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2014 (10) TMI 152 - AT - Income TaxPenalty u/s 271(1)(c) Held that - No penalty can be imposed on the assesse qua an addition which is occasioned by the operation of a retrospective legislation - Assessee cannot be penalized for a purported wrong which did not exist on statute book at the time the assessee made a claim at the time of filing its return or completion of assessment - there is no justification in the order of the CIT(A) holding that in his view without even retrospective amendment, the assessee could not have made this claim - there existed a judicial debate on such claim, besides all the relevant details were disclosed along with the return by way of audited account statements and certificates - The assessee is following a consistent method of accounting on mercantile basis - There is no adverse qualification by the auditors either on accounting policies or consistency in method of accounting relying upon Apollo Tyres vs. CIT 2002 (5) TMI 5 - SUPREME Court - while computing the book profits, revenue authorities cannot interfere in audited accounts. Penalty u/s 271(1)( c) is leviable with respect to the amount of ₹ 4215.03 lacs - The amount accounted for as deferred taxation is based on the same audit report which was provided based on consistent method of accounting policy and it has been accepted so by the C.A. and statutory auditors - The CIT(A) arbitrary held that part of it was liable for penalty - the proposition that once the assessee s accounts are audited and book profits are computed according to the audit report then the Revenue authority cannot interfere with the audited figures. Diminution in value of equity shares and provisions for deferred taxation were made originally and contested by the assessee in appeal - the assessee cannot be penalized for claims which were not disallowable by any express provision on the statute book at the relevant time - once the book profits are computed on the basis of the audited accounts then the AO cannot interfere in the book profits calculations - penalty is impossible on the basis of information furnished the return - If the assesse has furnished all the relevant details and information along with the return, then disallowance of any claim by assessing officer is not exigible to penalty - Besides a judicial debate existed on the issue about AO s power to interfere with audit statement in calculating book profits under sec. 115J. IMACID deposit Held that - The assessee had given proper explanation in this behalf, which has been overlooked by CIT(A) - The mistake is bonafide, the entries were made as per regular accounting policy in this behalf. Besides all the relevant particulars for this accounting of IMACD having been filed along with return of income, the penalty retained by the CIT(A) Decided in favour of assessee.
Issues Involved:
1. Retention of penalty at Rs. 3,93,37,909/- from Rs. 8,64,76,559/- u/s 271(1)(c) of the Act. 2. Deletion of penalty u/s 271(1)(c) on the addition of Rs. 37.38 crores due to the downward impact of retention price subsidy. 3. Deletion of penalty u/s 271(1)(c) on the addition of Rs. 11.62 lacs for consultant's fee paid for drafting a shareholders agreement. 4. Penalty u/s 271(1)(c) in respect of the addition made on account of provision for deferred taxation to the extent of Rs. 4215.03 lacs. 5. Addition on account of diminution in the value of shares. 6. Addition on account of provision for deferred taxation. 7. Addition on account of receipts from IMACID. Issue-wise Detailed Analysis: 1. Retention of Penalty at Rs. 3,93,37,909/- from Rs. 8,64,76,559/- u/s 271(1)(c): The assessee is a Public Limited Company engaged in multiple businesses. The original return of income was revised, leading to various disallowances/additions by the AO. The CIT(A) partly allowed the assessee's appeal, leading to a revised tax liability. Both parties appealed to the ITAT, which partly allowed both appeals. Subsequently, the AO imposed a penalty of Rs. 8,64,76,559/- u/s 271(1)(c), which the CIT(A) reduced to Rs. 3,93,37,909/-. The ITAT order confirmed the additions affecting book profits and income. 2. Deletion of Penalty on the Addition of Rs. 37.38 Crores: The Revenue's appeal contested the deletion of the penalty on the addition of Rs. 37.38 crores due to the downward impact of retention price subsidy. The CIT(A) had deleted this penalty, but the Revenue argued that the deletion was erroneous. 3. Deletion of Penalty on the Addition of Rs. 11.62 Lacs: Similarly, the Revenue challenged the deletion of the penalty on the addition of Rs. 11.62 lacs for consultant's fees. The CIT(A) had deleted this penalty, but the Revenue contended that this was incorrect. 4. Penalty on Provision for Deferred Taxation (Rs. 4215.03 Lacs): The CIT(A) partly upheld the penalty on the provision for deferred taxation. The CIT(A) agreed that if an amount becomes taxable due to a retrospective amendment, no penalty should be levied. However, the assessee did not follow AS-22, leading to an excess provision of Rs. 4215.03 lacs, which was not required. The CIT(A) held that this excess provision was made to reduce the tax burden, making the penalty leviable. 5. Addition on Account of Diminution in Value of Shares (Rs. 9,17,90,000/-): The CIT(A) confirmed the penalty for the diminution in the value of shares, stating that the provision was not part of book profits. The CIT(A) noted that the value of shares fluctuates and cannot be considered permanently reduced. The CIT(A) held that the assessee's conduct was not bona fide, making the penalty leviable. 6. Addition on Account of Provision for Deferred Taxation: The CIT(A) confirmed the penalty for the excess provision for deferred taxation, stating that the assessee did not follow AS-22. The CIT(A) computed the correct provision and found that the assessee made an excess provision of Rs. 4215.03 lacs. The CIT(A) held that this excess provision was made to reduce the tax burden, making the penalty leviable. 7. Addition on Account of Receipts from IMACID (Rs. 9,28,030): The CIT(A) confirmed the penalty for the addition of Rs. 9,28,030, stating that the assessee did not offer any explanation. The AO noted that the assessee credited the P&L account with the net amount after deducting TDS. The CIT(A) held that the penalty was leviable as the assessee did not provide an explanation. Conclusion: The ITAT held that the assessee could not be penalized for claims disallowed due to retrospective amendments. The ITAT relied on the Supreme Court's decision in CIT vs. Reliance Petro Products (P) Ltd., stating that penalty is not imposable if all particulars of income are explained and filed with the return. The ITAT deleted the penalty retained by the CIT(A) and allowed the assessee's appeal while dismissing the Revenue's appeal. Order Pronounced: The order was pronounced in the open Court on 24-09-2014.
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