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Income Tax Appellate Tribunal, ‘A’ BENCH, PUNE
ORDER
PER PARTHA SARATHI CHAUDHURY, JM :
This appeal preferred by the Revenue and the Cross Objection by the assessee emanates from the order of the ld. CIT(A)-5, Pune dated 12-03-2019 for A.Y. 2012-13 as per the grounds of appeal on record.
2. So far as the Revenue’s appeal is concerned, they are aggrieved with the deletion of penalty u/s 271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) by the ld. CIT(A) who had relied on the decision of Pune Tribunal which had deleted the quantum addition made on account of disallowance in respect of the claim of deduction u/s 10AA of the Act. The CIT(A) had held that since the quantum addition has been deleted by the C.O. No. 19/PUN/2022 A.B. Knowledge Systems A.Y. 2012-13 Tribunal, the penalty imposed u/s 271(1)(c) of the Act does not have any legal validity and therefore, the appeal of the assessee was allowed. The relevant paras in the CIT(A)’s order are extracted as follows:
16. Subsequently, vide submission dated 21-02-2019, a copy of the order of the Hon’ble ITAT Pune, in the appellant’s case of quantum addition was filed before me and it was stated as under: “We have submitted a copy of the order dated 11.02.2019 of the Income Tax Appellate Tribunal, Pune, in the quantum appeal whereby the Appellant's claim for deduction u/s 10AA was accepted to the extent of Rs. 7,31,49,102 out of the claim made in the IT Return of Rs. 7,49,02,811. It is submitted that when substantial (97.60%) of the claim made has been upheld it would not be correct to state that the appellant had furnished inaccurate particulars of its income. Clearly, on facts, there has been no concealment of income. We rely on the hon'ble Supreme Court's judgment in the case of Reliance Petro Products Lid. 322 ITR 158, whose ratio that penalty is not attracted for making a claim which may not be sustained, is clearly applicable. It is further submitted that where the substratum for initiating penalty itself has disappeared, there cannot remain any ground for levy of penalty. For this proposition we rely on the ratio of the Hon'ble Supreme Court in the case of K. C. Builders 265 ITR 562.
17. On going through the above order, it is seen that the Hon’ble Tribunal in para 17 of the said order has relied on its earlier order of M/s. Honeywell Automation India Ltd. Vs. DCIT and of the Hon’ble Bombay High court in the case of CIT Vs. Schmetz India (P) Ltd. held that "Applying the said ratio to the facts of present case, we have already referred to the activities carried on by the assessee in STPI unit which were for providing designing, consultancy without programming to its customers, on the other hand, SEZ unit provides knowledge based software development with programming to its customers. The customers of units were same but once SEZ unit was established, STPI unit of was closed. SEZ unit shown high profits but in the absence of authorities any arrangement between and its customers of arranging its affairs in such that it has resulted in earning of extraordinary profits, provisions of section 80IA(8) AND 80ia(10) r.w.s. 10AA(9) of the Act cannot be invoked. Section 80IA(8) of the Act ill any case refers to the transfer of any goods or services of eligible business being transferred to any other business carried on by the assessee or vice-versa. It is not the case of Revenue that any goods or services have been so transferred between STPI and SEZ unit. Hence invoking of provisions of section 80/A(8) of the Act is misplaced. Accordingly, we find no merit in the orders of authorities below in curtailing the deduction claimed under section 10AA of the Act by assessee against profits of its SEZ unit.
18. Only an amount of Rs. 17,53,709/- out of total expenses of Rs. 7,49,02,811/- were ordered to be relocated to the SEZ unit and the appellant was granted relief on reduced profits of Rs. 7.3 lacs on deduction claimed u/s 10AA. In the impugned order, the A.O had levied penalty for concealment/s 271(1)(c) of the Act on the satisfaction that the Appellant had deliberately concealed his profit from non-SEZ Unit by inflating expenses there and in the assessment order, by invoking provisions of sec. 80IA(8) of the I.T. Act the profits were estimated at 25% at 25% of receipts in SEZ Unit. However, vide its order cited above, the Hon’ble ITT Pune has held that there is no merit in the order of the A.O in curtailing the deduction claimed u/s 10AA of the Act and has allowed the same. Hence, the basis of the disallowance on which the penalty u/s 271(1)(c) has been levied itself does not exist. In such situation, penalty does not stand and is therefore, directed to be deleted.”
C.O. No. 19/PUN/2022 A.B. Knowledge Systems A.Y. 2012-13 3. At the time of hearing, the ld. D.R fairly conceded that the ITAT has deleted the quantum addition placing reliance on the order of Pune Tribunal. Since quantum addition has been deleted, there is no basis for imposing penalty u/s 271(1)(c) of the Act and it therefore, does not have any legs to stand. Therefore, the ld. CIT(A) was correct in deleting the penalty. The ld. A.R supported the findings of the ld. CIT(A).
Having heard the parties and on an examination of the relevant records, we observe that the Tribunal has already deleted the quantum addition. Since the quantum addition has been deleted, the ld. CIT(A) has rightly deleted the penalty imposed on the basis of such quantum addition. In absence of quantum addition, the penalty does not have legal validity on its own. We therefore, do not find any reason to interfere with the findings of the ld. CIT(A) and the relief given to the assessee is sustained. The appeal of the Revenue is dismissed.
Since we have dismissed the Revenue’s appeal, the Cross Objection filed by the assessee becomes infructuous and the ld. A.R fairly conceded to the proposition. In view thereof, the Cross Objection of the assessee is held to be infructuous.
In the combined result, revenue’s appeal is dismissed and the Cross Objection of the assessee is also dismissed as infructuous. Order pronounced in the open Court on this 28th July 2022.