2017 (2) TMI 403 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - In the light of the decision of the Co-ordinate Bench in the quantum appeal, as the quantum addition relating to disallowance of gratuity has been deleted by the Co-ordinate Bench, we are of the view that penalty u/s 271(1)(c) of the Act on disallowance of gratuity payment has been rightly deleted by ld. CIT(A). As regards disallowance on depreciation on investment the matter had been set aside to the file of ld. CIT(A), we are of the view that penalty u/s 271(1)(c) of the Act is not called for at this juncture. however, after the fresh decision of ld. CIT(A) on this issue as directed by the Co-ordinate Bench if the disallowance on depreciation on investment is sustained then the Revenue will be at liberty to again impose the penalty u/s 271(1)(c) of the Act on the addition sustained.

Summary

Issues Involved:
1. Appeal against penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2008-09.
2. Deletion of penalty by the Commissioner of Income Tax (Appeals) - XI, Ahmedabad.
3. Disallowance of gratuity payment and depreciation on investment.

Analysis:

Issue 1: Appeal against penalty under section 271(1)(c)
The Revenue appealed against the penalty of ?15,03,270 imposed under section 271(1)(c) of the Income Tax Act for the Assessment Year 2008-09. The penalty was related to the furnishing of inaccurate particulars of income.

Issue 2: Deletion of penalty by CIT(A)
The Commissioner of Income Tax (Appeals) deleted the penalty imposed by the Assessing Officer. The CIT(A) observed that the penalty on the disallowance of gratuity payment was unjustified as the payment had been transferred to the outgoing employee's account, and there was no evidence of any crucial facts being hidden or the claim not being bonafide. Similarly, the penalty on the disallowance of investment depreciation was deemed not justifiable as it was a debatable issue with supporting decisions from judicial forums. The CIT(A) referenced relevant case law to support the decision to delete the penalty.

Issue 3: Disallowance of gratuity payment and depreciation on investment
In the quantum appeal, the Co-ordinate Bench adjudicated on the disallowance of gratuity payment and depreciation on investment. The Co-ordinate Bench deleted the disallowance of gratuity payment, stating that the Assessee was entitled to the deduction. However, the issue of depreciation on investment was remitted back to the CIT(A) for a fresh decision based on additional submissions and legal precedents. The Co-ordinate Bench held that the penalty on the disallowance of gratuity payment was rightly deleted by the CIT(A) due to the quantum addition being overturned. Regarding the disallowance on depreciation, the penalty was not considered necessary at that juncture, but the Revenue could impose it again if the disallowance was sustained after the fresh decision by the CIT(A).

In conclusion, the Appellate Tribunal upheld the decision of the CIT(A) in deleting the penalty of ?15,03,270 under section 271(1)(c) of the Income Tax Act. The Tribunal found no reason to interfere with the CIT(A)'s order and dismissed the Revenue's appeal.