DCIT, NEW DELHI vs. M/S. HERO MOTOCORP LTD., NEW DELHI

The brief facts of the case are that the assessee is in the business of manufacture of motorcycles. The return of income was filed declaring an income of Rs. 608,36,69,250/-. The case was selected for scrutiny and, subsequently, the assessment was completed at an income of Rs. 641,60,95,880/- after making certain disallowances/additions. The assessee had made a claim of deduction u/s 80IA of the Act amounting to Rs. 83,75,186/- in respect of its power generation unit at its manufacturing facility at Gurgaon. The AO, however, disallowed the assessee’s claim for deduction by holding that the inter-unit transfer of power from the Power Plant should have been at the price at which the Haryana State Electricity Board was supplying the same to the assessee’s Plant i.e. Rs. 4.05 per unit. Since the cost of generation was Rs. 4.56 per unit, which was more than the market value taken by the Assessing Officer, no deduction under section 80IA of the Act was allowed. On appeal, the Ld. CIT (Appeals) upheld the disallowance and on further appeal, the ITAT also upheld the disallowance of deduction. Subsequently, penalty of Rs. 29,89,941/- was imposed by the Assessing Officer. The Ld. CIT (Appeals) deleted the penalty on the ground that the issue was a debatable one and now the department is before the ITAT challenging the deletion of the penalty.

At the outset, the Ld. Authorised Representative of the assessee/respondent submitted that the Hon’ble Delhi High Court has admitted the assessee’s appeal against the quantum addition confirmed by the ITAT on which the penalty had been imposed by the AO but deleted by the Ld. CIT (Appeals). The Ld. Authorised Representative placed on record copy of order of the Hon’ble High Court of Delhi in wherein vide order dated 15.07.2014, the Hon’ble High Court had framed the following substantial question of law:

In response, the Ld. Sr. Departmental Representative supported the orders of the Assessing Officer. It was vehemently argued that, undisputedly, the quantum addition/disallowance had been confirmed by the ITAT and, therefore, the penalty had been wrongly deleted by the Ld. CIT (Appeals). The Ld. Sr. DR also placed reliance on the following judicial precedents:

We have heard the rival submissions and have also perused the material on record. Undisputedly, this is a case where the penalty levied pertains to an issue in respect of which the Hon’ble Delhi High Court, in assessee’s own case, for the relevant assessment year has framed substantial question of law. Thus, it is very much apparent that the issue is a debatable issue.

In the final result appeal of the department stands dismissed.