2016 (7) TMI 700 - AT - Income Tax

Penalty proceedings u/s. 271(1)(c) - disallowance made by the AO with regard to depreciation on goodwill, was deleted by the ITAT while deciding the quantum appeal - Held that - Penalty order would not survive, once the addition made by the assessee has been deleted in the quantum appeal. Effective Ground of appeal, filed by the assessee, stands decided in its favour.

Summary

Issues involved:
- Challenge to orders of CIT(A)-40 Mumbai regarding penalty u/s. 271(1)(c) of the Act for AY 2002-03.
- Disallowance of depreciation on goodwill by AO and subsequent penalty proceedings.
- Discrepancy in assessment and quantum additions challenged by the assessee before the Tribunal.
- Application of the decision of the Hon'ble High Court of Bombay in the case of Continental Warehousing Corporation and All Cargo Global Logistics Ltd.

Issue 1: Challenge to CIT(A)-40 Mumbai orders regarding penalty u/s. 271(1)(c) of the Act for AY 2002-03:
The assessee challenged the orders of CIT(A)-40 Mumbai regarding the levy of penalty u/s. 271(1)(c) of the Act for AY 2002-03. The AO initiated penalty proceedings based on the disallowance of depreciation on goodwill claimed by the assessee. Despite the assessee challenging the penalty order before the FAA, the order was confirmed. However, during the hearing before the Tribunal, it was revealed that the ITAT had allowed the appeal of the assessee and reversed the order of the FAA regarding the quantum additions made by the AO. The ITAT deleted the disallowance made by the AO concerning depreciation on goodwill, leading to the penalty order not surviving once the addition was removed in the quantum appeal.

Issue 2: Disallowance of depreciation on goodwill and subsequent penalty proceedings:
The AO disallowed the claim of depreciation on goodwill made by the assessee during the assessment proceedings for AY 2002-03. The AO held that there was no provision in the Act for allowing depreciation on goodwill, leading to the initiation of penalty proceedings u/s. 271(1)(c) of the Act. The assessee challenged this disallowance before the FAA, who upheld the AO's order. However, the ITAT, while deciding the quantum appeal, deleted the disallowance on goodwill depreciation. The ITAT's decision was based on the absence of incriminating material found during the search, following the decision of the Hon'ble High Court of Bombay. Consequently, the ITAT set aside the order of the CIT(A) and quashed the impugned assessment orders, leading to the penalty order not surviving due to the deletion of the addition in the quantum appeal.

Issue 3: Discrepancy in assessment and quantum additions challenged before the Tribunal:
The assessment for AY 2002-03 was completed with various disallowances, including depreciation on goodwill, commercial vehicles, and other expenses. The assessee challenged these additions before the Tribunal, which led to the ITAT allowing the appeal and reversing the FAA's order. The ITAT's decision was influenced by the absence of incriminating material found during the search, aligning with the decision of the Hon'ble High Court of Bombay. As a result, the effective grounds of appeal filed by the assessee were decided in its favor, and the appeals for all three years were allowed.

Issue 4: Application of the decision of the Hon'ble High Court of Bombay:
The ITAT applied the decision of the Hon'ble High Court of Bombay in the case of Continental Warehousing Corporation and All Cargo Global Logistics Ltd to set aside the order of the CIT(A) and quash the impugned assessment orders. The decision emphasized that if no incriminating material was found during the search, the power u/s. 153A should not be exercised routinely, aligning with the facts of the case where no such material was discovered. This application of the High Court's decision led to the favorable outcome for the assessee in the penalty proceedings and assessment discrepancies.