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2015 (10) TMI 2369 - ITAT PUNE

2015 (10) TMI 2369 - ITAT PUNE - TMI - Penalty levied under section 271(1)(c) - disallowance of Legal Charges, treating the same as disallowance u/s 14A - Held that:- We find no merit in the order passed by the Assessing Officer in this regard, where no satisfaction was recorded for initiating the penalty under section 271(1)(c) of the Act in respect of disallowance made under section 14A of the Act, while completing the assessment under section 143(3) of the Act, by the Assessing Officer or whi .....

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pted by the assessee because of no tax effect. But merely because an addition has been made in the hands of the assessee on a debatable issue, it cannot be held that the assessee has furnished inaccurate particulars of income in respect of the said disallowance under section 14A of the Act. Where the question of disallowance and its quantification are contentious, which lead to inference that difference of opinion between the assessee and the authorities were bona-fide and in such circumstances, .....

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M For The Appellant by : Shri Mukesh M. Patel For The Respondent : Shri Dheeraj Kumar Jain ORDER PER SUSHMA CHOWLA, JM : This appeal filed by the assessee is against the order of CIT(A)-V, Pune dated 21.01.2014 relating to assessment year 2004-05 against penalty levied under section 271(1)(c) of the Act, 1961. 2. The assessee has raised the following grounds of appeal :- On the facts and circumstances of the case and in law, 1. (a) The learned Commissioner of Income Tax (Appeals)-V, Pune (herein .....

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owance of legal charges u/s 40A(2)(b) of the Act, treating the payment to related party. (d) He ought to have appreciated that imposition of penalty by the Assessing Officer was on account of not being satisfied about the reasonableness of the expenses incurred on account of legal charges. (e) He further failed to appreciate that no penalty was imposed by Assessing Officer on disallowances u/s 14A on account of concealment or misstatement. (f) He ought to have appreciate that all documents, nece .....

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ppreciate that the expenditure incurred by the Assessee Company was in the ordinary course of business, for carrying out day to day function and for meeting the compliances under various statutes. Therefore, levy of penalty is not warranted. 2. It is prayed that penalty of ₹ 7,06,738/- levied u/s 271(1)(c) may be dropped. 3. Appellant craves leave to add to, alter amend or modify any of the grounds of appeal. 3. The issue raised in the present appeal is against the levy of penalty under se .....

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expenditure of ₹ 21,22,688/-, out of which ₹ 19,70,000/- were paid as Legal Fees to Shri S.A. Gundecha, who was appointed as consultant/retainership. Before the Assessing Officer, the assessee claimed that the said Mr. S.A. Gundecha advised the company whether the investment in shares of another company or not and also he advised the period for which the investment was to be held and also switching over to other investments & benefits therefrom. The future prospects and gains for .....

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e earlier years. The Assessing Officer further held that the payment appeared to be excessive and unreasonable to the services rendered by him. The Assessing Officer, thus, disallowed the legal fee paid of ₹ 19,70,000/- by invoking the provisions of section 40A(2)(b) of the Act. Penalty proceedings under section 271(1)(c) of the Act were initiated in respect of the aforesaid addition. Further, the assessee had claimed the dividend income of ₹ 13.14 crores as exempt. The Assessing Off .....

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ction 271(1)(c) in this regard was made by the Assessing Officer. 5. The assessee went an appeal before the CIT(A) against the assessment order passed by the Assessing Officer. The CIT(A) vide order dated 05.03.2009 was of the view that where Shri S.A. Gundecha was not a related person in terms of the provisions of section 40A(2)(b) of the Act, the Assessing Officer was not justified in invoking the said provisions of the Act. Further, where the person was competent enough to give advice on lega .....

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mpanies, retainership was paid to Mr. S.A. Gundecha and as per the CIT(A) the said amount directly related to the earning of the dividend income. The CIT(A), thus, held that the said expenditure of ₹ 19,70,000/- merits to be disallowed under section 14A of the Act, in addition to the disallowance of ₹ 1,52,688/- under section 14A of the Act. Consequent to the order passed by the Assessing Officer, penalty proceedings under section 271(1)(c) of the Act were completed by the Assessing .....

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e assessee had deliberately and intentionally omitted to make the disallowance under section 14A of the Act, therefore, the assessee was held to have furnished inaccurate particulars of income. Consequently, penalty under section 271(1)(c) of the Act was levied on the amount of ₹ 19,70,000/- at ₹ 7,06,738/-. 6. The CIT(A) noted the contention of the assessee that penalty under section 271(1)(c) of the Act was initiated against an addition of ₹ 19,70,000/- made under section 40A .....

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of ₹ 19,70,000/- was confirmed by the CIT(A), the same should be treated in similar manner as that of addition of ₹ 1,52,688/-. The CIT(A) held that this proposition of the assessee was difficult to be accepted as the assessee has failed to explain the addition of ₹ 19,70,000/- and consequently the provisions of section 271(1)(c) of the Act were applicable, as the explanation filed by the assessee has been rejected by the Assessing Officer as well as by the CIT(A). With regard .....

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e said order of the CIT(A). 8. The Ld. Authorized Representative for the assessee pointed out that while passing the assessment order, the Assessing Officer had initiated the penalty proceedings only in respect of one of the disallowance i.e. the disallowance made under section 40A(2)(b) of the Act. No penalty proceedings were initiated in respect of the disallowance made under section 14A of the Act. The CIT(A) while deciding the quantum appeal vide para 8 had held that no disallowances was war .....

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in the said levy of penalty under section 271(1)(c) of the Act. The Ld. Authorized Representative for the assessee also submitted that the order under appeal was assessment year 2004-05, wherein the provisions of Rule 8D of the Income Tax Rules, 1962 (in short the Rules ) were not applicable and hence there was no basis for quantification of any disallowance under section 14A of the Act. Reliance was placed on the ratio laid down by the Delhi Bench of the Tribunal in ACIT vs. Jindal Equipment Le .....

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r furnished inaccurate particulars of income. Before levying the penalty under section 271(1)(c) of the Act, the main limb of the said section are to be satisfied. The requirement of section is that satisfaction has to be recorded by the Assessing Officer or Commissioner (Appeals) or the Principal Commissioner, in the course of any proceedings under the Act, where such officer is satisfied that any person has concealed the particulars of income or furnished inaccurate particulars of such income, .....

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c) of the Act. The satisfaction has to be recorded by the officer in a proceeding which is separate from the penalty proceedings. The section empowers the Assessing Officer during the course of both the assessment or reassessment, the CIT(A) during the course of appellate proceedings, Principal Commissioner or Commissioner during the course of 263 proceedings or any proceedings which he is empowered to carry out and after recording such satisfaction, the assessee is given an opportunity to rebut .....

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nt of disallowance under section 14A of the Act. The total disallowance of section 14A of the Act was computed by the Assessing Officer at ₹ 21,22,688/- i.e. equivalent to the expenditure claimed by the assessee in its Profit & Loss Account. Since ₹ 19,70,000/- was part of this ₹ 21,22,688/- and the same had been disallowed by invoking the provisions of section 40A(2)(b) of the Act, the disallowance under section 14A of the Act was made at ₹ 1,52,688/-. The Assessing .....

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addition of ₹ 19,70,000/- made by invoking the provisions of section 40A(2)(b) of the Act but the CIT(A) had held that the disallowance under section 14A of the Act is to be made at ₹ 21,22,688/- and not ₹ 1,52,688/-, which was made by the Assessing Officer. 12. The first issue which arises in the present appeal is that irrespective of the quantum of disallowance under section 14A of the Act, where no satisfaction was recorded by the Assessing Officer for initiation of the pena .....

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itiating the penalty under section 271(1)(c) of the Act in respect of disallowance made under section 14A of the Act, while completing the assessment under section 143(3) of the Act, by the Assessing Officer or while making the enhancement by CIT(A). 13. The second aspect of the issue is whether the issue of the disallowance to be made under section 14A of the Act being debatable, attract the levy of penalty for concealment under section 271(1)(c) of the Act. Though the provisions of section 14A .....

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