GTC INDUSTRIES LTD,MUMBAI vs. ITO CEN CIR IX RG -II, MUMBAI

The Ld Counsel appearing for the assessee submitted that the assessing officer has levied penalty in all the three years on the addition made by him towards premium realised on sale of Cigarettes, i.e., the AO took the view that the assessee has realised premium over and above the selling price and did not account for the same. The AO also levied penalty on the addition made by him in all the three years towards premium realised on sale of Cigarettes. The Ld A.R further submitted that the above said issue in all the three years was referred to a Special bench and the Hon’ble Special bench has since deleted the addition made by the AO in all the three years, vide its order dated 07-03-2017 passed in ITA No.1055/Bom/94 and ITA No.1056/Bom/94 relating to AYs 1984-85 to 1986-87 respectively. Accordingly he submitted that the penalty levied in all the three years on the addition made towards premium realised on sale of Cigarettes is liable to be deleted.

The Ld A.R further submitted that the AO has levied penalty on the addition of Rs.10.00 crores made by him in AY 1984-85 towards suppressed production. He submitted that the Ld CIT(A) has deleted this addition and the order of Ld CIT(A) on this issue has since been confirmed by the Tribunal, vide its order dated 06-03-1991 passed in ITA No.4976/Bom/88. Accordingly he submitted that the penalty levied by the AO in AY 1984-85 on the above said addition of Rs.10.00 crores is liable to be deleted.

The Ld D.R, on the contrary, submitted that the addition considered by the Hon’ble Special bench of ITAT towards premium realised on sale of Cigarettes was Rs.21.36 crores, whereas the AO has levied penalty on this addition by taking the quantum of addition at Rs.22.73 crores. Accordingly she submitted that the penalty can be deleted only to the extent of relief granted by the Special bench.

In the rejoinder, the Ld A.R submitted that the AO initially made an addition of Rs.21.36 crores from which he reduced a sum of Rs.1.00 crores towards expenses. Subsequently the AO passed a rectification order u/s 154 of the Act on 29.06.1987, wherein he corrected a totalling error to the tune of Rs.2.36 crores. Accordingly the addition on account of premium realised on sales worked out to Rs.22.73 crores finally and the penalty was levied on that amount. Since the Special bench of Tribunal has held that no addition could be made on account of premium realised on sale of cigarettes, the entire amount of penalty is liable to be deleted.

We heard the rival contentions and perused the record. From the orders passed by Hon’ble Special bench/division bench of ITAT, we notice that the additions, on which the penalty has been levied in all these three years, have since been deleted. In AY 1984-85, there appears to be confusion about the quantum of addition mentioned in the order passed by Hon’ble Special bench. As submitted by the Ld A.R in the rejoinder, the difference has arisen on account of subsequent rectification order passed by the AO as well as the deduction given towards expenses by the AO in the original assessment order. Since it is only a matter of reconciliation, we restore this matter of reconciliation to the file of the AO. Otherwise, there is merit in the submission of the ld A.R that the Hon’ble Special bench has held that the addition on account of premium realised on sale of Cigarettes is not sustainable. Accordingly we set aside the impugned orders passed by Ld CIT(A) in all the three years under consideration and direct the AO to delete the penalty levied on the additions (subject to reconciliation of the addition in AY 2004-05) made in all the three years.