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2019 (10) TMI 291 - AT - Income TaxLevy of penalty u/s 271(1)( c) - Defective notice - AO had not mentioned the specific charge of offence in the penalty notice by striking off the irrelevant portion - HELD THAT - Hon ble Telangana Andhra Pradesh High Court in PCIT vs Smt Baisetty Revathi 2017 (7) TMI 776 - ANDHRA PRADESH HIGH COURT also held that when penalty proceedings are sought to be initiated by the revenue u/s 271(1)(c ) of the Act, the specific ground which forms the foundation, therefore, has to be spelt out in clear terms. Otherwise, an assessee would not have proper opportunity to put forth his defence. When the proceedings are penal in nature, resulting in imposition of penalty ranging from 100% to 300% of the tax liability, the charge must be unequivocal and unambiguous. When the charge is either concealment of particulars of income or furnishing of inaccurate particulars thereof, the revenue must specify as to which one of the two is sought to be pressed into service and cannot be permitted to club both by interjecting one or between the two. Respectfully no hesitation in cancelling the levy of penalty on the technical ground of non-striking off of the irrelevant portion in the show cause notice for penalty by the revenue. Accordingly, the additional ground raised by the assessee for the Asst Year 1998-99 is allowed. In view of this decision, the other grounds raised by the assessee on merits need not be gone into and the arguments advanced by both the sides are left open and no decision is rendered herein on the same. Levy of penalty u/s 271(1)(c) - HELD THAT - Asst Year 1998-99 on this technical issue of not striking off the irrelevant portion in the penalty notice would hold good for this asst year also except with variance in figures. Hence we have no hesitation in cancelling the levy of penalty on the technical ground of non-striking off of the irrelevant portion in the show cause notice for penalty by the revenue. Accordingly, the additional ground raised by the assessee for the Asst Year 2002-03 is allowed. In view of this decision, the other grounds raised by the assessee on merits need not be gone into and the arguments advanced by both the sides are left open and no decision is rendered herein on the same. Disallowance of lease rentals - HELD THAT - We find that the issue in dispute is fully settled in favour of the assessee by the decision of the Hon ble Supreme Court in the case of ICDS Ltd 2013 (1) TMI 344 - SUPREME COURT wherein it was held that depreciation on leased assets is allowable in the hands of the lessor who is the owner. Though this decision has been rendered on the allowability of depreciation on leased assets from the angle of the lessor, the principle laid down could be made very much applicable to the facts of the instant case conversely for allowability of lease rentals in the hands of the assessee (lessee). Hence respectfully following the said decision , we hold that the assessee is entitled for deduction of ₹ 42,48,067/- towards lease rentals paid on cars and we direct the ld AO accordingly. Disallowance u/s 14A read with Rule 8D of the Rules under normal provisions of the Act - HELD THAT - Additional grounds contesting the point that no satisfaction was recorded by the ld AO before resorting to computation mechanism provided in Rule 8D(2) of the Rules and also on the point that the ld AO erred in considering all the investments instead of considering only dividend bearing investments. Disallowance u/s 14A of the Act read with Rule 8D of the Rules while computing book profits u/s 115JB - HELD THAT - We direct the ld AO to delete the disallowance made u/s 14A of the Act in the sum both under normal provisions of the Act as well as in the computation of book profits u/s 115JB of the Act. Hence the additional ground raised by the assessee on non-recording of satisfaction is allowed in this regard. Disallowance of advertisement expenses - HELD THAT - The revenue cannot be allowed to disallow the expenditure on one hand as incurred for non- business purposes and incurred on capital account and correspondingly tax the income on other hand which is nothing but the recoveries of the said expenditure. This would result only in double jeopardy to the assessee and also result in contradictory stand taken by the revenue. It is not in dispute that the assessee had indeed recovered group support fees of ₹ 27,60,00,000/- which also includes recovery made on account of advertisement expenses and this sum is duly offered to tax by the assessee. Assessee had effectively claimed only a sum of ₹ 21,46,63,119/- ( 23,20,51,011 1,73,87,892 disallowed voluntarily by assessee) as deduction in the return of income. This goes to prove that the assessee had effectively made a surplus / profit of ₹ 6,13,66,881/- out of rendering the group support services, which goes to prove that the assessee had recovered the entire group support fees including advertisement expenses with a mark up. Hence there cannot be any separate disallowance of group support fees including advertisement expenses. We direct the ld AO to delete the disallowance towards advertisement expenses.
Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act for A.Y. 1998-99. 2. Levy of penalty under Section 271(1)(c) of the Income Tax Act for A.Y. 2002-03. 3. Disallowance of lease rentals for A.Y. 2010-11. 4. Disallowance under Section 14A read with Rule 8D for A.Y. 2010-11. 5. Disallowance of lease rentals for A.Y. 2011-12. 6. Disallowance under Section 14A read with Rule 8D for A.Y. 2011-12. 7. Disallowance of advertisement expenses for A.Y. 2011-12. Detailed Analysis: 1. Levy of Penalty under Section 271(1)(c) for A.Y. 1998-99: The primary issue was whether the CIT(A) was justified in confirming the levy of penalty under Section 271(1)(c) of the Act. The assessee argued that the AO did not specify the specific charge of offense in the penalty notice. The Tribunal found that the AO had not struck off the irrelevant portion in the penalty notice, thus not specifying whether the penalty was for concealment of income or furnishing inaccurate particulars. This was supported by several judicial precedents, including decisions from the Bombay High Court and Karnataka High Court. The Tribunal allowed the additional ground raised by the assessee, canceling the penalty on technical grounds without delving into the merits. 2. Levy of Penalty under Section 271(1)(c) for A.Y. 2002-03: Similar to A.Y. 1998-99, the issue was the validity of the penalty notice under Section 271(1)(c). The Tribunal found that the AO did not strike off the irrelevant portion in the penalty notice, thus failing to specify the charge. Citing similar judicial precedents, the Tribunal canceled the penalty on technical grounds, allowing the additional ground raised by the assessee without addressing the merits. 3. Disallowance of Lease Rentals for A.Y. 2010-11: The assessee claimed deduction for lease rentals paid for cars taken on lease, which was disallowed by the AO on the grounds that the assessee had capitalized the value of leased vehicles in its books. The Tribunal found that similar disallowances in previous years were either deleted by the CIT(A) or not made by the AO. Citing the Supreme Court's decision in ICDS Ltd, the Tribunal held that the assessee was entitled to the deduction of lease rentals and directed the AO to allow the deduction. 4. Disallowance under Section 14A read with Rule 8D for A.Y. 2010-11: The assessee had made a suo moto disallowance under Section 14A, which the AO increased without recording any objective satisfaction. The Tribunal found that the AO did not record any satisfaction as required under Section 14A(2) and mechanically applied Rule 8D. The Tribunal directed the AO to delete the disallowance, citing previous Tribunal and High Court decisions that upheld the necessity of recording satisfaction before applying Rule 8D. 5. Disallowance of Lease Rentals for A.Y. 2011-12: This issue was similar to the one for A.Y. 2010-11. The Tribunal applied the same reasoning and decision, allowing the deduction of lease rentals paid by the assessee. 6. Disallowance under Section 14A read with Rule 8D for A.Y. 2011-12: Again, similar to A.Y. 2010-11, the Tribunal found that the AO did not record the necessary satisfaction before applying Rule 8D. The Tribunal directed the AO to delete the disallowance, citing the same judicial precedents. 7. Disallowance of Advertisement Expenses for A.Y. 2011-12: The AO disallowed advertisement expenses on the grounds that they did not have a direct nexus to the business and were of enduring benefit. The assessee argued that these expenses were incurred on behalf of group companies and were recovered from them. The Tribunal found that the assessee had indeed recovered these expenses and offered them to tax. The Tribunal directed the AO to delete the disallowance, noting that disallowing the expenses while taxing the recoveries would result in double jeopardy. Conclusion: All the appeals of the assessee were allowed, with the Tribunal canceling the penalties under Section 271(1)(c) on technical grounds and directing the AO to allow the disallowed expenses and deductions.
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