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 for Section 80IB disallowance as the assessee's claim was based on auditor's report and no inaccurate particulars were furnished. Similarly, penalty on Section 80HHC deduction was deleted as the claim was supported by auditor's report and involved debatable issues. For transfer pricing adjustments, penalty was deleted as the assessee disclosed all relevant facts during TP proceedings and conducted benchmarking with due diligence, with no evidence of conscious suppression or bad faith by the AO.

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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.

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