2018 (2) TMI 865 - AT - Income Tax

Penalty u/s 271(1)(c) - addition relating to ESOP expenses - Held that - It is noticed that the addition relating to ESOP expenses has been deleted and relevant findings are given in para 13 of the aforesaid referred to order 2016 (8) TMI 821 - ITAT DELHI . Thus no merit in the appeal of the department. Accordingly, we confirm the view taken by the ld. CIT(A) for deleting the penalty u/s 271(1)(c) Transfer pricing adjustment u/s 92CA(3) - Held that - We restore the issue relating to levy of penalty on account of TP adjustment to the file of the AO to be decided afresh in accordance with law after considering the outcome of the order to be passed on the quantum additions in accordance with the directions given in aforesaid referred to order 2016 (8) TMI 821 - ITAT DELHI

Summary

Issues Involved:
1. Appeal by the assessee against the confirmation of penalty under section 271(1)(c) of the Income Tax Act by the CIT(A).
2. Appeal by the department against the deletion of penalty imposed by the AO under section 271(1)(c) of the Act by the CIT(A).

Detailed Analysis:
1. The assessee's appeal contested the penalty levied under section 271(1)(c) of the Act by the AO for transfer pricing adjustment. The grounds included challenges to the confirmation of penalty by the CIT(A) based on alleged concealment and furnishing inaccurate particulars of income. The appellant argued that the penalty was incorrect under explanation 7 to section 271(1)(c) and unjustified. The CIT(A) deleted the penalty for ESOP expenses, citing a debatable legal issue and referencing the decision in CIT Vs Reliance Petroproducts. The AO's penalty proceedings were conducted ex-parte, resulting in a penalty of ?6,80,11,186.

2. The department's appeal focused on the deletion of the penalty by the CIT(A) without considering the provisions of Explanation 1 to section 271(1)(c) of the Act. The grounds raised questions on the correctness of the claim made by the assessee and the bona fides of the explanation provided. The CIT(A) was criticized for ignoring precedents set by the Delhi High Court. The AO's penalty was based on additions and disallowances in the assessment, including ESOP expenses and TP adjustments under section 92CA(3) of the Act.

3. The Tribunal reviewed the appeals and previous orders related to the additions made by the AO. The Tribunal noted that the addition for ESOP expenses had been deleted in a previous order, and the issue was referred back to the AO for fresh adjudication based on a Special Bench decision. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the penalty related to ESOP expenses. For the TP adjustments, the Tribunal referred to previous findings and directed the issue back to the AO for reconsideration in light of the quantum additions and directions given in a prior order.

4. Ultimately, the Tribunal allowed the assessee's appeal for statistical purposes, confirming the deletion of the penalty for ESOP expenses. The department's appeal was dismissed, with the issue of penalty on TP adjustments sent back to the AO for fresh consideration. The Tribunal's decision was pronounced on 07/02/2018.