THE DCIT, CIRCLE1,, AHMEDABAD vs. ARVIND PRODUCTS LTD.,, AHMEDABAD

The relevant grounds of appeal raised by the Revenue read as under:- (1) The CIT(A) has erred in law and on fact in deleting the penalty of Rs.12.32 lacs levied u/s.271(1)(c) despite the fact that the corresponding quantum additions were already confirmed by the CIT(A). (2) The CIT(A) has not appreciated the fact that the assessee had claimed deductions in the return of income in contravention of the provisions of the I.T.Act 1961 which tantamount to furnishing of inaccurate particulars of income liable to penalty u/s.271(1)(c) of the Act.

In the course of hearing in the captioned Revenue’s appeal, the Ld.AR for the assessee adverted our attention to the fact that the relief has been granted by the ITAT in quantum proceedings in ITA No.1067/Ahd/2011 order dated 19/02/2016 (copy placed in file). It was accordingly submitted that the edifice for imposition of penalty has crumbled in so far as Ground No.1 of the appeal is concerned. It was thus submitted that the grievance of the Revenue in penalty proceedings as per Ground No.1 of its appeal ceases to exist. It was next submitted by the Ld.AR for the assessee that once ground No.1 loses its strength due to relief in the quantum proceedings, the remaining Ground No.2 of Revenue’s appeal stands covered by CBDT Circular No.21 of 2015 dated 10/12/2015. Accordingly, Ground No.2 of the Revenue’s appeal also requires to be quashed in limine owing to low tax effect.

We find ourselves in agreement with contentions on behalf of the assessee. The cause of action as per Ground No.1 is disallowance of bad debts and consequent penalty under s.271(1)(c) thereon. The premise for imposition of penalty on disallowance of bad debts amounting to Rs.34,27,583/- has ceased to exist owing to relief granted by the ITAT in the quantum proceedings. Besides, penalty under s.271(1)(c) of the Act on disallowance of prior period expenses Rs.2,35,194/- as per Ground No.2 of Revenue’s appeal stands covered by the CBDT Circular No.21 of 2015 dated 10/12/2015 as the tax effect thereon is less than Rs.10 lakhs. In this context, we also notice that the order of the ITAT in quantum proceedings was passed on 19/02/2016 which is subsequent to the appeal filed by the Revenue dated 19/02/2014. Therefore, the AO was ostensibly not privy to the order of the ITAT granting relief as regards Ground No.1. As a corollary, on exclusion of Ground No.1, Ground No.2 falls within the relief Circular of CBDT No.21 of 2015 dated 10/12/2015 as noted above. Hence, we do not find any merits in the appeal of the Revenue.