2018 (11) TMI 989 - AT - Income Tax

Penalty u/s 271(1)(c) - Provisions for doubtful debts claimed - Held that - In the instant case, the assessee has claimed the deduction which is not eligible as per the provision of section 36(2) of the Act. Thus, we note that the Hon ble Delhi High Court in the case of Zoom Communication Pvt. Ltd. 2010 (5) TMI 34 - DELHI HIGH COURT after considering the judgment of Hon ble Supreme Court in the case of Reliance Petroproduct Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT has decided the issue against the assessee. The assessee has furnished inaccurate particulars of income and accordingly liable for penalty under Section 271(1)(C). Disallowance on Foreign Exchange Fluctuation Loss - Held that - We note that the Hon ble ITAT in the own case of the assessee 2018 (6) TMI 1535 - ITAT AHMEDABAD has set aside the proceedings for fresh adjudication to the AO as per the provision of the law. Revenue authorities have failed to examine the issue by keeping in mind taxation of gains in earlier and subsequent years on the same loans, and failed to record any specific finding as to how in such circumstances the loss could be denied, we deem it appropriate to set aside this issue to the file of the AO for re-adjudication. Penalty on Penalty expenses - Held that - It is fact on record that the penalties are not allowable for the deduction. But the assessee has claimed the deduction for the same despite the fact that these are not allowable for the deduction. Thus we confirm the penalty in view of the judgment of the Hon ble Delhi High Court in the case of Zoom Communication Pvt. Ltd 2010 (5) TMI 34 - DELHI HIGH COURT on account of inaccurate particulars of income furnished in the income tax return. Accordingly we hold that the assessee is liable for penalty under Section 271(1) of the Act. Deemed dividend under Section 2(22)(e) - Held that - Considering the current account and number of transactions, and since the Hon ble High Court has upheld the finding of the Tribunal in earlier years that these are not loans, which could be brought in the ambit of section 2(22)(e) of the Act for the purpose of treating it as deemed dividend, we respectfully following the order of the ITAT in the assessment year 2006-07 as well as judgment of the Hon ble High Court in earlier years, are of the view that advance given to M/s.Bhadra Raj Holdings P.Ltd. cannot be treated as deemed dividend. We allow this ground of appeal. Deduction under Section 80(G) - Held that - Once the quantum addition has been deleted then in our considered view the question of levying the penalty does not arise. Hence, the ground of appeal of the assessee is allowed. Transfer pricing addition - Held that - We note that the quantum addition on interest of loan has been deleted by the Hon ble ITAT in the own case of the assessee 2018 (6) TMI 1535 - ITAT AHMEDABAD in the case before us the addition was confirmed on account of allocation of insurance expanses, which was incurred by the AE of the assessee. Thus, the amount of insurance expense claimed by the assessee represents the reimbursement of the expenses to its AE which were duly disclosed in the income tax return. Therefore, we hold that there was no concealment of income or furnishing inaccurate particulars of income. We also note that the case law relied by the ld DR does not applicable to the instant facts. In that case, the adjustment was made in upward direction on account of the sale price whereas in the case before us it relates to the reimbursement of the expenses claimed by the assessee. Thus, we do not find any infirmity in the order of ld CIT(A). Hence, the ground of appeal of the Revenue is dismissed. Misc. Expenses return - Held that - It is a burden akin to that in a civil case where the determination is made upon preponderance of probabilities. It is also not necessary that any positive material should be produced by the assessee in order to discharge this burden which rests upon him. The assessee may claim to have discharged the burden by relying on the material which is on record in the penalty proceedings, irrespective of whether it is produced by him or by the revenue. If it can be said on a preponderance of probabilities that the failure to return the total assessed income has not arisen on account of any fraud or any gross or willful neglect on the part of the assessee, the legal fiction enacted in the Explanation cannot arise and the revenue must fail in its attempt to impose penalty upon the assessee. Disallowances of depreciation - addition was made on account of rate applied by the assessee for charging the depreciation on the assets - Held that - We find support and guidance from the judgment of Lala Harbhagwan Das & Memorial & Dr. Prem Hospital (P.) Ltd. Vs. CIT 2013 (12) TMI 1674 - ITAT DELHI held that where higher depreciation was wrongly claimed under bona fide belief in respect of nature of equipment and its professional use, no penalty would be leviable. We do not want to disturb the finding of ld. CIT-A. Hence the ground of appeal of the Revenue is dismissed. Disallowances u/s. 14A - Held that - Hon ble Supreme Court in the case of Reliance Petro Products Ltd. 2010 (3) TMI 80 - SUPREME COURT has held that no penalty will be levied in case the addition is made on account of disallowance made u/s 14A of the Act. Disallowance u/s 40(a)(i) - Held that - These are simply reimbursement of administrative expenses incurred by Dr.Henk Pluim outside India. They did not involve any element of income and TDS was not required to be deducted. As far as second party is concerned, the AO failed to bring any material on record to justify the administrative expenses required to be incurred for availing services of Dr.Henk. It is totally in the domain of the businessman and the AO cannot dictate terms how much salary and other expenses are necessary for availing the services. This disallowance made by the AO is not sustainable. CIT(A) ought to have not confirmed disallowance made by the AO. We allow this ground of appeal and delete addition. We hold that once the quantum addition has been deleted then the penalty under Section 271(1)(C) will not survive. Disallowance u/s 10B - Held that - Addition was deleted by the Hon ble ITAT in the own case we direct the AO to allow the claim of the assessee under section 10B in accordance with our directions contained in order for the assessment year 2006-07. Accordingly, we allow the grounds of appeals of the assessee

Issues Involved:
1. Provision for Doubtful Debts
2. Foreign Exchange Fluctuation Loss
3. Penalty Expenses
4. Addition under Section 2(22)(e) of the Act
5. Deduction under Section 80G
6. Transfer Pricing Addition
7. Prior Period Income
8. Miscellaneous Expenses Written Off
9. Excess Depreciation on Electric Installation
10. Disallowance under Section 14A
11. Disallowance under Section 40(a)(i)
12. Disallowance under Section 10B

Issue-Wise Detailed Analysis:

1. Provision for Doubtful Debts:
The assessee claimed a deduction for the provision for doubtful debts, which was not eligible under Section 36(2) of the Act. The AO and CIT(A) confirmed the addition. The Tribunal noted that the assessee furnished inaccurate particulars of income, thus upholding the penalty under Section 271(1)(c).

2. Foreign Exchange Fluctuation Loss:
The Tribunal set aside the penalty issue to the AO for fresh adjudication, as the quantum addition was also set aside for re-adjudication in light of the Hon'ble Supreme Court's judgment.

3. Penalty Expenses:
The penalty was confirmed by the AO and CIT(A) due to the disallowance of penalty expenses claimed by the assessee. The Tribunal upheld the penalty, citing the Hon'ble Delhi High Court's judgment in Zoom Communication Pvt. Ltd., which addressed the furnishing of inaccurate particulars of income.

4. Addition under Section 2(22)(e) of the Act:
The Tribunal noted that the quantum addition was deleted by the Hon'ble ITAT in the assessee's own case. Consequently, the penalty under Section 271(1)(c) was not sustainable and was deleted.

5. Deduction under Section 80G:
The Tribunal observed that the quantum addition was deleted by the Hon'ble ITAT in the assessee's own case. Therefore, the penalty under Section 271(1)(c) was not sustainable and was deleted.

6. Transfer Pricing Addition:
The penalty was levied on two components: Interest on loan and Insurance. The quantum addition on interest was deleted by the Hon'ble ITAT, thus the penalty was not sustainable. For the insurance expenses, the Tribunal held that there was no concealment of income or furnishing inaccurate particulars, thus upholding the CIT(A)'s decision to delete the penalty.

7. Prior Period Income:
The Tribunal noted that the quantum addition was deleted by the Hon'ble ITAT in the assessee's own case. Therefore, the penalty under Section 271(1)(c) was not sustainable and was deleted.

8. Miscellaneous Expenses Written Off:
The addition was made on an ad hoc basis, which the Hon'ble Gujarat High Court in Navjivan Oil Mills vs. CIT held that penalty cannot be sustained on such additions. The Tribunal upheld the deletion of the penalty.

9. Excess Depreciation on Electric Installation:
The addition was due to the rate of depreciation applied by the assessee. The Tribunal, following the judgment in Lala Harbhagwan Das & Memorial & Dr. Prem Hospital (P.) Ltd. Vs. CIT, held that no penalty is leviable on such additions and upheld the deletion of the penalty.

10. Disallowance under Section 14A:
The Tribunal cited the Hon'ble Supreme Court's judgment in Reliance Petro Products Ltd., which held that no penalty is leviable for disallowances made under Section 14A. Thus, the penalty was deleted.

11. Disallowance under Section 40(a)(i):
The quantum addition was deleted by the Hon'ble ITAT in the assessee's own case. Consequently, the penalty under Section 271(1)(c) was not sustainable and was deleted.

12. Disallowance under Section 10B:
The quantum addition was deleted by the Hon'ble ITAT in the assessee's own case. Therefore, the penalty under Section 271(1)(c) was not sustainable and was deleted.

Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal, resulting in the deletion of penalties where the quantum additions were deleted or where the penalties were not sustainable based on legal precedents.

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