2018 (9) TMI 472 - AT - Income Tax

Penalty u/s 271(1)(c) - enhancement u/s 40(a)(ia) - Held that - It is undisputed that in both the years under consideration the quantum addition on account of enhancement by the Ld. CIT (A) with respect to disallowance u/s 40 (a)(ia) has been deleted by the Tribunal 2018 (8) TMI 53 - ITAT DELHI and, therefore, since the impugned quantum additions have been deleted by the ITAT, the penalties u/s 271(1)(c) imposed on such enhancements also do not survive. Accordingly, the penalties with respect to enhancement u/s 40(a)(ia) in both the years under consideration stand deleted and the grounds raised by the assessee in this regard stand allowed. For enhancement on account of Advertisement, Marketing and Promotion expenses, it is seen that the ITAT Delhi Bench has restored this issue to the file of the AO/ TPO for both the years under consideration for the purpose of readjudicating the issue in light of the order of the Special Bench of the Tribunal in assessee s own case for assessment year 2007-08. Although, AR has argued vehemently for deleting the penalties on the ground that the very basis of levy of penalties has been modified by the order we are of the considered opinion that interest of justice would be served if the penalties for both the years on the quantum enhancement pertaining to Advertising, Marketing and Promotion expenses is also restored to the file of the AO/TPO. It is directed accordingly. Thus, the grounds raised in this regard are allowed for statistical purposes.

Summary

Issues:
- Appeal against penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for assessment years 2005-06 and 2006-07.
- Identical issues in both appeals heard together.

Analysis:
1. Penalty Imposed under Section 271(1)(c) for Assessment Year 2005-06:
- Assessee challenged the penalty for alleged concealment and furnishing inaccurate particulars of income.
- Grounds included lack of opportunity to be heard, absence of recorded satisfaction for initiating penalty, and failure to specify exact charge for penalty.
- Assessee argued that all material facts were disclosed, claims were justified, and no penalty should be levied on debatable issues.
- Disallowance under section 40(a)(ia) was contested based on Supreme Court precedent.
- ITAT held quantum enhancement void ab initio, leading to deletion of penalties.

2. Penalty Imposed under Section 271(1)(c) for Assessment Year 2006-07:
- Similar grounds raised as in the 2005-06 appeal.
- Assessee contended that quantum enhancement on Advertising, Marketing, and Promotion expenses was restored for fresh adjudication.
- ITAT deleted penalties imposed on enhancements u/s 40(a)(ia) for both years.
- Penalties related to Advertising expenses also directed to be restored for reconsideration.

3. Judicial Proceedings and Decisions:
- Assessee's representative highlighted ITAT's decisions favoring the assessee in quantum appeals for both years.
- ITAT found quantum additions void ab initio, resulting in deletion of penalties.
- Disallowances under section 40(a)(ia) and Advertising expenses enhancements were crucial issues in the appeals.
- CIT-DR supported the CIT(A)'s order but could not counter the ITAT's deletion of quantum additions.
- ITAT directed restoration of penalties related to Advertising expenses for fresh adjudication.

4. Final Decision and Outcome:
- ITAT allowed both appeals, deleting penalties imposed on quantum enhancements u/s 40(a)(ia) for both assessment years.
- Penalties regarding Advertising expenses enhancements were also directed to be restored for reconsideration.
- Decision pronounced on 7th September 2018, serving the interest of justice in the matter.