2021 (1) TMI 281 - AT - Income Tax

Penalty u/s 271(1)(c) - additions made by the Assessing Officer under various heads viz. disallowance u/s 40(a)(ia), disallowance of provision for sales incentives, disallowance of claim of deduction u/s 80IC, disallowance of exchange loss and addition made in respect of foreign exchange gains. HELD THAT - As brought to our notice that the quantum additions made by the AO stands deleted by the order of the tribunal dated 10.11.2020 and hence, the penalty does not survive. The facts have not been disputed by the Ld. DR. Since all the quantum additions stands deleted, we hereby hold that the penalty levied u/s 271(1)(c) do not survive at this juncture.

Summary

Issues:
Reduction of penalty u/s 271(1)(c) by CIT(A) - Quantum additions made by AO - Survival of penalty after deletion of quantum additions.

Analysis:
The appeal in question pertains to the reduction of penalty u/s 271(1)(c) by the CIT(A) against the original penalty imposed by the AO. The assessee raised several grounds challenging the reduction of penalty from ?3,86,00,000 to ?1,35,900. The primary contention was that the CIT(A) erred in reducing the penalty without proper evidence supporting the explanations provided by the assessee. The CIT(A) justified the reduction based on the debatable nature of some additions and the lack of conclusive evidence from the assessee.

The penalty was imposed by the AO on various grounds, including disallowances under different sections like 40(a)(ia), provision for sales incentives, deduction u/s 80IC, exchange loss, and foreign exchange gains. However, it was noted that the quantum additions made by the AO had been deleted by the tribunal in a previous order dated 10.11.2020. Consequently, it was determined that the penalty did not survive due to the deletion of the quantum additions.

During the proceedings, the Revenue did not dispute the factual aspect that the quantum additions had been deleted. As a result, the tribunal concluded that since all the quantum additions had been eliminated, the penalty imposed under section 271(1)(c) could not be sustained. Therefore, the appeal filed by the Revenue was allowed, and the penalty reduction by the CIT(A) was upheld based on the non-existence of the underlying quantum additions.

The judgment emphasizes the crucial link between quantum additions and the imposition of penalties under section 271(1)(c) of the Income Tax Act, 1961. It highlights the necessity for a valid basis for penalties, especially when quantum additions forming the basis for penalties are subsequently deleted. The decision underscores the principle that penalties cannot be maintained in the absence of underlying substantive additions, as demonstrated by the deletion of quantum additions leading to the non-survival of the penalty in this case.