TMI Blog2010 (10) TMI 1072X X X X Extracts X X X X X X X X Extracts X X X X ..... deration of various cases relied upon by the assessee, it is found that three major propositions arise therefrom (a) penalty proceedings are quasi-criminal in nature and, therefore, it is for the revenue to establish contumacious conduct on the part of the assessee; (b) if all facts in respect of a claim have been furnished fully and correctly and no falsity is found therein, then, the claim made on the basis of such facts does not lead to inference of concealment of income and (c) the penalty is not leviable when there is honest difference of opinion between the assessee and the authorities in respect of admissibility of a claim. Thus, it can be concluded that the claim was made on the basis of tax audit report. There is no allegation by the AO that there was any collusion between the auditor and the assessee to enhance the loss in the return of income by ignoring the provision contained in section 14A. Therefore, it can be said that the assessee has furnished an explanation which is bona fide. However, it is also a fact that such segregation is beset with lot of problems as the issue has finally been laid to rest by introduction of Rule 8D in the Income-tax Rules in the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are generating mainly dividend income exempt from tax u/s 10(34) of the I.T.Act, 1961. Moreover, assessee itself is showing the profits from share transactions under the head capital gains. Details of dividend received for the year under consideration show that the assessee has made substantial investments in other companies also, and is receiving dividend income from these companies. During the year under consideration assessee has earned interest income of ₹ 14,38,977/- and paid interest amounting to ₹ 1,10,02,323/-. Even if it is assumed that assessee has advanced loans out of the borrowed funds at the same rate of interest at which it has borrowed these funds, then the total interest paid by the assessee should not exceed the amount of interest earned by it. Therefore, the excess of interest paid by the assessee over the interest earned by it pertains to funds borrowed for investments yielding dividend income and long term capital gains exempt from tax. The wordings of section 14A of the I.T. Act also clear that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income. In vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 4.1 In order to support the aforesaid contention, it was submitted that section 14A was inserted in the Act by Finance Act, 2001, retrospectively from 1.4.1962. The section was amended by Finance Act, 2006 with effect from 1.4.2007 providing for mode and method of disallowance to be made under this section. Finally, Rule 8D was framed in the year 2008, prescribing the method to arrive at the amount to be disallowed under this provision. Thus, till the date of filing the return of income of this year, there was no rule prescribed to arrive at the amount to be disallowed. In such a situation, there could be a genuine difference of opinion between the assessee and the AO as to whether any amount was to be disallowed at all and, if yes, the mode and method of computation of the amount. 4.2 The ld. counsel placed reliance on the decision of Hon ble Madras High Court in the case of CIT Vs., Late G.D. Naidu Others (1987) 165 ITR 63. In this case, the Tribunal came to the conclusion that the compensation paid by the firm consists of three components- (a) share in the assets, (b) share in the goodwill, and (c) restrictive covenant in terms of section 36(2) of the Partnership Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g legal advice. The Hon ble Supreme Court mentioned that the proceedings are quasi-criminal in nature and the burden lies on the department to establish that the assessee concealed his income. 4.7 The grounds of appeal had made a mention about the decision of Hon ble Delhi High Court in the case of CIT Vs. Zoom Communication (P) Ltd. (2010) 191 Taxman 179. It was submitted that the issue of nondeduction of income-tax is well settled in as much as the tax paid is not expenditure incurred for earning the income but it is appropriation of income. Such, however, is not the case in respect of disallowance u/s 14A. The disallowance is contentious in nature particularly before introduction of Rule 8D in the Income-tax Rules, 1962. The ground had also referred to the decision of Hon ble Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd. (2010) 322 ITR 158. It was submitted that this decision goes in favour of the assessee. The decision is that if all particulars regarding a claim have furnished and no falsity is found therein, then the disallowance of the claim does not lead to inference of furnishing inaccurate particulars of income. 5. We have considered the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income. However, the accounts have been audited and the return was accompanied by the tax audit report. The latter did not suggest any disallowance u/s 14A. Therefore, it can be inferred that all expenses were claimed in full as the auditors did not suggest disallowance of any part of the expenditure relating it to the dividend income. Thus, it can be concluded that the claim was made on the basis of tax audit report. There is no allegation by the AO that there was any collusion between the auditor and the assessee to enhance the loss in the return of income by ignoring the provision contained in section 14A. Therefore, it can be said that the assessee has furnished an explanation which is bona fide. In regard to proposition at (c) above, the finding of the ld. CIT(A) is that the disallowance is disputable. The section, as it existed at the time of filing the return, does contain a provision for disallowance of expenditure which is related to non-taxable income. Therefore, it is expected of any assessee to attempt at segregating expenditure which is related to such a claim. No attempt has been made in this behalf. However, it is also a fact that such segregation is beset with lot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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