2020 (8) TMI 556 - AT - Income Tax

Penalty u/s. 271(1 )(c) - disallowance of promotion expenses - expenses prohibited by the Medical Council Act - HELD THAT - We find that the ITAT, Mumbai G bench in 2018 (4) TMI 1813 - ITAT MUMBAI has deleted additions made by the Ld. AO towards sales promotion expense, in light of the circular issued by the CBDT, on the basis of MCI regulations. We further noted that ITAT, Mumbai G bench 2018 (5) TMI 2013 - ITAT MUMBAI has also deleted additions made towards sales promotion expenses being freebies given to doctors on the basis of circular No.05/2012 dated 01/08/2012 issued by the CBDT. Once, addition on which penalty levied u/s 271(1)(c) has been finally deleted by the appellate authorities, then there is nothing survives to levy penalty u/s 271(1)(c) - CIT(A) after considering relevant facts and also, by taken note of facts that the Tribunal has deleted additions made by the Ld. AO, which triggered levy of penalty of u/s 271(1)(c) has deleted penalty levied on such additions, We, therefore are of the considered view that the Ld.CIT(A) was right in deleting penalty levied by the Ld. AO u/s 271(1)(c) - Decided against revenue.

Issues:
Penalty under section 271(1)(c) for disallowance of promotion expenses.

Analysis:
The appeals were filed by the revenue against orders of the Commissioner of Income Tax (Appeals) for the Assessment Years 2011-12 & 2012-13. The appeals were heard together due to identical facts and common issues. The primary issue revolved around the deletion of penalties amounting to ?68,00,000 under section 271(1)(c) of the Income Tax Act, 1961, related to the disallowance of promotion expenses. The assessee, engaged in marketing and trading of dermatology products, had initially declared a total income of ?6,80,98,658 for AY 2011-12. The assessing officer later determined the total income at ?10,30,96,510 after adding ?2,96,41,408 towards sales promotion expenses. Subsequently, penalties were imposed by the AO, which were challenged by the assessee.

The ITAT Mumbai, in its orders for both AY 2011-12 and 2012-13, deleted the additions made by the AO towards sales promotion expenses based on circulars issued by the CBDT. The tribunal cited MCI regulations and circular No. 05/2012 dated 01/08/2012 as grounds for deletion. The AR for the assessee argued that since the ITAT had deleted the additions, the penalties could not stand. However, the DR contended that the department had not accepted the tribunal's findings and had appealed to the High Court. The tribunal noted that once the additions triggering the penalties were deleted by the appellate authorities, there was no basis for the penalties under section 271(1)(c) to be upheld.

Considering the facts and the tribunal's decisions, the CIT(A) was justified in deleting the penalties imposed by the AO. The tribunal upheld the CIT(A)'s orders and dismissed the appeals filed by the revenue for both assessment years. Consequently, the penalties under section 271(1)(c) for disallowance of promotion expenses were not sustained, and the appeals were dismissed.

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