2017 (11) TMI 1538 - AT - Income Tax

Penalty u/s 271(1)(c) - Director s remuneration - reallocation out of managerial remuneration to different units - claim of exemption u/s 80IC - Held that - It is undisputed that there are no norms prescribed under the Income Tax Act for allocation of common expenses incurred by the assessee and the same has to be apportioned to various manufacturing units on the basis of an estimate only. The assessee company adopted the capital basis for apportionment whereas, as per the Assessing Officer, the same should been allocated on the basis of salary and wages. Thus, it was only a case of difference of opinion between the Assessing Officer and the assessee. It is not the department s case that relevant facts were not disclosed in the income tax return of the financial statement of the assessee. It is undisputed that the assessee had furnished all the details of expenditure as well as income and no such details were found to be inaccurate nor could be viewed as concealment of income on the part of the assessee. Therefore, at most, it was a case of the assessee making an incorrect claim in law which cannot tantamount to furnishing of inaccurate particulars of income. The Hon ble Apex Court has held in Commissioner of Income Tax vs Reliance Petroproducts (2010 (3) TMI 80 - SUPREME COURT) that merely because the assessee had claimed a deduction which was not acceptable to the revenue, the same by itself would not attract the penalty u/s 271(1)(c) of the Income Tax Act.

Summary

Issues:
- Confirmation of penalty u/s 271(1)(c) on disallowances
- Apportionment of managerial remuneration between units

Confirmation of Penalty on Disallowances:
The appellant, a lamp manufacturing company, appealed against the penalty imposed under section 271(1)(c) of the Income Tax Act for the assessment year 2005-06. The company had claimed exemption under section 80IC of the Act. The assessment resulted in additions/disallowances, including a penalty of ?18 lakh. The appellant challenged the penalty before the ITAT, focusing on the disallowance of ?37,31,300 out of Director's remuneration. The Assessing Officer reallocated managerial remuneration between units, leading to the disallowance and penalty. The appellant argued that full details were provided, justifying the apportionment based on capital outlay. The appellant emphasized the differences between the units in terms of turnover, exports, and employee strength. The appellant contended that the apportionment method was valid and not a concealment of income. Citing relevant case laws, the appellant sought the penalty's deletion.

Apportionment of Managerial Remuneration between Units:
The ITAT analyzed the issue of reallocation of managerial remuneration. Referring to precedents, including judgments from the Bombay High Court and the Delhi High Court, the ITAT noted that the method of apportionment was a matter of opinion. The absence of prescribed norms for such allocation led to a difference of opinion between the Assessing Officer and the appellant. The ITAT observed that the appellant had disclosed all relevant details, and the disagreement on apportionment did not amount to concealment of income. Relying on the Supreme Court's decision in Commissioner of Income Tax vs Reliance Petroproducts, the ITAT concluded that the penalty under section 271(1)(c) was unwarranted in this case. Consequently, the ITAT set aside the penalty imposed on the apportionment of managerial remuneration and directed the Assessing Officer to delete the penalty. The appeal was partly allowed, with the ITAT pronouncing the order on 24th October 2017.