2016 (6) TMI 1074 - AT - Income Tax

Penalty u/s. 271(1)(c) - Addition on account of disallowance of u/s. 14A - Held that - First Appellate Authority has passed a well reasoned order, because the assessee has paid taxes on the issue of disallowance u/s. 14A and assessee has not concealed the facts nor any inaccurate particulars filed. We find that the AO had made addition out of these information filed in the Tax Audit Report and the assessee has disclosed all the facts in the Tax Audit Report in Form No. 3CD under section 44AB of the I.T. Act. Therefore, Ld. CIT(A) has rightly deleted the penalty in dispute, which does not need any interfere on our part - Decided in favour of assessee

Summary

Issues:
1. Penalty u/s. 271(1)(c) deletion justification.
2. Addition u/s. 14A and prior period expenses.
3. AO's penalty imposition and CIT(A) deletion analysis.

Issue 1: Penalty u/s. 271(1)(c) deletion justification:
The Revenue appealed against the deletion of a penalty of ?35,10,826 under section 271(1)(c) by the Ld. CIT(A). The CIT(A) based the decision on the appellant's compliance with tax payments post ITAT order and the disclosure of all facts in the Tax Audit Report. The CIT(A) referenced the Hon'ble Supreme Court's decision in Reliance Petro Products (P) Ltd. vs. 322 ITR 158 (SC) to justify the deletion of the penalty. The ITAT upheld the CIT(A)'s decision, citing that the assessee did not conceal any facts or file inaccurate particulars, leading to the dismissal of the Revenue's appeal.

Issue 2: Addition u/s. 14A and prior period expenses:
The assessment resulted in additions under section 14A and prior period expenses, leading to penalty proceedings under section 271(1)(c). The CIT(A) restricted the section 14A addition to ?35,97,079 and deleted the remaining balance. However, the addition of ?67,31,919 for prior period expenses, initially deleted by the CIT(A), was reinstated by the ITAT. The CIT(A) justified the deletion of the prior period expenses addition based on the ITAT's ruling that the penalty paid for infraction of law cannot be considered as commercial losses incurred by the assessee.

Issue 3: AO's penalty imposition and CIT(A) deletion analysis:
The AO imposed the penalty under section 271(1)(c) after deeming the assessee's reply devoid of merit and deliberate inaccurate particulars filing. The CIT(A) reversed this decision, emphasizing that the appellant disclosed all facts in the Tax Audit Report and paid taxes post ITAT order. The CIT(A) referred to the Delhi High Court's order in Maxopp Investment Ltd. and the Supreme Court's decision in Reliance Petro Products (P) Ltd. to support the penalty deletion. The ITAT, after considering the precedents, upheld the CIT(A)'s decision to delete the penalty, concluding that the assessee's actions did not warrant penalty imposition.

This detailed analysis covers the issues involved in the legal judgment, highlighting the key arguments and decisions made by the authorities involved in the case.