2019 (10) TMI 775 - AT - Income Tax

Revenue's Appeal Dismissed: Penalty Deleted, Assessee Prevails on Disallowance

The appeal by Revenue was dismissed by the ITAT. The penalty under Section 271(1)(c) was deleted as the quantum addition, the basis for the penalty, had ... Penalty u/s 271(1)(c) - addition u/s 14A r.w.r. 8D - HELD THAT:- We are of the view that penalty U/s 271(1)(c) I.T. Act levied by AO, and already deleted by the Ld. CIT(A); has no legs to stand when the corresponding additions made by the AO have already been deleted by ITAT. When the quantum addition does not survive, the penalty levied U/s 271(1)(c) of I.T. Act on the corresponding quantum addition also cannot survive. We take support from judicial precedent in the case of K.C. Builders vs. ACIT [2004 (1) TMI 7 - SUPREME COURT] in which the Hon’ble Apex Court 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. In view of the foregoing, appeal filed by Revenue is hereby dismissed. Issues Involved:1. Deletion of penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.2. Disallowance under Section 14A read with Rule 8D.3. Disallowance under Section 40(a)(ia) regarding non-deduction of TDS on bank commission/guarantee fee.Issue-wise Detailed Analysis:1. Deletion of Penalty under Section 271(1)(c):The Revenue filed an appeal against the order of the Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)], who had deleted the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was originally levied by the Assessing Officer (AO) at 100% of the tax sought to be evaded, amounting to Rs. 16,47,08,371/-. The ITAT had previously deleted the quantum addition, which was the basis for the penalty, in ITA No. 1823/Del/2015 for Assessment Year 2011-12. The relevant findings of the ITAT were that the land held by the assessee was consistently shown as a capital asset and not as stock-in-trade. The Tribunal had noted that the land was held as a capital asset since its purchase in 2005-06, and no activities were carried out on it that would indicate it was held as stock-in-trade. The ITAT’s decision was upheld by the Hon’ble Delhi High Court, which confirmed that the income from the sale of the land should be assessed as capital gains and not as business income. Consequently, since the quantum addition was deleted, the penalty under Section 271(1)(c) could not survive, as supported by the judicial precedent in K.C. Builders vs. ACIT 135 Taxman 461 (SC). Thus, the appeal by Revenue was dismissed.2. Disallowance under Section 14A read with Rule 8D:The AO had disallowed Rs. 40,55,600/- under Section 14A read with Rule 8D, which was also a subject of the penalty under Section 271(1)(c). The Ld. Counsel for the assessee argued that no dividend or exempt income was earned by the assessee, and hence, no disallowance under Section 14A could be made. This argument was supported by the judgment of the Hon’ble Jurisdictional High Court in the case of Cheminvest vs. ITO (2015) 378 ITR 33 (Delhi), which held that if no exempt income is earned, no disallowance under Section 14A can be triggered. Consequently, the ITAT held that in the absence of any exempt income, no disallowance under Section 14A could be made, and this issue was decided in favor of the assessee.3. Disallowance under Section 40(a)(ia):The AO had made a disallowance of Rs. 4,05,970/- under Section 40(a)(ia) on the grounds that the assessee had failed to deduct TDS on bank commission/guarantee fee. The AO and the Ld. CIT(A) had relied on CBDT Circular No. 56/2012, which clarified that no TDS was required on such payments, but the AO held that this circular was applicable only from 1st January 2013. The ITAT, however, observed that the purpose of the circular was to reduce hardship and compliance costs for the assessee, and such a benevolent circular should be treated as retrospective. Therefore, the ITAT held that no disallowance under Section 40(a)(ia) could be made for non-deduction of TDS on bank commission/guarantee fee, and this issue was also decided in favor of the assessee.Conclusion:The ITAT dismissed the appeal filed by Revenue, upholding the deletion of the penalty under Section 271(1)(c) by the Ld. CIT(A). The Tribunal found that the quantum additions, which were the basis for the penalty, had already been deleted, and thus, the penalty could not survive. The ITAT also ruled in favor of the assessee on the issues of disallowance under Section 14A and Section 40(a)(ia), providing comprehensive legal reasoning and citing relevant judicial precedents. The appeal of the Revenue was dismissed in its entirety.