TMI Blog2012 (7) TMI 1010X X X X Extracts X X X X X X X X Extracts X X X X ..... unts, however the issue before us is only the issue of penalty on disallowance of ₹ 66,31,05,360/- made u/s.14A out of administrative and other expenses for earning the exempt dividend income of ₹ 23,77,75,384/- and exempt interest income of ₹ 2,32,81,13,284/-. The assessee had made elaborate submission on this issue and explained before the A.O. that it had not incurred any expenditure for earning the exempt income during the assessment proceedings. 3. During the course of the penalty proceedings also the assessee had submitted that investment giving rise to exempt income were made out of internal accrual and owned funds and, therefore, no part of the interest and administrative expenses can be disallowed and same has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no disallowance is possible. To my mind, it is not justified. Appellant has substantial tax free income amounting to ₹ 194.23 crores. It cannot be said that none of expenses can be attributed to earning of this income. There is nothing bonafide about the claim that there were no direct expenses. Consequently, the disallowance made by Assessing Officer is directly hit by Explanation 1 to section 271(1)(c). The penalty on the disallowance out of administrative expenditure is, therefore, held to be justified. The order of this extent is confirmed. 5. The learned Sr. Counsel on behalf of the assessee submitted that the assessee s explanation has not been found to be incorrect which is evident from the fact that neither the A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indirectly for the purpose of earning the exempt income. The disallowance has been ultimately made on adhoc basis only. Such an adhoc disallowance on account of administrative expenses for earning of dividend income cannot be held to be a cause for levy of penalty u/s.271(1)(c) for either concealment of income or furnishing of any inaccurate particulars of income. The assessee s explanation not only during the course of the assessment proceedings but also during the course of the penalty proceedings, have not been found to be incorrect or false. Therefore, in such a situation we do not find any reason to confirm the penalty on such an adhoc disallowance of administrative expenditure u/s.14A. Therefore, penalty sustained to this extent by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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