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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI B.R. BASKARAN (AM) & SHRI RAM LAL NEGI (JM)
O R D E R PER RAM LAL NEGI, JM These are the cross appeals filed by the assessee and the revenue against order dated 07/03/2013 passed by the Commissioner of Income Tax Assessment Year: 2005-2006 (Appeals)- 37, Mumbai, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against penalty order passed u/s 271 (1) (c) of the Income Tax Act, 1961 (for short ‘the Act’).
Brief facts of the case are that the assessee a private company Ltd. engaged in trading and manufacturing of dyes, dye intermediate and menthol etc., filed its return of income declaring the total income of Rs. 9,35,68,252/-. The assessment order u/s 143 (3) was passed after making disallowance of Rs. 14,97,38,511/- u/s 80IB, Rs. 21,70,628/- u/s 14A and Rs. 6,00,129/- u/s 145A of the Act. In appeal the Ld. CIT (A) upheld the disallowance u/s 80IB, addition made u/s 145A and restricted the disallowance u/s 14A to Rs. 4,29,880/-. Accordingly, show cause notice u/s 274 r.w.s. 271 (c) was issued and in response thereof the assessee submitted the written reply. Affter considering the contention of the assessee, AO passed penalty order u/s 271 (1) (c) of the Act.
Against the said order, the assessee preferred appeal before the Ld. CIT (A). The Ld. CIT(A) partly allowed the appeal of the assessee. Still aggrieved by the impugned order, the assessee has preferred the present appeal on the following effective grounds:-
“The learned AO and CIT (A)-37 erred in leaving penalty on disallowance of Rs. 6,00,129/- under section 145A in spite of the Bombay High court Judgement in the case of Loknete Bala Saheb Desai SSL LTD 59 DTR 169.
2. The learned AO and CIT (A)-37 erred in levying penalty under section 271 (1) (c) on disallowance u/s 14A of Rs. 21,70,628/- in spite of the fact that such disallowance was reduced from Rs. Assessment Year: 2005-2006 21,70,628/- to Rs. 4,29,880/- indicating that the said disallowance was only an estimate.” 4. At the outset, the Ld. Counsel for the assessee submitted that the ITAT has deleted the additions in quantum appeal dated 20.5.2015. Since, the additions have been deleted the penalty order does not survive. The Ld. departmental representative did not controvert the fact presented by the Ld. Counsel.
We have perused the material on record in the light of the contention of the Ld. Counsel for the assessee. The first issue pertains to confirmation of penalty on account of disallowance of Rs. 6,00,129/- under section 145A of the Act. The coordinate Bench has decided this issue in favour of the assessee and deleted the addition in quantum appeal holding as under:
6. Next grievance of the assessee relate to addition on account of excise duty to closing stock of finished goods which were not subject to duty under excise Act. This issue is squarely covered by the decision of Hon’ble Bombay High Court in the case of Loknet Balasaheb Desai SSK Ltd. 339 ITR 288 and by the Hon’ble High Court in the case of SPV Industries 228 Taxmann 104. In the case of Loknet Balasaheb Desai SSK Ltd. (supra), the Hon’ble Bombay High Court held that excise duty liability crystallizes on the day of clearance of excisable goods and not on the date of manufacture and, therefore, excise liability was not incurred by the assessee in respect of unsold sugar lying in the stock and cannot be included in the value of closing stock of sugar. Respectfully following the order of Jurisdictional High Court, we do not find any merit in the action of lower authorities for making additions on account of excise duty to closing stock of finished goods which were not subject to duty under the excise Act. Consequently the Ground no. 9, 10,11 & 12 of assessee’s appeal are allowed.
Assessment Year: 2005-2006
Since, the addition made u/s 145(A) has been deleted in quantum appeal the penalty on the said addition does not survive. We therefore, allow this ground of the appeal of the assessee.
The second ground pertains to penalty on disallowance of Rs. 21,70,628/- made u/s 14A of the Act. The Ld. counsel for the assessee submitted that in quantum appeal the ITAT has deleted the addition made u/s 14A of the Act however, upheld the disallowance to the extent of Rs. 4,29,880/-being the administrative expenses. Since, the addition is based on estimate, no penalty can be levied. On the other hand, the Ld. DR submitted that even though the penalty has been reduced to Rs. 4,29,880/-, the assessee is liable for penalty u/s 271 (1) (c) of the Act.
We notice that the coordinate Bench has deleted the addition of Rs. 21,70,628/- made u/s 14A of the Act by following the law laid down by the Hon’ble Bombay High Court in Reliance Utilities and Power Ltd. 313 ITR 340 and the decision rendered by the Co-ordinate Bench of Tribunal in the case of Tata Project Ltd. (ITA No. 5862/Mum/2006). However, the Tribunal has upheld the disallowance to the extent of Rs. 4,29,880/- as administrative expenses by following the decision of the co-ordinate Bench in assessee’s own case for the A.Y. 2004-05. The relevant portion of the order reads as under:- “2.4 respectfully following the decisions referred above, we do not find any infirmity in the order of the CIT (A) deleting the disallowance of interest so made. So far as the CIT (A) has upheld the disallowance of administrative expenses u/s 14A in the ratio of exempt income to the total turnover of business, the issue is covered by the decision of Tribunal in assessee’s own case for assessment year 2004-05. Accordingly, we find no infirmity in the order of CIT (A) to this extent.” Assessment Year: 2005-2006
In view of the aforesaid fact we find merit in the contention of the assessee that the addition of Rs. 4,29,880/- has been calculated as administrative expenses on the basis of estimate. As per the settled law penalty u/s 271 (1)(c) cannot be levied on the addition made on estimation basis. We therefore, allow this ground of appeal of the assessee and direct the AO not to levy any penalty on the aforesaid addition. The revenue has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
1. “On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting penalty of Rs. 5,47,065/- relating to disallowance of deduction u/s 80IB relying on the decision of the Hon’ble ITAT without appreciating that the Hon’ble ITAT had set aside issue to examine the additional evidence filed and pass a speaking order on the issue of disallowance of deduction u/s 80IB and inspite of the quantum appeal for the A.Y. 2005-06 still pending before the Hon’ble ITAT.
2. “On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting penalty u/s 271 (1) (c) of Rs. 5,47,99,065/- relating to deduction u/s 80IB without appreciating the fact that set aside proceedings for the A.Y. 2004-05 is still pending and without considering the decision of the learned CIT (A) upholding the disallowance u/s 80IB for both the A. Yrs 2004-05 and 2005-06”.
2. Before us, the Ld. Counsel for the assessee submitted that the addition of Rs. 5,47,99,065/- has been deleted by the ITAT in quantum appeal A.Y. 2005-06 (supra). Therefore, the penalty on account of Assessment Year: 2005-2006 the aforesaid addition does not survive. The Ld. Departmental Representative relied on the findings of the AO.
3. We notice that the co-ordinate Bench of the Tribunal has deleted the aforesaid addition in quantum appeal following the decision of Bench passed in assessee’s own case for the assessment year 2004-05. The relevant portion of the order reads as under:- “4.5 In view of the above discussion, considering the facts and circumstance of the case vis-à-vis order of the Tribunal in assessee’s own case for assessment year 2004-05 and also the order of the AO giving effect to the order of Tribunal allowing assessee’s claim of deduction u/s 80IB, we do not find any merit in the action of lower authorities in declining assessee’s claim for deduction u/s 80IB in respect of new unit set up at Daman during the assessment year 2005-06 and 2006-07. Accordingly, the AO is directed to allow assessee’s claim for deduction u/s 80IB for assessment year 2005-06 and 2006-07.”
4. Since, the addition has been deleted in quantum appeal by the co- ordinate Bench, the penalty on account of the addition aforesaid does not survive. We therefore, dismiss the sole ground of the revenue’s appeal. In the result, appeal filed by the assessee is allowed and the appeal of the revenue is dismissed.