TMI Blog2018 (8) TMI 1710X X X X Extracts X X X X X X X X Extracts X X X X ..... has also raised that the penalty is not leviable inasmuch as penalty notice did not specify the charge on which the penalty was being levied. We note that various case laws in this regard have also been mentioned in their respective favours by the ld. Counsel of the assessee and the ld. DR also. - Decided in favour of assessee - I.T.A. No. 3195/Mum/2018 - - - Dated:- 23-8-2018 - SHRI SHAMIM YAHYA, AM AND SHRI SAKTIJIT DEY, JM For The Appellant : Shri Ashwani Kumar For The Respondent : Shri R. P. Meena ORDER Per Shamim Yahya, A. M.: This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-8, Mumbai ( CIT(A) for short) dated 15.03.2018 and pertains to the assessment year ( A.Y. for short) 2014-15, wherein and whereunder the levy of penalty at ₹ 4,16,98,978/- u/s. 271(1)(c) of the Income Tax Act, 1961 ( the Act' hereinafter) has been sustained. 2. The grounds of appeal raised in this regard read as under: 1. That the order dated 15-03-2018 passed u/s 250(6) of the Income-tax Act, 1961 by the Commissioner of Income Tax (Appeals) - 8, Mumbai is against law and facts on the file as he was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . the volume of which stood at ₹ 160.78 crores which yielded no income. Hence, the A.O. noted that the assessee has diverted the interest bearing funds to make investment in shares/securities. Hence, he held that the interest expenditure cannot be held to be incurred wholly and exclusively for the purpose of business of the assessee. Hence, the Assessing Officer treated the entire interest expenses as non business expenditure and disallowed the same u/s. 36(1)(iii) of the Act. In these circumstances, the A.O. observed that penalty proceedings u/s. 271(1)(c) of the Act are initiated separately for furnishing an inaccurate particulars of income and/or concealment of particulars of income . 4. Without prejudice to the above, the A.O. held that the interest expenditure was directly attributable towards investment activity and, therefore, liable for disallowance u/s. 14A. Hence, the A.O. held that the entire interest expenditure is hereby disallowed u/s. 14A of the Act and added back to the total income of the assessee. 5. Subsequent to the above assessment order, notice u/s. 271(1)(c) of the Act was issued to the assessee dated 24.08.2016 The charged notified to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .O. opined that It is an attempt on the part of the assessee to evade legitimate taxes due to the Revenue and clearly falls within the ambit of furnishing of inaccurate particulars of income leading to concealment of the income . The A.O. observed that the assessee has not been able to substantiate that as to how its claim was bonafide. Without discussing the case laws referred by the assessee, the A.O. observed that the same were distinguishable. Hence, he held that the wrong claim by the assessee is purely an attempt of furnishing of inaccurate particulars of income and concealment of income by furnishing inaccurate particulates to the extent of the aforesaid disallowance. Accordingly, the A.O. levied penalty of ₹ 4,69,98,978/-. 8. Against the above order, the assessee appealed before the ld. CIT(A). 9. The ld. CIT(A) noted the ground raised by the assessee as under: That the order dated 28.02.2017 levying penalty u/s. 271(1)(c) of the Act passed by the Learned Assessing Officer is against law and facts on the file in as much as he was not justified to impose a penalty of ₹ 4,16,98,978/- for alleged concealment/furnishing inaccurate particulars of income, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the interest has been disallowed only on notional basis. The Ld. Assessing Officer has in the an alternative also held that the interest expenditure could be disallowed u/s 14A of the Act in which case also no case can be made out so as to attract the leviability of penalty u/s 271(1)(c) of the Act. Under the very scheme of things, the computation of disallowance u/s 14A of the Act i.e. the apportionment of expenditure attributable to earning exempt/nontaxable income cannot be done on a precise, numerical and mathematical basis but can, at best, be estimated. In this scenario an addition on account of disallowance u/s 14A of the Act can, at best and by its very nature, be termed as arising out of a variation in estimates as made by the Appellant in its return of income and by the Assessing Officer while framing the assessment proceedings. Thus, the difference in essence is on account of variations between two estimates as to the method/quantum of apportionment of expenditure attributable to earning exempt income and the same cannot tantamount to any willful or deliberate attempt at concealment of income or furnishing any inaccurate particulars of income. Penalty proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income or furnishing of inaccurate particulars . The mere nonacceptance of the appellant's submissions, and, without any positive evidence from the Ld. Assessing Officer that, the appellant had concealed income or furnished inaccurate particulars of income , doesnt ipso facto warrant penalty under section 27'1(1)(c) of the Act. Further, attention is invited to the following relevant judgements of various courts wherein, it has been held that a bona-fide claim of deduction, though, disallowed, cannot, by itself lead to the imposition of penalty: * Making an incorrect claim would not tantamount to furnishing of inaccurate particulars unless it was established that the assessee had acted with a mala fide intention or had claimed deductions being aware of the well settled legal position. The Tribunal had observed in plain words that the assessee had disclosed all the particulars along with the return of income and it was not a fit case for levy of penalty. The Tribunal deleted the penalty. Hon'ble Punjab Haryana High Court in the case ofCIT vs. Rubber Udvoct Vikas Pvt. Ltd.. [335 ITR 558 (P H)] * Law does not bar or prohibit an assessee for making a clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnished inaccurate particulars thereof, the Assessing Officer, will, not be justified in levying penalty under section 271(1)(c) of , the Act. There is no concealment, or, furnishing of inaccurate particulars of income, where the disallowance is based on bona-fide claims, debatable claims, and, difference ofopinion, as, held inter-a!ia by the Hon'ble Supreme Court in a recent judgment in the case of Commissioner of Income tax vs. Reliance Petroproducts Pvt. Ltd. reported in 322 ITR 158 (SC), the head notes of which read as under: A glance at the provisions of section 271(1)(c) of the Income-tax Act 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word particulars used in Section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy of penalty. It was further submitted that the assessment proceedings and penalty proceedings are separate and distinct proceedings. That making a disallowance of income in assessment cannot automatically lead to levy of penalty. Thereafter, various case laws were referred for the proposition that merely making a wrong claim would not lead to levy of penalty. The case laws referred included that from Hon ble Apex Court decision in the case of Reliance Petroproducts (P.) Ltd. (supra). 12. Considering the above, the ld. CIT(A) referred to the aspect that the A.O. noticed that the assessee has taken huge loans on which it is incurring huge expenditure by way of interest, whereas huge investment made by the assessee have yielded no income during the year under consideration. Therefore, the A.O. held that the interest expenditure was liable to be disallowed u/s. 36(1)(iii). The ld. CIT(A) noted that on the merits of the addition, the assessee has not filed first appeal before the ld. CIT(A). Hence, he opined that it only leads to the conclusion that the assessee has no dissatisfaction with the decision of the A.O. and that he has accepted the decision of the A.O. on the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases, the Hon ble ITAT Mumbai after considering the decision of Hon ble Karnataka High Court in Manjunatha Cotton Ginning Factory (supra) held that mere mistake in language used or mere non-striking off of inaccurate portion cannot by itself invalidate notice issued under section 274 of the Income Tax Act, 1961. These are administrative lapses/defects which cannot be the basis of deletion of penalty. Therefore, on this part, I do not find any reason to allow these grounds of the appellant. The appeal of the appellant fails. The appeal is dismissed. Penalty levied is confirmed. 14. Against the above order, the assessee is in appeal before us. 15. We have heard both the counsel and perused the records. The ld. Counsel of the assessee submitted that the penalty levied in this case is not at all sustainable inasmuch as the charge for which assessee was given notice was not specified in the penalty notice. 16. Further, the ld. Counsel of the assessee submitted that the assessee has duly raised the issue that the penalty is also liable to be deleted considering the merits of the addition also. He submitted that the elaborate submissions have been made before the ld.CIT(A). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws: 1) CIT vs. Manjunatha Cotton Ginning Factor [2013] 359 ITR 565 (Karn); 2) Shri Brijesh Kumar vs. ITO (in ITA No. 701/Chand/2017); 3) CIT vs. Shri Samson Perinchery (in ITA No. 1154, 953, 1097 1226 of 2014); 4) Sanghavi Savla Commodity Brokers P. Ltd. vs. The Asst. CIT (in ITA No. 1746/Mum/2011); 5) CIT vs. SSA s Emerald Meadows [2016] 242 Taxman 180 (SC); 6) CIT vs. Whiteford India Ltd. [2013] 219 Taxmann 98 (Guj)(MAG) 7) Pillai vs. Asst. CIT (in ITA No. 1339/Mum/2016); 8) Vidyavardhini vs. Asst. CIT [2012] 51 SOT 17 (Mum)(URO); 9) Sanraj Engineering Pvt. Ltd. vs. ITO (in ITA No. 5988/Del/2016); 10) CIT vs. Filatex India Limited [2015] 229 Taxman 555 (Del); 11) CIT vs. Shervani Hospitalities Limited [2013] 261 CTR 449 (Del); 12) CIT vs. Rubber Udyog Vikas (P.) Ltd. [2011] 335 ITR 558 (P H); 13) CIT vs. DCM Ltd. [2013] 359 ITR 101 (Del); 14) CIT vs. Larsen and Turbo Ltd. [2014] 366 ITR 502 (Bom); 15) CIT vs. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC); and 16) Waman Hari Pethe Sons Private Limited vs. DCIT (in ITA No. 2730/Mum/2016) 18. Per contra, the ld. DR submitted that the assessee s contention that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered opinion, the explanation by the assessee is a plausible one. The assessee s admission that it was not carrying on business was admittedly with respect to the transport business inasmuch as A.O. had himself admitted that the assessee was making huge investment by diverting interest bearing funds. In this view of the matter, the very premise that the assessee was not carrying on any business fails. By no stretch of imagination, that assessee s explanation can be said to be spurious, vexatious, mere bluster or frivolous. In similar situation, the Hon ble Apex Court in the case of Reliance Petroproducts (P.) Ltd. (supra) has held that disallowance of a claim made by the assessee or a wrong claim by the assessee cannot by itself lead to levy of penalty u/s. 271(1)(c) of the Act. 21. Hence, on the anvil of the aforesaid discussion and precedent, this penalty is not liliable to be sustained. 22. Another reason for the ld. CIT(A) upholding the penalty is that the assessee has not appealed against the addition. We find that this cannot at all lead to a conclusion that the levy of penalty is automatic when addition is not appealed against or for that matter it is sustained. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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