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2023 (2) TMI 420 - AT - Income TaxLevy of penalty u/s 271(1)(c) - Disallowance made by the AO u/s. 35E - HELD THAT - materials available on record including the Paper Book filed by the Assessee and the judgment passed by the Hon ble High Court of Gujarat 2013 (11) TMI 574 - GUJARAT HIGH COURT and consequential decision of the Co-ordinate Bench in the quantum appeal, filed by the Revenue, which was also dismissed. Since the quantum appeal of the Revenue having been dismissed and additions are deleted consequently the question of levy of penalty cannot survive. Therefore the Revenue appeal liable to be dismissed.
Issues Involved:
1. Deletion of penalty under section 271(1)(c) on disallowance under section 35D of the Income Tax Act. 2. Deletion of penalty under section 271(1)(c) on disallowance of rent, rate, and taxes. 3. Confirmation of penalty under section 271(1)(c) on disallowance under section 35E of the Income Tax Act. Detailed Analysis: 1. Deletion of Penalty under Section 271(1)(c) on Disallowance under Section 35D: The assessee, a government company, filed its return declaring an income of Rs. 22,19,87,638/-. The assessment was completed with an income determined at Rs. 27,08,18,876/- due to various disallowances. The Assessing Officer (AO) issued a penalty notice under section 271(1)(c) for disallowances confirmed by appellate authorities, including a disallowance under section 35D amounting to Rs. 25,16,488/-. The Commissioner of Income Tax (Appeals) [CIT(A)] cancelled the penalty, referencing the ITAT's earlier judgment for AY 2003-04, which stated that ROC fees are allowable only when paid for registration of the company. The ITAT observed that the payment made to ROC was not for registration and the expenses were incurred post commencement of business, thus not eligible for deduction under section 35D. The doctrine of consistency was applied, as the deduction was allowed in earlier assessments under section 143(3). The AO's initial allowance could have been corrected by invoking section 263, but it was not done. Therefore, the penalty was deleted. 2. Deletion of Penalty under Section 271(1)(c) on Disallowance of Rent, Rate, and Taxes: The AO disallowed Rs. 2,72,81,590/- for rent and taxes, treating them as capital in nature. The CIT(A) deleted the penalty, noting that the expenses were recurring and did not result in any new fixed assets. The ITAT upheld this view, stating that the expenses were revenue in nature as they were necessary to maintain control over the land and did not provide any enduring benefit. The ITAT emphasized that land revenue payments do not enhance the value of the asset or bring any new advantage. Consequently, the penalty under section 271(1)(c) was deleted as the addition was already settled in favor of the assessee. 3. Confirmation of Penalty under Section 271(1)(c) on Disallowance under Section 35E: The CIT(A) confirmed the penalty levied under section 35E, as the ITAT upheld the disallowance made by the AO. The CIT(A) relied on the Supreme Court judgments in Sundaram Finance Ltd. and Jivanlal and Sons, which supported the levy of penalty under section 271(1)(c). The penalty was confirmed as the disallowance under section 35E was upheld. Revenue's Appeal: The Revenue appealed against the deletion of penalties under sections 35D and rent, rate, and taxes, arguing that the CIT(A) erred in law and facts. The Revenue's representative admitted that the quantum appeals were dismissed by the ITAT, and no further details of any appeal to the High Court were provided. Assessee's Defense: The assessee's counsel submitted a Paper Book containing details, including a High Court judgment setting aside the matter back to the Tribunal. The ITAT, in its common order, dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of additions under sections 35D and rent, rate, and taxes. Conclusion: The Tribunal, after considering the materials and judgments, dismissed the Revenue's appeal. The penalties under section 271(1)(c) for disallowances under sections 35D and rent, rate, and taxes were deleted, while the penalty under section 35E was confirmed. The Tribunal emphasized the principle of consistency and the necessity of recurring expenses as revenue in nature. Order: The appeal filed by the Revenue was dismissed, and the penalties under section 271(1)(c) were deleted except for the penalty under section 35E, which was confirmed. The order was pronounced in the open court on 10-02-2023.
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