2018 (12) TMI 46 - AT - Income Tax

Penalty u/s.271(1)(c) - Held that - As far as the issue regarding depreciation on electric installation is concerned an addition of ₹ 8,502/- was made on account of difference in rate of depreciation. Thus, in our mind this doesn t call for visiting the assessee with penalty. The assessee has disclosed basic facts fully and truly. It is a difference of opinion between AO and assessee about the admissibility depreciation at particular rate. As far as prior period income is concern the AO took the prior period income without giving set off prior period expenditure. ITAT in the quantum proceedings held that prior period income is to be set off against prior period expenditure. We have dealt with number of A.Ys and found that in certain A.Y the net balance was positive income whereas in other assessment year it was negative. Thus, on this issue it could be concluded that assessee has not concealed the particulars of income. It doesn t call for visiting the assessee with penalty. As disallowance u/s. 14A is concern, during the quantum proceedings we have examined this issue and observe that assessee was having sufficient interest free fund for taking care of interest expenditure relatable to earning of tax free income on the estimate basis. Adhoc disallowance was confirmed in A.Y 2007-2008 and on same analogy adhoc additions stand confirmed for A.Y 2009-2010. Assessee has disclosed complete fact about the tax free income and how funds have been used. The Ld.CIT(A) has appreciated this aspect and thereafter deleted the penalty. Thus, we find that major additions which goad the AO to visit with penalty stands deleted in the quantum proceedings. The amount which have been added to income of the assessee on three issues were basically adhoc disallowances. The Ld.CIT(A) has appreciated this aspect and thereafter deleted penalty. We do not see any reason to interfere in the order of Ld.CIT(A) as far as Revenue s appeal is concern. As far as assessee s appeal is concern, we have already set aside the issue to the file of Ld.AO for re-adjudication in the quantum proceedings. There is no basis to visit the assessee with the penalty on this issue because the AO has yet to examine whether any disallowances/additions on account of Foreign exchange fluctuation loss claim is to be made in computation of total income of the assessee. After adjudicating this issue in quantum proceedings, it will be in the discretion of AO to initiate or not to initiate penalty on this issue. At this stage, there is no addition on whose basis it could be alleged that assessee has evaded tax. - Decided in favour of assessee.

Summary

Issues:
Whether the assessee deserves to be penalized under section 271(1)(c) of the Income Tax Act, and if so, what should be the penalty amount.

Analysis:
1. The appeal involved cross appeals by the assessee and the revenue against the order of the Ld.CIT(A) for the assessment year 2009-10.
2. The common issue in both appeals was whether the assessee should be penalized under section 271(1)(c) of the Act and the amount of penalty to be imposed.
3. The Ld.AO determined the taxable income of the assessee at ?19,67,00,320 after various disallowances and additions.
4. The Ld.CIT(A) partly deleted some disallowances/additions, leading to the imposition of a penalty by the Ld.AO.
5. The First Appellate Authority deleted a portion of the penalty but confirmed it on some additions.
6. The assessee challenged the penalty confirmed by the Ld.CIT(A), while the revenue contested the penalty deletion.
7. The assessee's counsel detailed the additions on which penalty was deleted by the Ld.CIT(A).
8. The issue of foreign exchange fluctuation loss was set aside by the Tribunal, leading to the conclusion that no penalty was imposable on this matter.
9. The Ld.DR supported the AO's order.
10. The assessee's counsel presented a chart showing major additions deleted by the ITAT in the quantum appeal, arguing for the deletion of penalties.
11. The assessee appealed against the penalty imposed on foreign exchange fluctuation loss, which was set aside by the ITAT for fresh adjudication by the AO.
12. Section 271(1)(c) provides for quantification of penalties based on additions made to the income of the assessee.
13. Major additions for penalty imposition, such as TP adjustment and disallowances, were deleted by the ITAT, indicating no tax evasion by the assessee.
14. The difference in depreciation rate did not warrant a penalty as it was a disagreement between the AO and the assessee.
15. The prior period income issue did not justify a penalty as the ITAT clarified the treatment of prior period income against expenditures.
16. Adhoc disallowances under section 14A were confirmed based on previous assessments, but the assessee disclosed all necessary facts, leading to penalty deletion.
17. The Ld.CIT(A) appreciated the disclosed facts and deleted penalties on major additions, concluding no reason to interfere in the order.
18. The issue of foreign exchange fluctuation loss was remanded for re-adjudication, indicating no basis for penalty imposition until further examination by the AO.
19. The appeal of the revenue was dismissed, and the appeal of the assessee was allowed, with the order pronounced on September 7, 2018.