2014 (8) TMI 950 - AT - Income Tax

Deduction u/s 80IA - Penalty u/s 271(1)(c) - deduction claimed by the assessee u/s 80IA of the Act came to be reduced due to allocation of additional expenses to Atenolol division - Held that - AO has not adopted any rational basis for determining the amount of expenses to be allocated to the Atenolol division, but proceeded to allocate the same on adhoc basis estimated at the rate of 10% of each of the expenditure. It is also fact that the AO has not given any finding to the effect that the Assessee has concealed particulars of income or furnished inaccurate particulars of income. - AO has carried out similar exercise of allocating additional amount of expenses and reducing the amount of deduction allowable u/s 80IA in the earlier years also, i.e., in AY 1995-96, 1998-99 and 1999-2000, but did not initiat any penalty proceeding in respect of the above said adjustment. Though the principle of res judicata is not applicable to income tax matters, yet the fact that the AO did not levy penalty in the earlier years in respect of similar kind of adjustments would definitely needs to be taken into account. - CIT(A) was not justified in confirming the penalty levied u/s 271(1)(c) of the Act. Accordingly, we set aside the order of ld. CIT(A) and direct the AO to delete the penalty levied u/s 271(1)(c) - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act, 1961 for disallowance of deduction under section 80IA.

Analysis:
1. The appeal pertains to the assessment year 2000-01 where the Assessee, a pharmaceutical manufacturer, contested the penalty of Rs. 1,33,860 imposed by the AO under section 271(1)(c) of the Income Tax Act, 1961.
2. The AO disallowed the deduction claimed under section 80IA due to higher job work charges and improper allocation of expenses to the Atenolol division, resulting in a loss. The ld. CIT(A) reversed the decision on job work charges but upheld the expense allocation. Subsequently, a penalty was levied by the AO.
3. The Assessee argued that the reduction in deduction was due to additional expenses allocated to the Atenolol division, leading to an increase in taxable income. They contended that the AO's allocation was arbitrary and lacked justification, relying on an ad-hoc 10% estimation without concrete evidence.
4. The Tribunal observed that the AO did not establish concealment of income or furnishing inaccurate particulars. It noted similar adjustments made in prior years without penalty imposition. While the principle of res judicata doesn't directly apply, the consistency in AO's actions was considered. Consequently, the penalty under section 271(1)(c) was deemed unjustified, and the appeal was allowed.
5. The Tribunal directed the AO to delete the penalty, emphasizing the lack of concrete basis for expense allocation and the absence of evidence supporting income concealment. The decision was based on the specific circumstances of the case and the absence of a valid rationale for the penalty imposition.

This detailed analysis outlines the key arguments, findings, and reasoning leading to the Tribunal's decision to set aside the penalty levied under section 271(1)(c) of the Income Tax Act, 1961.