2019 (7) TMI 1264 - AT - Income Tax

Stock valuation penalty deleted after quantum addition removal; disallowance under section 14A doesn't automatically trigger penalty under section 271(1)(c)

Assistant Commissioner of Income Tax, Circle- 21 (2), New Delhi Versus M/s Resurgere Mines and Minerals India Ltd.

ITAT Delhi upheld CIT(A)'s order deleting penalty u/s 271(1)(c) imposed on two grounds. First, regarding stock valuation differences, the tribunal held ... Penalty u/s 271(1)(c) - quantum addition deleted related to difference of opinion between the assessee and the AO regarding valuation of stock - disallowance u/s 14A - HELD THAT:- Since the quantum addition already stands deleted, the penalty levied u/s 271(1)(c) has no legs to stand. In coming to this conclusion, we are guided by the decision of Hon’ble Supreme Court in the case of K.C.Builders vs ACIT [2004 (1) TMI 7 - SUPREME COURT] as held that “where the additions made in the assessment order, on the basis of which penalty for concealment was levied, are deleted there remains no basis at all for levying the penalty for concealment, and therefore, in such a case no such penalty can survive and the same is liable to be cancelled.” Therefore, the penalty levied u/s 271(1)(c) in respect of the aforesaid addition is held to be untenable and the order of the CIT(A) on this issue is upheld. Penalty levied in respect of addition u/s 14A r.w. Rule 8D - DR has not disputed the facts, submissions and contentions contained in the aforesaid synopsis filed from the assessee’s side during the appellate proceedings in ITAT. In the facts and circumstances of this case, therefore, and having regard to the synopsis filed from assessee’s side, we reject the contention of the Ld.DR that every addition made in assessment order should invariably lead to penalty u/s 271(1)(c). For this purpose, we take guidance from the order of the Hon’ble Supreme Court in the case of CIT vs Reliance Petro Products Pvt. Ltd. [2010 (3) TMI 80 - SUPREME COURT] held that “a mere making of claim, which is not sustainable in law by itself, will not amount to furnishing inaccurate particulars regarding income of the assessee.” No interference from our side is warranted in the order of the Ld. CIT(A) deleting the penalty u/s 271(1)(c) in respect of the aforesaid addition u/s 14A r.w. Rule 8D. Accordingly, the order of Ld.CIT(A) on this issue is also upheld. - Decided in favour of assessee. Issues Involved:1. Deletion of penalty imposed under Section 271(1)(c) of the Income Tax Act for valuation of stock.2. Deletion of penalty imposed under Section 271(1)(c) of the Income Tax Act for disallowance under Section 14A read with Rule 8D of the Income Tax Rules.Detailed Analysis:1. Deletion of Penalty for Valuation of Stock:The primary issue was whether the CIT(A) was correct in deleting the penalty imposed by the AO under Section 271(1)(c) of the Income Tax Act for the valuation of stock. The AO had rejected the weighted average method adopted by the assessee for stock valuation and substituted it with the FIFO method, resulting in an addition of Rs. 1,69,57,108 to the total income. The CIT(A) deleted the penalty, reasoning that the assessee had consistently followed the weighted average method, which is an accepted method of stock valuation. The AO's substitution of the method was based on a difference of opinion rather than any suppression of information or furnishing of inaccurate particulars by the assessee. The tribunal upheld the CIT(A)'s order, emphasizing that penalty proceedings are distinct from assessment proceedings and require independent consideration of the explanation offered by the assessee. The tribunal cited the Supreme Court's ruling in CIT vs. Reliance Petroproducts (P) Ltd., which held that merely making an incorrect claim does not amount to furnishing inaccurate particulars.2. Deletion of Penalty for Disallowance under Section 14A:The second issue was whether the CIT(A) was correct in deleting the penalty for disallowance under Section 14A read with Rule 8D. The AO had computed an additional disallowance of Rs. 71,223, which was not pressed by the assessee due to the smallness of the amount. The CIT(A) noted that disallowance under Section 14A is a debatable and contentious issue with numerous judicial rulings on its application. The tribunal upheld the CIT(A)'s decision, referencing the Delhi High Court's ruling in CIT vs. Liquid Investments, which stated that penalty cannot be imposed on debatable issues. The tribunal also referred to the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd., which held that making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars.Conclusion:The tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order to delete the penalties imposed under Section 271(1)(c) for both the valuation of stock and the disallowance under Section 14A. The tribunal emphasized that penalty proceedings require a clear finding of concealment or furnishing of inaccurate particulars, which was not evident in this case.