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2016 (1) TMI 895 - ITAT MUMBAI

2016 (1) TMI 895 - ITAT MUMBAI - TMI - Penalty u/s 271(1)(c) - disallowance u/s 14A - technique adopted for disallowance - Held that:- While disallowing the interest expenses incurred in relation to the exempt income, the assessee adopted the gross current assets in the balance sheet whereas, the AO had taken the net assets (current assets less current liabilities) and on account of assessing the indirect expenses, the assessee had applied 0.5% of average investment or actual dividend received w .....

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is assumed that the claim of the assessee is wrong, then, no doubt, the claim of the assessee is not to be considered as a case of furnishing of inaccurate particulars or concealment of income. The decision relied upon by the assessee in the case of CIT Vs Reliance Petrochemicals (P) Ltd. (2010 (3) TMI 80 - SUPREME COURT) is applicable in the present case. Thus we are unable to agree with the order of the learned CIT(A) confirming the penalty levied by the AO u/s 271 (1) (c) of the Act - Decide .....

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T(A)-9/DCIT-5(3)/53/2012-13 u/s 271 (1) (c) of the Income Tax Act, 1961 [hereinafter referred to as the Act ] raising the following sole effective ground. 1. On the facts and in circumstances of the case and in law the CIT(A) erred in upholding the action of the AO to levy penalty of ₹ 8,66,165 under section 271(1) (c) of the Act on the alleged ground that the Appellant has furnished inaccurate particulars of income. 2. The assessee is a Company engaged in the business of manufacturing and .....

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wed a sum of ₹ 52,39,420/- u/s 14A and expenses relating to the exempt income of dividends, but the said disallowance was not in accordance with Rule 8D. The assessee contended before the AO that the assessee company derived interest income on loans given by it and capital gains on investments made and the expenses incurred are attributable to earning of both taxable income and exempt income; so the proportionate expenses relating to exempt income were suo moto disallowed. The AO did not a .....

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mpute the disallowance under Rule 8D and it amounted to furnishing of inaccurate particulars of income. On this basis, the AO levied penalty of ₹ 8,66,165/- u/s 271(1) (c) of the Act. The assessee carried the matter in appeal before the learned CIT(A). The learned CIT(A) confirmed the order of the AO. Being aggrieved, the assessee is now in appeal before us. 3. We have heard the rival contentions and perused the materials on record. The learned AR for the assessee argued that the assessee .....

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ITA No.2585/Mum/2013. It is also argued that while disallowing the indirect expenses under Rule 8D (iii), the assessee applied 0.5% of the average investment or actual dividend received whichever is lower. Thus, the assessee had followed the ratio that if no dividend is actually received, no disallowance was computed under Rule 8D (iii) and when the dividend is received, expenses deemed to be incurred for earning such income cannot exceed the exempt income itself. In this regard, the assessee c .....

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t is also further argued that in the instant case, two possible views can be taken. Therefore, in the facts and circumstances of the present case, no penalty is leviable in view of the law settled in the case of (i) CIT Vs G. D. Naidu and others [165 ITR 63) (Mad)]and (ii) CIT Vs Sivananda Steels (256 ITR 683 (Mad)] and submitted that the order of the learned CIT(A) be set aside. 4. On the other hand, the Departmental Representative [hereinafter referred to as the DR ] has refuted the said conte .....

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nce sheet whereas, the AO had taken the net assets (current assets less current liabilities) and on account of assessing the indirect expenses, the assessee had applied 0.5% of average investment or actual dividend received whichever was lower. Thus, the assessee had followed the ratio that if no dividend is actually received, no disallowance is to be made and when dividend is received, expenses deemed to be incurred for earning such income cannot exceed the exempt income itself. The view taken .....

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micals (P) Ltd. (supra) is applicable in the present case. 6. Moreover, the same issue has been decided by the ITAT, Mumbai E Bench vide order dated 20-03-2015 passed in ITA No.6253/Mum/2013 for the AY 2009-10 by observing in Para 7 and 8 as under: 7. The disallowance u/s 14A is by way of fiction but such fiction is not for levy of penalty also. For levy of penalty the AO must show that there was furnishing of inaccurate particulars of income or that the explanation furnished by the assessee was .....

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