AI Structured Summary
Not yet generated for this judgment
Judgment
ORDER
PER SUDHIR KUMAR, JUDICIAL MEMBER: This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), Delhi [hereinafter referred to as “CIT(A)”] vide order dated 17.11.2025.
The assessee has raised the following grounds in appeal:-
1.On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax(Appeals) [CIT(A)] erred in confirming the penalty of Rs.6,23,520/- levied by the Assessing Officer u/s 270A of the Income Tax Act, 1961 which is unjustified and contrary to the provisions of law.
2.The Learned CIT(E) failed to appreciate that the addition of Rs.9,44,729/- was made purely by invoking section 14A read with Rule 8D, which involves estimation and application of a prescribed formula and therefore does not give rise to any case of under -reporting or misreporting of income.
3.On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in not appreciating that the disallowances u/s 14A was restricted by the Assessee to the extent of the actual expenditure claimed in the profit and loss account and as per the directions of the Ld. CIT(A) in the appellate order on merits the disallowance made in the assessment order is likely to be totally deleted.
4.The Learned CIT (E) erred in confirming the penalty when the very basis of the addition has been made subject to restriction and verification as per the appellate directions.
5.The Learned CIT (E) has erred in holding that the case falls under misreporting of income u/s 270A(9)(a) without establishing any misrepresentation or suppression of facts whereas all primary facts relating to expenditure and exempt income were fully disclosed by the appellant in the return of income and during assessment proceedings
6.The appellant prays that the penalty levied u/s 270A and confirmed by the learned CIT(A) be deleted in full.
7.The appellant craves leave to add to withdraw or modify the grounds of appeal at the time of hearing.
The brief facts of the case are that assessee filed return of income u/s 139 of the Income Tax Act, 1961(in short “the Act”) for A.Y. 2017-18 on 04-10-2017, declaring total income of Rs. 31,28,140/-. Subsequently the case of the assessee was selected for Limited Scrutiny under CASS. The Assessing Officer completed the assessment after making the additions of Rs.9,44,729/- on account of disallowance under section 14A of the Act read with Rule 8D of the IT Rules, 1962 and assessed the total income at Rs. 40,72,870/-. Penalty proceedings were also initiated against the assessee. Aggrieved the order the assessee preferred the appeal before the Ld. CIT(A), which was partly allowed. The Ld. CIT(A) has observed in his order as under:
“4.7It is clear that the appellant has not been able to clarify its claims regarding the expenditure claimed by it, and the contentions put forward by it are not completely valid. Despite this, the AO is advised to ensure that the disallowance u/s 14A r.w.r. 8D is calculated accurately and in accordance with the Proviso to the Rule 8D, wherein it has been clarified that the disallowance shall not exceed the total expenses of the appellant for the year.”
The Assessing Officer completed the penalty proceedings and levied the penalty of Rs.6,23,520/-. Aggrieved the order of the Assessing Officer the Assessee filed the appeal before the Ld. CIT(A), who dismissed the appeal of the assessee. Being aggrieved the order of the Ld. CIT(A), the assessee is in appeal before the Tribunal.
Ld. AR of the assessee submitted that assessee has not made under reporting of income by miss reporting income of Rs.9,44,729/- because the assessee has claimed the disallowance under 8D of the Income Tax Rules, 1962 which cannot exceed the total expenditure claimed by the assessee. He also submitted that the Ld. CIT(A) has directed the Assessing Officer to ensure that the disallowance to be restricted to the total expenditure incurred by the assessee during the year in accordance with the proviso to Rule 8D. He further submitted that assessee has offered and worked out the disallowance under section 14A as per rule 8D and disallowance made 1% of the average investment i.e. Rs. 32,00,000/-
Ld. DR relied upon the orders of the lower authorities. We have heard both the parties and gone through the material available on record. It is evident from the records that the appeal of the assessee was partly allowed by the Ld. CIT(A) and the Ld. CIT(A) has directed the AO to ensure that the disallowance be restricted to the total expenditure. The disallowance be recalculated by the Assessing Officer, therefore the penalty levied by the Assessing Officer deserve to be deleted, and thus, we delete the same.
In the result, the appeal of the assessee is allowed.