TMI Blog2012 (11) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... s Department s appeal for the assessment year 2007-08 against the order dated 01.08.2011 passed by the Commissioner of Income Tax(Appeals)XIX, New Delhi, whereby he has cancelled the penalty of Rs. 5,20,770/- levied by the AO u/s 271(1)(c) of the Income Tax Act. 2. The assessee is a company deriving income from manufacture of Automotive and Industrial Gaskets from OEM and also from local markets. In the assessment proceedings, the AO made the following additions in the scrutiny assessment vide order dated 8.12.2009:- 1. Additional depreciation disallowed 12,77,824/- 2. Disallowance u/s 14A of the I.T.Act. 2,09,365/- 3. Disallowance of sales promotion expenses 60,000/- 3. In the penalty proceedings, the assessee submitted that concealment penalty be not levied, it being a case of mere disallowance of expenses where there was no willful default in furnishing particulars of income and no inaccurate particulars of income had been furnished; that the assessee company was under a bona fide belief that the provisions of section 14 A of the Act read with Rule 8D of the Rules were applicable w.e.f. assessment year 2008-09 and not for the year under cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he burden to prove the correctness of the explanation offered by the assessee is on the assessee and in the present case, the assessee has miserably failed to discharge the onus; and that it has not been appreciated the assessee claimed expenses which could not be substantiated during the assessment proceedings. 7. On the other hand, the learned counsel for the assessee has strongly supported the impugned order. It has been contended that the order of the ld. CIT(A) is well versed and does not contain any error whatsoever; that the assessee had duly furnished all the requisite particulars of its income; that the explanation offered was a bona fide explanation; and that such explanation was not found to be either false or incorrect. Reliance has been placed on the following case laws:- 1. CIT v. Reliance Petroproducts Pvt. Ltd. , 322 ITR 158(SC); 2. Shri Sardarmal Sancheti Charitable Trust v. Union of India and Others , 322 ITR 167(Raj); 3. CIT v. International Audio Visual Company , 288 ITR 570 (Del); 4. CIT v. Bacardi Martini India Ltd. , 288 ITR 585(Del); 5. K.C. Builders v. ACIT , 265 ITR 562(SC); and 6. CIT v. IFCI Ltd. , 328 ITR 611(Del). 8. We have hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income Tax Act and Rule 8D of the Income Tax Rules. In this connection we did not incur any interest expenses (direct or indirect) during the year ended 31st March, 2007 on earning of exempted income received on invested fund. The funds were collected through a fresh public issue of equity capital of Rs. 50.00 crores (Rs. 4.90 crores as equity capital and Rs. 45.10 crores as share premium) during the year ended 31st March, 2006. These funds were invested only during the intermediary period till the time used for setting up the new project for which public issue was made. As per provision of section 14A, there was no such method prescribed to determine the amount of indirect expenditure in relation of exempted income. After e-filing our return of income on 30.10.2007, a new Rule 8D was introduced vide notification No. 45/2008 dated 24.3.2008, i.e., during the assessment year 2008-09 and much later than e-filing of Income Tax return. We were under impression that this Rule will be applicable from assessment year 2008-09. Hence, we did not consider the provisions of Rule 8D while computing the taxable income. The above submission was made during the cause of assessment proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, the stand maintained by the assessee all through is that it had not incurred any expenditure directly or indirectly for earning the exempted income. The funds for investment were collected through a fresh public issue of equity capital of Rs. 50 crores, i.e., 4.9 crores as equity capital and 45.10 crores as share premium during the year 31.3.2006. The assessee maintained that the interest expenses had no connection with the investment; that Rule 8D of the Rules had wrongly been applied to the year under consideration, the said Rule having been introduced vide notification dated 24.3.08; that no penal consequences could visit the consequential disallowance on the allegation of furnishing of inaccurate particulars of income; that even otherwise, the disallowance u/s 14A of the Act, made on estimated basis, could not lead to levy of concealment penalty. 12. In this regard, even discounting the assessee s stand of penalty not being leviable on disallowance made on estimated basis, it is seen that as held by the Hon ble Bombay High Court in the case of Godrej and Boyce Manufacturing Co. Ltd. V. DCIT , 234 ITR 1(Bom), the provisions of Rule 8D of the Rules are not applicable retro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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