2019 (7) TMI 983 - AT - Income Tax

Penalty u/s. 271(1)(c) - expenses incurred for increase in share capital after amalgamation process, not covered u/s.35DD - HELD THAT - No justification in sustaining the penalty. Further, we find the Hon'ble Rajasthan High Court in the case of CIT Vs. cosmopolitan Trading Corporation 2003 (7) TMI 14 - RAJASTHAN HIGH COURT and in the case of CIT Vs. Prakash Industries Ltd 2009 (10) TMI 291 - PUNJAB AND HARYANA HIGH COURT has held that when the entire additions had been deleted in the quantum appeal, no reason survives for sustaining the penalty. Thus, we sustain the deletion of penalty from the hands of assessee on this issue, Thus, ground No.1 of Revenue s appeal is dismissed. Penalty on the issue of disallowance of warranty provision - HELD THAT - This issue had been allowed for statistical purposes and the issue has been remitted back to the file of Assessing Officer. The issue of penalty is also therefore remitted back to the file of Assessing Officer in the interest of justice. The Assessing Officer shall adjudicate the issue as per law in conformity with the principles of natural justice. Thus, ground No.2 raised in appeal by the Revenue is allowed for statistical purposes. Penalty for disallowance on account of excess claim of VRS expenses disregarding the provisions of section 35DDA - HELD THAT - Since this issue has been remitted back to the file of AO, similarly the issue of penalty is also remitted back to his file in the interest of justice and he shall adjudicate the issue as per law after complying with the principles of natural justice. Thus, ground No.3 raised in appeal by the Revenue is allowed for statistical purposes. Penalty for disallowance on account of inventory written off - HELD THAT - As decided in own case 2013 (2) TMI 883 - BOMBAY HIGH COURT Since in quantum appeal, the addition has been deleted, there is no justification in sustaining the penalty. We further find in the case of CIT Vs. cosmopolitan Trading Corporation 2003 (7) TMI 14 - RAJASTHAN HIGH COURT and CIT Vs. Prakash Industries Ltd 2009 (10) TMI 291 - PUNJAB AND HARYANA HIGH COURT has held that when the entire additions had been deleted in the quantum appeal, no reason survives for sustaining the penalty. Thus, we sustain the deletion of penalty from the hands of assessee on this issue, Thus, ground No.4 of Revenue s appeal is dismissed. Penalty for disallowance on account of sale of scrap - HELD THAT - Since this issue in quantum appeal has been restored to the file of AO for verification of the contentions of the assessee, thus in the interest of justice, the issue of penalty is also restored to the file of the Assessing Officer for proper adjudication as per law in compliance with the principles of natural justice. Penalty for disallowance on account of loss on sale of investment - HELD THAT - CIT(Appeals) has categorically stated that the assessee has not suppressed any facts or details at any stage of proceedings either before the Assessing Officer or at the Appellate stage. The facts on records demonstrates specially from the findings of the CIT(Appeals) on the issue that there is no concealment of income or furnishing of inaccurate particulars of income by the assessee either before the Assessing Officer or before the CIT(Appeals). Relying on the decisions of the Hon ble Supreme Court of India in the case of Price Waterhouse Coopers Pvt. Ltd 2012 (9) TMI 775 - SUPREME COURT and in the case of Reliance Petro Products (P) Ltd. 2010 (3) TMI 80 - SUPREME COURT CIT(Appeals) deleted the penalty from the hands of the assessee. Penalty for disallowance on account of advance to custom account and bad debts written off - Tribunal has dismissed this ground of the assessee on merits - HELD THAT - We observe that proceedings on penalty stand on two parameters i.e. concealment of income or furnishing of inaccurate particulars of income . In the findings of the Ld. CIT(Appeals) itself has been stated that the assessee has neither concealed his income nor furnished inaccurate particulars of income. Thus, with regard to the deletion of penalty on the disallowance on account of advance to customs account , this issue is restored to the file of AO for proper adjudication as per law. Hence, this part of ground of Revenue s appeal is allowed for statistical purposes. With regard to the deletion of penalty on account of bad debts written off , as per our aforesaid findings, we sustain the relief provided to the assessee by the Ld. CIT(Appeal). Thus, this part of ground of Revenue s appeal is hereby dismissed.

Summary

Issues Involved:
1. Deletion of penalty on expenses incurred for increase in share capital after amalgamation process.
2. Deletion of penalty on disallowance of warranty provision.
3. Deletion of penalty on disallowance on account of excess claim of VRS expenses.
4. Deletion of penalty on disallowance on account of inventory written off.
5. Deletion of penalty on disallowance on account of sale of scrap.
6. Deletion of penalty on disallowance on account of loss on sale of investment.
7. Deletion of penalty on disallowance on account of advance to custom account and bad debts written off.

Issue-wise Detailed Analysis:

1. Deletion of penalty on expenses incurred for increase in share capital after amalgamation process:
The Tribunal noted that the Ld. CIT(Appeals) allowed stamp duty expenses for amortization under section 35DD of the Income Tax Act, 1961, but disallowed fees for increase in authorized share capital. The Tribunal disagreed, stating that expenses for increasing authorized share capital due to amalgamation cannot be segregated from amalgamation expenses. Consequently, the Tribunal set aside the Ld. CIT(Appeals)’ order and directed the deletion of the addition. Since the quantum addition was deleted, the penalty was also deleted, citing precedents from the Hon'ble Rajasthan High Court and Hon'ble Punjab & Haryana High Court.

2. Deletion of penalty on disallowance of warranty provision:
The Tribunal observed that the Ld. CIT(Appeals) followed a precedent allowing a warranty provision at 0.4% of sales for the Atlas Copco division and directed the AO to verify and adjust the provision accordingly. For the CP division, the actual expenditure exceeded the provision, so the provision was allowed. The issue was remitted back to the AO for verification. Consequently, the penalty issue was also remitted back to the AO for adjudication as per law.

3. Deletion of penalty on disallowance on account of excess claim of VRS expenses:
The Tribunal held that section 35DDA should be read in conjunction with section 43(2) and allowed the VRS expenses based on incurring liability. The AO was directed to ensure no double deduction. Since the quantum issue was remitted back to the AO, the penalty issue was also remitted back for proper adjudication.

4. Deletion of penalty on disallowance on account of inventory written off:
The Tribunal followed the Hon'ble Jurisdictional High Court’s decision allowing provision for stock obsolescence as a deduction. Since the quantum addition was deleted, the penalty was also deleted, following precedents from the Hon'ble Rajasthan High Court and Hon'ble Punjab & Haryana High Court.

5. Deletion of penalty on disallowance on account of sale of scrap:
The Tribunal remitted the issue back to the AO to verify if the amount reflected in the scrap sales account was offered to tax in the preceding year. Consequently, the penalty issue was also restored to the AO for proper adjudication.

6. Deletion of penalty on disallowance on account of loss on sale of investment:
The Tribunal upheld the Ld. CIT(Appeals)’ finding that there was no concealment of income or furnishing of inaccurate particulars by the assessee. The penalty was deleted, relying on the Hon'ble Supreme Court’s decisions in Price Waterhouse Coopers Pvt. Ltd. and Reliance Petro Products (P) Ltd.

7. Deletion of penalty on disallowance on account of advance to custom account and bad debts written off:
For "advance to custom account," the Tribunal remitted the issue back to the AO for verification. For "bad debts," the Tribunal upheld the Ld. CIT(Appeals)’ finding that there was no concealment or furnishing of inaccurate particulars, and sustained the deletion of penalty, relying on the Hon'ble Supreme Court’s decisions.

Conclusion:
The appeal of the Revenue was partly allowed for statistical purposes, with several issues remitted back to the AO for proper adjudication and verification. The order was pronounced on 17th July 2019.