ITAT overturns penalty under Income Tax Act for apportionment dispute in lamp manufacturing company

The ITAT set aside the penalty imposed under section 271(1)(c) of the Income Tax Act on the apportionment of managerial remuneration between units of a lamp manufacturing company. The appellant's challenge against the penalty was successful as the ITAT deemed the disagreement on apportionment as not amounting to concealment of income. Citing relevant case laws, including a Supreme Court decision, the ITAT concluded that the penalty was unwarranted and directed the Assessing Officer to delete it. The appeal was partly allowed on 24th October 2017.

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Issues:
- Confirmation of penalty u/s 271(1)(c) on disallowances
- Apportionment of managerial remuneration between units

Confirmation of Penalty on Disallowances:
The appellant, a lamp manufacturing company, appealed against the penalty imposed under section 271(1)(c) of the Income Tax Act for the assessment year 2005-06. The company had claimed exemption under section 80IC of the Act. The assessment resulted in additions/disallowances, including a penalty of Rs. 18 lakh. The appellant challenged the penalty before the ITAT, focusing on the disallowance of Rs. 37,31,300 out of Director's remuneration. The Assessing Officer reallocated managerial remuneration between units, leading to the disallowance and penalty. The appellant argued that full details were provided, justifying the apportionment based on capital outlay. The appellant emphasized the differences between the units in terms of turnover, exports, and employee strength. The appellant contended that the apportionment method was valid and not a concealment of income. Citing relevant case laws, the appellant sought the penalty's deletion.

Apportionment of Managerial Remuneration between Units:
The ITAT analyzed the issue of reallocation of managerial remuneration. Referring to precedents, including judgments from the Bombay High Court and the Delhi High Court, the ITAT noted that the method of apportionment was a matter of opinion. The absence of prescribed norms for such allocation led to a difference of opinion between the Assessing Officer and the appellant. The ITAT observed that the appellant had disclosed all relevant details, and the disagreement on apportionment did not amount to concealment of income. Relying on the Supreme Court's decision in Commissioner of Income Tax vs Reliance Petroproducts, the ITAT concluded that the penalty under section 271(1)(c) was unwarranted in this case. Consequently, the ITAT set aside the penalty imposed on the apportionment of managerial remuneration and directed the Assessing Officer to delete the penalty. The appeal was partly allowed, with the ITAT pronouncing the order on 24th October 2017.

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