2017 (4) TMI 189 - HC - Income Tax

Penalty u/s 271(1)(c) - disallowance of deduction u/s. 80IB relating to on account of interest income on bank deposit / staff loan - Held that - The amount of penalty imposed on the aforesaid would be too small. Apart from above, even there is a clear finding by the learned ITAT that with respect to the above the assessee had furnished all details. Under the circumstances, the case will not fall in any of the parameters mentioned under Section 271 (1)(c) of the Act as rightly observed by the learned ITAT. Under the circumstances, the present Appeals with respect to the deletion of the penalty in respect of the dis-allowances under Section 80IB on account of interest income on bank deposit / staff loan is not required to be interfered by this Court. Disallowance / deduction under section 80IB of the Act relating to price paid by the assessee for the purchase of raw materials at lower rate and with respect to selling and distribution expenses is concerned, the present Appeals are disposed of with the liberty in favour of the Revenue to initiate appropriate proceedings afresh for penalty, after the decision of the Hon ble High Court in the quantum Appeals and subject to the decision that may be taken by the Hon ble High Court in the quantum Appeals considering section 275 (1A) of the Income Tax Act and as and when such proceedings are considered the same may be considered in accordance with law and on merits.

Summary

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act on the issue of disallowance of deduction under Section 80IB.
2. Deletion of penalty on account of notional selling and distribution expenses.
3. Deletion of penalty on account of raw material purchases.
4. Deletion of penalty on account of interest income received.
5. Pending appeals before the Hon'ble High Court of Mumbai.

Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) on Disallowance of Deduction under Section 80IB:
The ITAT deleted the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, which was related to the disallowance of deduction under Section 80IB. The ITAT held that since the addition on account of notional selling and distribution expenses was deleted in quantum proceedings, the penalty order could not stand. The Revenue argued that the issue had not attained finality as their appeal against the quantum addition was pending before the Hon'ble High Court of Mumbai. However, the ITAT maintained that penalty could not be sustained when the quantum addition was deleted.

2. Deletion of Penalty on Account of Notional Selling and Distribution Expenses:
The Assessing Officer had made additions on account of notional selling and distribution expenses, which were subsequently deleted by the CIT(A) and confirmed by the ITAT. The Revenue contended that since their appeal against the quantum addition was still pending, the penalty should not have been deleted. The ITAT, however, observed that as the additions were deleted in the quantum proceedings, the penalty order had no legs to stand on.

3. Deletion of Penalty on Account of Raw Material Purchases:
The Assessing Officer also made disallowances on account of raw material purchases, which were deleted by the CIT(A) and confirmed by the ITAT. The Revenue argued that the assessee had furnished inaccurate particulars of income, making them liable for penalty under Section 271(1)(c). The ITAT disagreed, stating that since the disallowance was deleted in the quantum proceedings, the penalty could not be sustained.

4. Deletion of Penalty on Account of Interest Income Received:
For the assessment years 2006-07 and 2008-09, the ITAT deleted the penalty related to the disallowance of deduction under Section 80IB on account of interest income received. The ITAT noted that the assessee had furnished all details and that merely making a claim, which was found to be unsustainable in law, did not attract penalty under Section 271(1)(c). The Revenue's argument that the assessee had furnished inaccurate particulars was not upheld by the ITAT.

5. Pending Appeals Before the Hon'ble High Court of Mumbai:
The Revenue argued that since their appeals against the quantum additions were pending before the Hon'ble High Court of Mumbai, the penalty should not have been deleted. The ITAT and the High Court observed that the outcome of the pending appeals could result in two scenarios: if the High Court confirmed the deletion of additions, no penalty could be imposed; if the High Court reversed the deletion, the Revenue could initiate penalty proceedings afresh within six months from the date of the High Court's decision, as per Section 275(1)(A) of the Act.

Conclusion:
The High Court dismissed the appeals regarding the deletion of penalty on interest income on bank deposits/staff loans, noting that the amounts were too small and the assessee had furnished all details. For other issues, the High Court disposed of the appeals with liberty for the Revenue to initiate penalty proceedings afresh, depending on the outcome of the pending appeals before the Hon'ble High Court of Mumbai, in accordance with Section 275(1)(A) of the Income Tax Act.