EMAK GLASS FIBRE & ACCESSORIES PVT.LTD.,TIRUVALLUR vs. ITO, CORPORATE WARD-1(1), CHENNAI

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ITA 3290/CHNY/2024Status: DisposedITAT Chennai29 April 2025AY 2015-164 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961, was not warranted. The reasoning was based on the principle of law that if the foundation for a penalty is removed, the superstructure (penalty) must also fall. The Tribunal noted that the disallowance of Rs. 10,89,292/- under Section 40(a)(ia) for non-deduction of TDS, which formed a basis for the penalty, had been deleted by the ITAT in the quantum appeal. Regarding the disallowance of Rs. 3,30,250/- for expenditure, the Tribunal observed that it was restricted to Rs. 66,000/- (20% of the original amount) in the quantum appeal. The Tribunal relied on the decision of the Hon'ble Madras High Court in CIT v. P. Rojes ([2013] 356 ITR 703 (Madras HC)), which held that penalty cannot be imposed based on an estimation of income, especially when the quantum addition was purely on an estimated basis with inherent subjectivity. Therefore, the penalty of Rs. 4,38,637/- levied by the AO was directed to be deleted. No issue was expressly left undecided.

What were the facts?

The assessee, M/s. Emak Glass Fibre & Accessories Pvt. Ltd., filed an appeal before the Income Tax Appellate Tribunal (ITAT), Chennai, against an order of the Commissioner of Income Tax (Appeals)/NFAC, Delhi. The appeal pertains to Assessment Year 2015-16 and challenges a penalty levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was confirmed by the Ld. CIT(A). The assessee faced two disallowances in the quantum assessment: Rs. 10,89,292/- under Section 40(a)(ia) for non-deduction of TDS, and Rs. 3,30,250/- for other expenditure. The assessee had previously appealed the quantum additions before the ITAT in ITA No. 52/Chny/2021 for AY 2014-15. The ITAT's order dated 22.09.2022 deleted the TDS disallowance and restricted the expenditure disallowance to 20% (Rs. 66,000/-). The assessee contended that the penalty was levied despite the favorable outcome in the quantum appeal.

What were the issues?

1. Whether the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961, is sustainable in light of the subsequent deletion of a major part of the addition by the Income Tax Appellate Tribunal in the quantum appeal. Assessee's contentions: - The AO levied penalty on two issues: (i) disallowance of Rs. 10,89,292/- under Section 40(a)(ia) for non-deduction of TDS, and (ii) disallowance of Rs. 3,30,250/- for expenditure. - The ITAT, in the quantum appeal (ITA No. 52/Chny/2021 for AY 2014-15), deleted the disallowance of Rs. 10,89,292/- under Section 40(a)(ia). - The ITAT also restricted the disallowance of expenditure to 20% of Rs. 3,30,250/-, amounting to Rs. 66,000/-, out of the original addition. - The Ld. CIT(A) passed a non-reasoned order dismissing the appeal against the penalty. - The penalty is not warranted as the basis for the penalty (quantum additions) has been substantially set aside or reduced by the Tribunal. Revenue's contentions: - The judgment records no specific contentions for the revenue regarding the penalty in this appeal.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 40(a)(ia)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & SHRI JAGADISH

Hearing: 13.03.2025

आदेश / O R D E R

PER ABY T. VARKEY, JM:

1.

This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as “the Ld.CIT(A)”), Delhi, dated 27.08.2024 for the Assessment Year (hereinafter referred to as "AY”) 2015-16 confirming the penalty levied by the AO u/s.271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as "the Act”).

2.

The Ld. Counsel for the assessee submitted that there is a delay of ‘53’ days in filing of this appeal, because, assessee was prevented by reasons beyond his control and prayed for condonation of delay. Having gone through the contents of the application for condonation of delay, we find that there is excusable reason for the delay; and hence, we condone the delay of ‘53’ days and proceed to adjudicate the appeal on merits.

3.

At the outset, the Ld.AR of the assessee submitted that the AO had levied penalty on two issues i.e. (i) disallowance made u/s.40(a)(ia) of the Act for non-deduction of TDS amount of Rs.10,89,292/- & (ii)

1. disallowance of expenditure of Rs.3,30,250/-. According to the Ld.AR, the quantum assessment was challenged by the assessee before this Tribunal for AY 2014-15] wherein the Tribunal passed an order dated 22.09.2022 deleting the disallowance of Rs.10,89,292/- u/s.40(a)(ia) of the Act; and restricted disallowance of expenditure to the extent of 20% of it i.e. Rs.66,000/- out of addition of Rs.3,30,250/-.

According to Ld AR, despite knowing about the decision of the Tribunal in the quantum assessment, the Ld.CIT(A) dismissed the appeal of the assessee against levy of penalty by passing a non-reasoned order. Be that as it may, we find that the AO levied the penalty on two issues i.e. (i) disallowance made u/s.40(a)(ia) of the Act for non-deduction of TDS amounting to Rs.10,89,292/- & (ii) disallowance of expenditure of Rs.3,30,250/- and note that this Tribunal has deleted the disallowance of Rs.10,89,292/- made u/s.40(a)(ia) of the Act, therefore, the penalty levied in respect of this issue needs to be deleted on the principle given in legal maxim “sublato Fundmento Credit opus” meaning in case a foundation is removed, the super-structure falls. Coming to other disallowance of expenditure, which Tribunal is noted to have partly allowed the appeal of assessee by restricting the same to only Rs.66,000/- i.e., estimated disallowance of 20% of Rs.3,30,250/-. Thus, only Rs.66,000/- has been confirmed by the Tribunal, while deciding the quantum appeal. In the light of discussion, it is noted that only the estimated disallowance of expenditure has been confirmed by this Tribunal while deciding the quantum appeal. Bearing in mind the fact that the related quantum addition was purely on estimated basis with inherent subjectivity involved, we are of the view that the penalty is not warranted u/s.271(1)(c) of the Act and also rely on the decision of the Hon’ble Madras High Court in the case of CIT v. P. Rojes reported in [2013] 356 ITR 703 (Madras HC) wherein the Hon’ble High Court observed that since the levy of penalty is based on the estimation of income, there can’t be any imposition of penalty based on the estimation of income. Therefore, (AY 2015-16) M/s.Emak Glass Fibre & Accessories Pvt. Ltd. the penalty levied by the AO vide order dated 16.03.2022 to the tune of Rs.4,38,637/- is directed to be deleted.

4.

In the result, appeal filed by the assessee is allowed.

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