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2020 (3) TMI 801 - AT - Income TaxPenalty u/s 271(1)(c) - additions made towards disallowance of depreciation on steel purchase, additions towards disallowance out of professional charges paid to various parities and additions towards transfer pricing adjustment u/s 92C of the Act, in respect of interest on loan to subsidiaries - HELD THAT - Penalty levied on disallowance of depression on steel purchases, the issue has been considered by the Coordinate Bench of the ITAT in assessee s own case for the A.Y 2003-04 to 2006-07 2013 (12) TMI 599 - ITAT MUMBAI where under identical set of facts the penalty levied on additions towards depreciation on steel purchases has been deleted. This fact has not been disputed by the Ld. DR. Therefore, by following the decision of Coordinate Bench, in assessee s own case for earlier years, we are of the considered view that the Ld. CIT(A) was right in deleting penalty on additions towards disallowance of depreciation on steel purchases and hence, we are inclined to uphold the finding and reject the ground taken by the Revenue. Penalty levied on additions towards disallowance of professional fees - we find that the additions made by the A.O towards disallowance of professional fees to S.K Gupta Group of Companies has been finally deleted by the ITAT in quantum proceedings in 2017 (4) TMI 1489 - ITAT MUMBAI where the additions made by the A.O towards disallowance of profession fees has been deleted. Once the addition on which the penalty levied has been deleted by the appellate authorities, then penalty levied on said addition cannot survive. Therefore, we are of the considered view that there is no error in findings recorded by the Ld. CIT(A) while deleting penalty levied in respect of disallowance of professional fees and hence, we reject the ground taken by the Revenue. Penalty levied on additions towards transfer pricing adjustment u/s 92C - towards interest on loans to subsidiaries, we find that although the A.O has levied penalty for furnishing inaccurate particulars of income, but fact remains that the assessee has disclosed necessary facts required for computation of total income in the return of income filed for the year which is evident from the fact that detailed note has been annexed to statement of total income filed for the year and explained the facts with regard to loans to subsidiaries. We further noted that whether transfer pricing adjustments can be made in respect of loans to subsidiaries when such loan has been given to the AE to increase and expand the business of the assessee is a debatable issue, which is evident from the fact in the case of Piramal Glass Limited Vs. DCIT in income tax appeal 2019 (11) TMI 1384 - BOMBAY HIGH COURT has admitted the question of law on whether transfer pricing adjustment is required to be made on loans given to AE to increase and expand the business of the assessee. In this case, on perusal of facts, it is noted that the assessee had also lend monies to its AE on account of business expediency. Once there are divergent views on the issue by various Courts and Tribunals, then it clearly shows that the said issue is debatable issue and always two views are possible. When the issue is debatable and always two views are possible, then on such issues the penalty provided u/s 271(1)(c) of the Act cannot be invited for furnishing inaccurate particulars of income. It is an admitted fact that, at the time of filing of return of income the issue is debatable and which has attained finality much later. Further, the transfer pricing provisions were first introduced in the statue in the FY 2001-02 and the law was in an incipient stage at the point of filing return of income, when the issues first arose. In fact, the first assessment cycle under the transfer pricing provisions for A.Y 2002-03 was completed by 31.03.2005 and hence by the time, filing of return of income for A.Y 2008-09, there was not much judicial clarity on the issue. Further, no guidelines were also issued by the CBDT on this issue. Issue of transfer pricing adjustment u/s 92C of the Act, in respect of loans to subsidiaries is a debatable issue and on such issue penalty u/s 271(1)(c) of the Act should not be levied. We are of the considered view that the assessee has discharged its onus cast upon by explanation 271(1)(c) of the Act, which states that, if the assessee acts with good faith and due diligence then no penalty should be levied. Hence, we are of the considered view that the A.O was erred in levied penalty u/s 271(1)(c) of the Act, in respect of transfer pricing adjustment made u/s 92C of the Act, towards interest on loan to subsidiaries - Decided against revenue Penalty u/s 271(1)(c) - income tax payable on the total income as computed under normal provisions of the Act, is less than the tax payable on the book profits u/s 115JB - HELD THAT - As clarified that where the income tax payable on the total income as computed under the normal provisions is less than the tax payable on the book profits computed u/s 115JB of the Act, then penalty u/s 271(1)(c) of the Act is not attracted with reference to additions / disallowances made under normal provisions of the Income Tax Act, 1961. In this case, it is an admitted fact that, as per the order of the A.O u/s 154 of the Act, dated 20.07.2016 the assessee was assessed to tax under provisions of 115JB of the Income Tax, 1961, although the A.O has made various additions towards total income computed under normal provisions of the Income Tax Act, 1961. Therefore, We are of the considered view that penalty u/s 271(1)(c) of the Act cannot be levied with reference to additions / disallowances made to income computed under normal provisions of the Income Tax Act, 1961. Identical issue has been considered by the coordinate Bench of the ITAT Mumbai in the case of Kapil Rayon India Pvt Ltd., Vs. ITO 2020 (1) TMI 1170 - ITAT MUMBAI where under identical set of facts it has been held that when income is computed under the provisions of Sec. 115JB of the Act, then penalty u/s 271(1)(c) of the Act cannot be levied in respect of additions made towards total income computed under the normal provisions of Income Tax Act, 1961. - Decided against revenue
Issues Involved:
1. Application of CBDT Circular 25/2015. 2. Deletion of penalty under Section 271(1)(c) for disallowance of depreciation on steel purchases. 3. Deletion of penalty under Section 271(1)(c) for disallowance of professional fees paid. 4. Deletion of penalty under Section 271(1)(c) for transfer pricing adjustments. 5. Justification for penalty levied under Section 271(1)(c) for furnishing inaccurate particulars of income. Issue-wise Detailed Analysis: 1. Application of CBDT Circular 25/2015: The Revenue questioned whether the CIT(A) erred in applying CBDT Circular 25/2015, dated 31.12.2015, while the assessee was assessed under normal provisions of the Act. The Tribunal found that the CIT(A) correctly applied the circular, which clarifies that when tax payable under normal provisions is less than tax payable under MAT provisions, the penalty under Section 271(1)(c) is not attracted for additions made under normal provisions. 2. Deletion of Penalty for Disallowance of Depreciation on Steel Purchases: The Tribunal upheld the CIT(A)'s decision to delete the penalty levied under Section 271(1)(c) for disallowance of depreciation on steel purchases. The CIT(A) relied on an earlier ITAT decision in the assessee's own case for A.Y 2003-04 to 2006-07, where under similar facts, the penalty was deleted. The Tribunal found no error in the CIT(A)'s findings. 3. Deletion of Penalty for Disallowance of Professional Fees Paid: The Tribunal noted that the ITAT had deleted the quantum disallowance of professional fees paid to S.K. Gupta Group of Companies in the assessee's case for A.Y 2008-09. Since the quantum addition was deleted, the penalty on such addition could not survive. The Tribunal upheld the CIT(A)'s decision to delete the penalty. 4. Deletion of Penalty for Transfer Pricing Adjustments: The Tribunal considered the issue of penalty on transfer pricing adjustments for interest on loans to subsidiaries. It was noted that the assessee had disclosed necessary facts in the return of income, and the issue of whether transfer pricing adjustments were required was debatable. The Tribunal referred to various judicial precedents, including decisions of the Hon'ble Bombay High Court and ITAT Delhi, which held that when a question of law is arguable, no penalty can be levied. The Tribunal upheld the CIT(A)'s decision to delete the penalty, emphasizing that the issue was debatable and there were divergent views on the matter. 5. Justification for Penalty Levied for Furnishing Inaccurate Particulars of Income: The Tribunal found that the CIT(A) correctly deleted the penalty levied under Section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) noted that the assessee had acted in good faith and with due diligence, and the issues involved were debatable. The Tribunal upheld the CIT(A)'s findings and rejected the Revenue's grounds. Conclusion: The Tribunal dismissed the Revenue's appeals and upheld the CIT(A)'s orders deleting the penalties for A.Ys 2007-08, 2008-09, and 2009-10. The Tribunal also dismissed the assessee's cross objections as infructuous since the penalties had already been deleted.
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