2024 (1) TMI 488 - AT - Income Tax

Assessee's penalties under Section 271(1)(c) deleted for 80IB disallowance, 80HHC deduction and transfer pricing adjustments

ITAT Mumbai allowed the assessee's appeal and deleted penalties levied u/s 271(1)(c) on multiple grounds. The Tribunal held that penalty cannot be imposed ... Levy of penalty u/s 271(1) (c) - disallowance made by restricting the claim u/s 80IB in respect of Vicks Vaporub (Tins) Line which was allowed by the ld. AO @ 30% as against the claim of 100% by the assessee - Tribunal upholding the disallowance made by the AO is that assessee has failed to establish that unit which has been set up by transfer of old plant and machinery was less than threshold limit of 30% - HELD THAT:- Though the matter has been adversely viewed by the Tribunal on the ground that assessee was not able to establish the transfer of old plant and machinery less than threshold limit of 20% however, assessee’s claim was based on audit report certifying the plant and machinery which was set up in A.Y. 2001-02 though the bills were not available at the time of assessment proceedings for A.Y. 2004-05. Thus, it cannot be claimed that assessee has furnished any inaccurate particulars of income when the claim was based on audit report. Thus, for the purpose of levying penalty u/s. 271(1)(c) finding given in quantum proceedings cannot be conclusive for the purpose of penalty proceedings, because the assessee claim was based on auditor’s report and the earlier year claim made from the basis of audit report of 10CCB has not been disturbed. Thus, there cannot be case of furnishing of inaccurate particulars and accordingly, penalty levied by the ld. AO is deleted. Deduction claimed as based on Auditor’s report in Form 10CCAC and only issue is of the other income of which was not considered for deduction by the assessee - This other income was in the form of foreign exchange having direct nexus with its operating business income. Since it is a debatable issue and assessee’s claim was based on Auditor’s report, therefore, penalty cannot be levied for furnishing of inaccurate particulars of income. Accordingly, the same is deleted. Levy of penalty u/s. 80HHC by reducing the profits determined u/s. 80IB - This issue decided in favour of the assessee by the Tribunal held Section 80IA(9) of the Act curtails the allowance of deduction and not the computation of deduction under any other provisions under Heading C of Chapter VIA of the Act dealing with 'Deductions in respect of certain incomes'. Accordingly, we hold that the reduction of the amount of deduction computed under Section 80HHC made by the Assessing Officer cannot be sustained and therefore, the Assessing Officer directed to re-compute the deduction under Section 80HHC of the Act as per the judgment of the Hon’ble Bombay High Court in the case of Associated Capsules Pvt. [2011 (1) TMI 787 - BOMBAY HIGH COURT] TP Adjustment - during the course of TP study proceedings, the assessee has disclosed all the relevant facts and duly explained and justified the manner of benchmarking in the TP study report to substantiate that the same was done with due diligence in accordance with the rules. It is not the case of the ld. AO that computation of arm’s length was not done in good faith and not with due diligence in terms of Explanation 7 to section 271 (1) (c). Thus, the penalty cannot be levied on TP addition in absence of any overt act by the assessee, which discloses any conscious and material suppression as held by the Delhi High Court in the case of PCIT vs. Verizon India Pvt. Ltd [2016 (8) TMI 1287 - DELHI HIGH COURT] Thus, on this ground also penalty levied by the ld. AO is directed to be deleted. Appeal of the assessee is allowed. Issues Involved:1. Penalty on disallowance under Section 80IB.2. Penalty on deduction claimed under Section 80HHC.3. Penalty on deduction claimed by reducing profits under Section 80IB.4. Penalty on Transfer Pricing adjustment.5. Validity of penalty initiation under Section 274 r.w.s. 271(1)(c).Issue-wise Summary:1. Penalty on Disallowance under Section 80IB:The CIT(A) upheld the penalty levied by the AO on the disallowance made by restricting the claim under Section 80IB from 100% to 30% for the Vicks Vaporub (Tins) line, alleging it was merely an extension of an existing unit. The Tribunal noted that the assessee's claim was based on an audit report, and the failure to substantiate the transfer of old plant and machinery less than the threshold limit of 20% did not amount to furnishing inaccurate particulars of income. Therefore, the penalty was deleted.2. Penalty on Deduction Claimed under Section 80HHC:The CIT(A) upheld the penalty on the reduction of the deduction claimed under Section 80HHC by reducing 90% of the entire other income. The Tribunal found that the deduction was based on the auditor's report, and the issue was debatable. Hence, the penalty for furnishing inaccurate particulars of income was deleted.3. Penalty on Deduction Claimed by Reducing Profits under Section 80IB:The CIT(A) upheld the penalty on the reduction in the claim of deduction under Section 80HHC by reducing the profits determined under Section 80IB. The Tribunal referred to the decision of the Bombay High Court in the case of Associated Capsules Pvt. Ltd. and held that the reduction of the amount of deduction computed under Section 80HHC by the AO could not be sustained. Consequently, the penalty on this disallowance was deleted.4. Penalty on Transfer Pricing Adjustment:The CIT(A) upheld the penalty on the adjustment made by the Transfer Pricing Officer (TPO) concerning the export of finished goods. The Tribunal noted that the original TP adjustment made by the TPO was deleted by the CIT(A), who made a fresh TP addition on a different ground. Since the penalty was initiated based on the original TP adjustment, which was deleted, the AO could not levy a penalty on the new addition made by the CIT(A). The Tribunal also found that the assessee had disclosed all relevant facts during the TP study proceedings and acted with due diligence. Thus, the penalty was deleted.5. Validity of Penalty Initiation under Section 274 r.w.s. 271(1)(c):Given that the Tribunal deleted the penalties on merits, the additional ground raised by the assessee regarding the ambiguity and invalidity of the penalty initiation notice became purely academic.Conclusion:The appeal of the assessee was allowed, and the penalties levied by the AO were deleted on all grounds. The order was pronounced on 29th December, 2023.