E IN INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER I.T.A. No.3197/Mum/2013 ( Assessment Year : 2009-10) Sai Shi pping Company Assistant Private Limited Commissioner of Income v. 1109,Embassy Centre Tax 5(3 ), Nariman Point Room No. 573, Mumbai-400 021 Aayakar Bhavan, M.K. Marg, Mumbai 400 020. PAN : AABCS1298J ( Appellant) ( Respondent) Assessee by None Revenue by : Shri Vishwas Jadhav,DR Date of Hearing : 02-08-2016 Date of Pronouncement : 18-10-2016 O R D E R PER RAMIT KOCHAR, Accountant Member This appeal, filed by assessee company, being ITA No. 3197/Mum/2013, is directed against appellate order dated 07th February, 2013 passed by learned Commissioner of Income Tax (Appeals)- 9, Mumbai (hereinafter called CIT(A) ), for assessment year 2009-10, appellate proceedings before learned CIT(A) arising from penalty order dated 28th June 2012 passed by learned Assessing Officer (hereinafter called AO ) u/s 271(1)(c) of Income Tax Act,1961 (Hereinafter called Act ). 2 ITA 3197/Mum/2013 2. grounds of appeal raised by assessee in memo of appeal filed with Income Tax Appellate Tribunal, Mumbai (hereinafter called Tribunal ) read as under:- 1. On facts and circumstances of appellant s case and in law ld. CIT(A) erred in confirming penalty imposed by Assessing Officer u/s 271(1)(c) of Income Tax Act,1961 amounting to Rs.1,59,130/- on disallowance on account of Rule 8D r.w.s. 14A. 3. Brief facts of case are that assessee is engaged in business of shipping agent, derivative trading & transport and logistics activities. During quantum assessment proceedings u/s 143(3) read with Section 143(2) of Act, AO observed that assessee has earned income which does not form part of total income , while assessee has not disallowed expenditure incurred in relation to earning of income which does not form part of total income. assessee was asked to explain same and assessee in reply submitted as under: In respect of such disallowance u/s 14A of Income-tax Act,1961 , we hereby voluntarily disallow expenditure incurred to earn exempt income aggregating to Rs.4,68,166/- in accordance with Section 14A of Income-tax Act read with Rule-8D. Please find attached herewith working of disallowance and request you to add back same to our total income. AO keeping in view facts and circumstances of case and accounts of assessee, recorded satisfaction that claim of assessee in respect of expenditure in relation to exempt income is not correct and thereafter AO keeping in view mandate of Section 14A(2) of Act , applied Rule 8D of Income Tax Rules, 1962 to disallow expenditure incurred in relation to earning of exempt income . disallowance worked out by AO under Rule 8D(2)(i)and 8D(2)(ii) was Nil while disallowance worked out under Rule 8D(2)(iii) of Income Tax Rules, 1962 was Rs.4,68,166/- being 0.5% of 3 ITA 3197/Mum/2013 average investments held by assessee, vide assessment order dated 15.2.2011 passed by AO u/s 143(3) of Act. assessee did not file appeal against assessment order dated 15.2.2011 passed by AO u/s 143(3) of Act in quantum assessment proceedings which attained finality. penalty proceedings u/s 271(1)(c) of Act was initiated against assessee by AO for furnishing of inaccurate particulars of income which culminated in levying of penalty of Rs.1,59,130/- against assessee u/s 271(1)(c) of Act by AO vide penalty orders dated 28.06.2012 passed by AO for furnishing of inaccurate particulars of income in return of income filed by assessee with Revenue. During penalty proceedings , assessee submitted before AO that three is no concealment of particulars of income nor assessee filed inaccurate particulars of income in return of income filed with Revenue .The assessee submitted that no expenditure has been incurred by assessee to earn exempt income but assessee during assessment proceedings accepted voluntarily disallowance of expenditure incurred to earn exempt income in accordance with Section 14A of Act read with Rule 8D of Income Tax Rules, 1962 for which working chart of disallowance was also submitted by assessee before AO. It was submitted that there was no concealment of particulars of income nor there is furnishing of inaccurate particulars of income to be brought within mandate of penalty provisions as stipulated u/s 271(1)(c) of Act. It was submitted that additions were made by AO in assessment proceedings u/s 143(3) of Act mainly on account of different view taken on same set of facts and thus it could be said to be difference of opinion but not concealment of income or furnishing of inaccurate particulars of income .It was submitted that mere 4 ITA 3197/Mum/2013 disallowance of claim in assessment proceedings could not be sole basis of levying penalty u/s. 271(1)(c) of Act. assessee relied upon decision of Hon ble Supreme Court in case of CIT v. Reliance Petroproducts Private Limited (2010) 322 ITR 158(SC). assessee also relied upon following decisions:- (a) CIT v. Suresh Chandra Mittal (2001) 251 ITR 9(SC) (b) T.Ashok Pai v. CIT (2007) 292 ITR 11(SC) (c) Dilip & Shroff v. JCIT (2007)291 ITR 519(SC) Thus, assessee prayed that no penalty be levied against assessee u/s 271(1)(c) of Act as in opinion of assessee there is no concealment of particulars of income nor there is furnishing of inaccurate particulars of income by assessee in return of income filed with Revenue to be brought within four corners of penalty provisions as stipulated u/s 271(1)(c) of Act. above contentions were rejected by AO and it was held that assessee has furnished inaccurate particulars of income and penalty of Rs.1,59,130/- was levied by AO on assessee u/s 271(1)(c) of Act and more so AO observed that assessee did not file any appeal against quantum assessment order u/s 143(3) of Act wherein additions made by AO u/s 14A of Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962 were accepted by assessee which attained finality. AO also relied on several case laws as mentioned in penalty order u/s 271(1)(c) of Act, while levying penalty u/s 271(1)(c) of Act vide orders dated 28-06- 2012 and also made attempt to distinguish case laws relied upon by assessee in his afore-stated penalty orders. 5 ITA 3197/Mum/2013 4. Aggrieved by penalty order dated 28-06-2012 passed by AO u/s. 271(1)(c) of Act , assessee filed first appeal with learned CIT(A) which was dismissed by learned CIT(A) vide orders dated 07-02-2013. assessee mainly reiterated its submissions before learned CIT(A) as were made before AO which are not repeated again. learned CIT(A) rejected contentions of assessee and held that assessee did furnished inaccurate particulars of income in return of income filed with Revenue w.r.t. statutory disallowance u/s 14A of Act r.w.r. 8D of Income Tax Rules, 1962. said disallowance as was made by AO was accepted by assessee and no appeal is filed against assessment order of AO which has attained finality. It was observed by learned CIT(A) that learned AO distinguished case laws relied upon by assessee. learned CIT(A) held that these is element of strict liability on assessee for concealment for giving inaccurate particulars of income while filing return of income with Revenue. Thus, learned CIT(A) confirmed penalty as levied by AO vide appellate order dated 07-02-2013. 5. Aggrieved by appellate order dated 07-02-2013 passed by learned CIT(A) , assessee preferred second appeal with Tribunal. 6. None appeared before us on behalf of assessee when appeal was called for hearing. learned DR relied on orders of authorities below. 7. We have heard learned DR and gone through orders of authorities below including case laws referred to in orders of authorities below. assessee earned exempt income while did not disallow expenditure incurred in relation to earning of exempt income as mandated u/s 14A of Act. assessee claimed that no expenditure was incurred in relation to earning of exempt income . assessee on being 6 ITA 3197/Mum/2013 asked to show cause as to why no expenditure was disallowed which was incurred in relation to earning of income which does not form part of total income, came forward with voluntary disallowance of 0.5% of average investment which comes to Rs.4,68,166/- as per Section 14A of Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962. AO held that he is not satisfied with working of disallowance of expenditure incurred by assessee in relation to earning of exempt income as submitted by assessee and recorded satisfaction to that effect and thereafter then proceeded to apply Section 14A(2) of Act read with Rule 8D of Income Tax Rules, 1962 having regards to accounts of assessee whereby disallowance of Rs.4,68,166/- was made by AO of expenditure incurred by assessee in relation to earning of exempt income in terms of Section 14A of Act by applying Rule 8D(2)(iii) of Income Tax Rules, 1962 by adopting 0.5% of average investment held by assessee in stereo typed manner without looking into and analyzing accounts of assessee and thereafter working out of expenditure incurred by assessee in relation to earning of exempt income which is mandate of Section 14A of Act or coming to conclusion that it is not possible from accounts maintained by assessee to work out disallowance of expenditure as are incurred for earning exempt income before proceeding to apply Rule 8D of Income Tax Rules, 1962. No such finding is recorded by AO that he made attempt/effort to scrutinize books of accounts and records of assessee to identify actual expenditure incurred by assessee in relation to earning of exempt income before invoking Rule 8D of Income Tax Rules, 1962 read with Section 14A of Act. assessee accepted assessment order passed by AO u/s 143(3) of Act whereby no appeal was filed by assessee against addition of Rs.4,68,166/- made by AO u/s 14A of Act read with Rule 8D of Income Tax Rules, 1962 but that itself is not sufficient to fasten assessee with liability under penalty provisions as contained u/s 271(1)(c) of Act without satisfying mandate of Section 7 ITA 3197/Mum/2013 271(1)(c) of Act. Under peculiar facts and circumstances of case as detailed above, in our considered view, action of AO in making disallowance of expenditure incurred by assessee in relation to earning of exempt income in afore-stated manner without complying with provisions of Section 14A of Act to identify expenditure incurred by assessee in relation to earning of exempt income having regards to accounts of assessee or coming to conclusions that it is not possible to identify amount of expenditure incurred by assessee in relation to earning of exempt income keeping in view manner in which accounts are maintained by assessee , mandate for levying of penalty u/s 271(1)(c) of Act is not fulfilled more-so it was contention of assessee that no expenditure has been incurred by assessee in relation to earning of exempt income which does not form part of total income . contention of assessee was that no expenditure was incurred by assessee for earning of exempt income and it was all more incumbent on authorities below to have identify and ascertained expenditure incurred by assessee in relation to earning of exempt income having regard to accounts of assessee, which exercise to ascertain disallowance having regard to accounts of assessee was unfortunately had not been undertaken by authorities below and in absence thereof, we are afraid penalty proceedings u/s 271(1)(c) of Act are not sustainable despite fact that assessee voluntarily came forward with amount of disallowance as per Section 14A of Act read with Rule 8D of Income Tax Rules, 1962 and did not file appeal against additions so made by AO in assessment proceedings. Thus, in our considered view penalty of Rs.1,59,130/- as levied by AO u/s 271(1)(c) of Act and as confirmed by learned CIT(A) is not sustainable in eyes of law and is hereby ordered to be deleted. We order accordingly. 8 ITA 3197/Mum/2013 8. In result, appeal filed by assessee in ITA No. 3197/Mum/2013 for assessment year 2009-10 is allowed .. Order pronounced in open court on 18th October, 2016. 18-10-2016 Sd/- sd/- (C.N. PRASAD) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 18-10-2016 Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A)- concerned, Mumbai 4. CIT- Concerned, Mumbai 5. DR, ITAT, Mumbai E Bench 6. Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai Sai Shipping Company v. Assistant Commissioner of Income Tax – 5(3)