Officer, it was submitted by the assessee that as the assessee itself has made disallowance under section 14A of the Act, no further disallowance under rule 8D should be made. However, not being satisfied with the explanation of the M. Pallonji & Co. Pvt. Ltd. 3 assessee, the Assessing Officer made further disallowance of ` 1,00,10,231, under section 14A. Further, the Assessing Officer disallowed outstanding service tax liabilities of ` 86,71,763, invoking the provisions of section 43B of the Act. Apart from the aforesaid additions, the Assessing Officer also added an amount of ` 17,18,960, towards VAT refund accrued. On the basis of aforesaid additions, the Assessing Officer initiated proceedings for imposition of penalty under section 271(1)(c) of the Act.

During the penalty proceedings, the Assessing Officer noticed that the additions made by the Assessing Officer towards disallowance made under section 14A of the Act, as well as accrual of VAT refund have been deleted by the first appellate authority and the only addition which survived was an amount of ` 86,71,763 on account of outstanding liability of service tax. He, therefore, proceeded to impose penalty under section 271(1)(c) by treating the said addition as concealed income of the assessee. Being aggrieved of the said penalty order, the assessee preferred appeal before the first appellate authority. However, the first appellate authority also upheld the imposition of penalty.

We have considered the submissions of the parties and perused the material available on record. The learned Counsel for the assessee

In the result, assessee’s appeal stands allowed. Order pronounced in the open Court on 09.10.2015