TaxTMI 
TaxTMI 
2026 (10) TMI 155
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....ere the grounds of appeal read as under: "1. "Whether on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) erred in deleting the penalty levied by AO under section 271(1)(c) of the Act on account of disallowance of provision for Executive Retirement Scheme amounting to Rs. 1,69,36,243/-". 2. "Whether on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) erred in deleting the penalty levied by AO under section 271(1)(c) of the Act on account of disallowance of Reserve for Cash Discount amounting to Rs. 31,88,141/-". 3. "Whether on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) erred in deleting the penalty levied by AO under section 271(1)(c) of the Act on account of disallowance of provision for bonus amounting to Rs. 23,54,373/- 4. "Whether on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) erred in deleting the penalty levied by AO under section 271(1)(c) of the Act on account of addition of profits attributable to Sri-Lanka branch of the Appellant amounting to Rs. 6,73,6....
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.... respect of matured portion of the units in the accounts for the respective years based on present value method and accordingly, a provision of Rs. 1,69,36,234/- has been made for the impugned assessment year. Without prejudice, it was submitted that the payment made under such disallowance/provision may be allowed on the basis of payments actually being made during the previous year, amounting to Rs. 32,32,765/-. The submissions so filed by the assessee were not found acceptable to the Assessing Officer. As per the Assessing Officer, the assessee has failed to substantiate its claim, and a similar claim made in the earlier assessment year was offered by the assessee itself for taxation or was disallowed and confirmed by the ld. CIT(A). It was held that the provision for Executive Retirement Scheme is an unascertained contingent liability, which is dependent upon the happening of a certain contingency in future, and therefore, the same cannot be allowed as a deduction from the profits of the year and therefore, the amount of Rs. 1,69,36,234/- was brought to tax and added to the assessee's total income. The assessee, thereafter, carried the matter in appeal before the ld. CIT(A)....
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....facts had been disclosed, the issue was debatable and reliance could be placed upon judicial precedents including the decision in Reliance Petroproducts (P) Ltd. (supra). The ld. DR further submitted that the ld. CIT(A) failed to appreciate that mere disclosure of a claim does not automatically immunize an assessee from penalty where the claim itself is found to be legally unsustainable and the Assessing Officer has recorded proper satisfaction regarding furnishing of inaccurate particulars. The ld. DR submitted that the Assessing Officer examined the explanation in detail and recorded reasons for rejecting the same before levying penalty. The ld. DR further submitted that the deletion of penalty merely by treating the issue as debatable is therefore not justified. Accordingly, the findings of the ld. CIT(A) deserve to be reversed and the penalty as levied by the Assessing Officer be restored. 9. In his submissions, the ld. AR supported the order and the findings of the ld. CIT(A), and it was submitted that during the course of assessment proceedings, the assessee has explained the basis of arriving at the provision figure and has also submitted a sample copy of the agreement en....
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....s for levy of penalty under section 271(1)(c) in absence of satisfaction of the requisite conditions so laid down which needs to be strictly construed. 12. In the instant case, we find that there is no specific finding recorded by the Assessing Officer in terms of specific charge against the assessee as to whether it is a case of concealment of particulars of income or furnishing of inaccurate particulars of income, and going merely by the fact that in the quantum proceedings, the additions have been upheld by the ld. CIT(A), he has gone ahead and levied the penalty. On this ground itself, the penalty so levied deserves to be set aside. 13. Further, we find that the ld. CIT(A) has recorded a finding that all material facts were disclosed by the assessee and the claim was made by the assessee on a bonafide belief that it has incurred a legally enforceable liability towards its employees and the quantification thereof has been done based on defined methodology. During the course of hearing, the ld AR again reiterated that where the company is satisfied with the performance of its employees, it grant units to the employee maturing over a number of years and the company immediate....
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....the same is a normal business practice followed by the company and the provision made in the accounts is towards the sales made in the month of March, 2004, whose payments are due after 31.03.2004, and the same is a pure business expenditure, as giving cash discount is common business practice, hence the provision should be allowed. The submissions so filed by the assessee were considered, but not found acceptable to the Assessing Officer. As per the Assessing Officer, the reserve for cash discount is an unascertained contingent liability, which is dependent upon the happening of a certain contingency in future, and the same cannot be allowed as a deduction from the business income of the current year and hence, the same was disallowed. The assessee carried the matter in appeal before the ld. CIT(A). The ld. CIT(A), following the decision of the Tribunal, directed the AO to allow deduction of cash discount on actual payment basis. 16. Thereafter, during the course of penalty proceedings, the Assessing Officer referred to the findings in the quantum proceedings as well as the findings of the ld. CIT(A) and stated that since the ld. CIT(A) has upheld the disallowance of provision ....
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....ce or an earlier decision. The ld. DR further submitted that once the claim has been found to be inadmissible after due examination and the assessee failed to justify the same, the ingredients for levy of penalty stood satisfied. The ld. DR submitted that the order of the ld. CIT(A), therefore, deserves to be set aside. 19. In his submissions, the ld. AR relied on the findings of the ld. CIT(A). It was submitted even while passing the penalty order, no specific finding has been recorded in terms of whether the penalty is levied for concealment of particulars of income or furnishing in accurate particulars of income. Further, our reference was made to the findings of the Coordinate Bench in the assessee's own case for A.Y. 2001-02, wherein the Coordinate Bench has deleted the levy of penalty on account of disallowance for cash discount. It was submitted that the matter is squarely covered by the decision of the Coordinate Bench in earlier year and the same has rightly been followed by the ld CIT(A) while deleting the penalty. 20. We have heard the rival contentions and perused the material available on record. The issue under consideration relates to levy of penalty under sect....
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....ishing inaccurate particulars of income. In light of the same, we do not find any infirmity in the order of the ld. CIT(A) and the same is hereby confirmed, and the ground of appeal so taken by the Revenue is dismissed. 23. In ground no. 3, the Revenue has challenged the action of the ld. CIT(A) in deleting the levy of penalty on account of disallowance of provision for bonus amounting to Rs. 23,54,373/-. 24. In this regard, the facts of the case are that during the course of assessment proceedings, basis disclosure in terms of the notes to the computation of income, the Assessing Officer issued a show cause as to why the provision for bonus should not be disallowed since the same was unpaid and not allowable as per the provisions of Section 43B of the Act. In response, the assessee company referred to the provisions of Section 43B and 36(1)(ii) of the Act and it was submitted that the bonus as envisaged by the aforesaid provision only relates to the bonus payable under the Payment of Bonus Act, 1965. However, the bonus provided by the company in books of accounts are not payable under the Payment of Bonus Act, 1965 but are payable as per the agreement of employment and hence....
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....had claimed deduction contrary to the statutory provisions governing allowability of such expenditure. The explanation furnished by the assessee was examined in detail but was not accepted and penalty proceedings were initiated accordingly. The ld. DR submitted that the ld. CIT(A), however, deleted the penalty by observing that the issue was debatable and by relying upon decisions rendered in the assessee's own case for earlier assessment years. The ld. DR further submitted that the ld. CIT(A) failed to appreciate that the Assessing Officer had recorded proper satisfaction after considering the explanation furnished by the assessee. The deletion of penalty solely on the basis of earlier orders without independently appreciating the facts and findings recorded for the assessment year under consideration is unsustainable. The ld. DR submitted that the ld CIT(A)'s order deleting penalty therefore deserves to be reversed. 28. In his submissions, the ld. AR relied on the order and the findings of the ld CIT(A). It was submitted that while passing the penalty order, no specific finding has been recorded in terms of whether the penalty is levied for concealment of particulars of in....
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....271(1)(c) of the Act, and merely making of a claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars of income and the decisions of the Coordinate Benches in assessee's own case for A.Y 2001-02 and 2008-09 where the penalty on similar ground has been deleted. In light of the same, we do not find any infirmity in the order of the ld. CIT(A) and the same is hereby confirmed, and the ground appeal so taken by the Revenue is dismissed. 31. In ground no. 4, the Revenue has challenged the action of ld. CIT(A) in deleting the penalty on account of addition of profits attributable to Sri-Lanka branch of the assessee amounting to Rs. 6,73,60,613/-. 32. In this regard, the relevant facts of the case are that during the course of assessment proceedings, the Assessing Officer observed that in the computation of total income, the profits of Sri-Lanka branch has not been considered by the assessee company on the ground that income arising in Sri-Lanka is not taxable in India and reliance was placed on the Hon'ble Madras High Court decision in case of CIT v. Lakshmi Textile Exporters Ltd. [2000] 245 ITR 521 (Madras), Hon'ble Karnataka High Court ....
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....A), though the assessee took a ground against the said findings of the AO, however, the assessee did not press this ground as the alternate claim for tax credit for taxes paid in Sri-Lanka was allowed by the ld. CIT(A). 33. Thereafter, during the penalty proceedings, the AO referred to the findings in the quantum proceedings and stated that since the ld. CIT(A) has upheld the decision of the AO, the amount of Rs. 6,73,60,613/- is sought to be evaded by the assessee and thus, penalty u/s. 271(1)(c) is attracted on this issue. 34. Aggrieved with action of AO in levying penalty, the assessee carried the matter in appeal before the ld. CIT(A). Taking into consideration the findings of the AO and the submissions of the assessee, the ld. CIT(A) has returned a finding that the AO levied penalty u/s. 271(1)(c) of the Act in respect of exclusion of profits amounting to Rs. 6,73,60,613/- earned by the Sri-Lanka branch. It was noted by the ld CIT(A) that the assessee had disclosed the profits of the Sri-Lanka branch in its profit & loss account and thereafter excluded the same in the computation of income on the bonafide belief that such profits were taxable only in Sri-Lanka in terms o....
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....ing Officer had recorded detailed findings after examining the claim and the material available on record. Merely because the assessee raised an alternative interpretation of the treaty provisions cannot by itself justify deletion of penalty where the claim has been found to be unacceptable during assessment proceedings. The ld. DR accordingly submitted that the order of the ld. CIT(A) deserves to be reversed. 36. In his submissions, the ld. AR relied on the order and the findings of the ld. CIT(A). It was submitted that while passing the penalty order, no specific finding has been recorded in terms of whether the penalty is levied for concealment of particulars of income or furnishing in accurate particulars of income. Further, reliance was placed on the decision of the Coordinate Bench in assessee's own case for A.Y. 2008-09, wherein, the penalty levied on account of non-offering of profits of Sri-Lanka branch was adjudicated by the Coordinate Bench and it was held that where claim made by the assessee under a bonafide belief is not accepted, the same cannot be basis for levy of penalty and reliance was again placed on the decision of the Hon'ble Supreme Court in case of Relia....
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....er addition on account of profits of Sri Lanka branch is consequent to furnishing inaccurate particulars of income and hence, triggers penal provisions under section 271(1)(c) of the Act. A perusal of computation of income for the assessment year 2008-09 at page-1 of Paper Book reveal that the assessee has disclosed total profits before tax as per profits and loss accounts for the year ended 31/03/2008. This profit includes profit from Sri Lanka branch as well. Thereafter, the assessee has reduced the profits & losses of the overseas branch at Sri Lanka and Bangladesh, respectively. The contention of the assessee is that the assessee was under bona-fide belief that the profits of the overseas branches are taxable in the host country as the assessee is having permanent establishment in the said country. This belief of the assessee is further substantiated by the fact that the assessee has offered income from said overseas branch to tax in the host country. The DRP has given benefit of the tax credit to the assessee for the taxes paid overseas. 13. The second contention of the assessee is that the issue whether the profits of foreign branch are liable to be taxed in India, i....
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....e therefore find that all necessary disclosure has been made by the assessee and basis such disclosure only, the Assessing Officer has come to a conclusion that the profits so arising in relation to Sri Lanka branch are taxable in India and has allowed credit for taxes paid in Sri Lanka. However, the contention of the assessee that such profits were taxable only in Sri Lanka in terms of Article 5 and 7 of the India-Sri Lanka Double Taxation Avoidance Agreement has not been specifically dealt with by the Assessing Officer while negating the same, and the same has also been highlighted by the ld. CIT(A) holding that this shows a difference of opinion on the interpretation and applicability of the tax treaty provisions in terms of taxability and treaty relief and following the decision of Coordinate Bench in assessee's own case for A.Y. 2008-09, the ld. CIT(A) has deleted the levy of penalty. In light of the same, we affirm the order and findings of the ld CIT(A) and the ground of appeal so taken by the Revenue is dismissed. 43. In its cross-objections No. 178/Mum/2026, except for ground no. 2, the assessee has basically supported the order and findings of the ld CIT(A) which w....
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....ct on account of addition of profits attributable to Bangladesh branch of the Appellant amounting to Rs. 2,40,50,136/-." 45. Firstly, as far as the grounds of appeal nos. 3, 4, 5, 6, and 7 are concerned, both the parties fairly submitted that the facts and circumstances of the case are identical as in ITA No. 2443/Mum/2026 for A.Y. 2004-05 except for the change in figures and the fact that besides, Sri Lanka Branch, there is another branch in Bangladesh in respect of which the penalty has been similarly levied and it was submitted that similar contentions as taken aforesaid be considered. Therefore, following our findings in ITA No. 2443/Mum/2026 for A.Y. 2004-05, we confirm the findings of the ld. CIT(A) and the grounds of appeal so taken by the Revenue are dismissed. 46. Now, coming to ground no. 1 of the Revenue's appeal, wherein the Revenue has challenged the action of the ld. CIT(A) in deleting the penalty levied by the Assessing Officer in relation to transfer pricing adjustment of Rs. 1.29 crores. 47. In this regard, the ld. DR submitted that the ld. CIT(A) erred in deleting the penalty levied under section 271(1)(c) by holding that the transfer pricing adjustme....
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....ely based on an inadvertent computational mistake. It was accordingly held that when the quantum addition itself has been deleted on merits and the same has attained finality, no penalty can survive. Penalty proceedings being consequential in nature cannot stand in the absence of a sustainable addition. Accordingly, the penalty so levied by the Assessing Officer on Rs. 1.29 crore was rightly deleted by the ld CIT(A). It was accordingly submitted that the ground of appeal so taken by the Revenue be dismissed, since the entire transfer pricing addition stood deleted by the ld. CIT(A), which has been affirmed by the Coordinate Bench. 49. We have heard the rival contentions and perused the material available on record. We find that in the quantum proceedings, necessary relief has been granted by the ld. CIT(A). However, while giving appeal effect to the order so passed by him, there are certain arithmetical mistakes/errors which have crept in, which has resulted in levy of penalty by the Assessing Officer. There is no independent finding recorded by the Assessing Officer as to how the case of the assessee falls under either concealment of income or furnishing of inaccurate particula....
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....ppeal, the said addition was confirmed by the ld. CIT(A) holding that the statute has undergone a change with effect from 01.04.2000. Further, the Assessing Officer referred to the provisions of Section 145A, as per which the closing inventory shall be valued after adjusting the amount of any tax, duty, cess or fee, (by whatever name called), actually paid or incurred to bring the goods to the place of its location and condition as on the date of valuation. Accordingly, an amount of Rs. 5,79,32,818/- was added to the assessee's income, representing the value of MODVAT credit available at the close of the accounting year. 52. The assessee thereafter carried the matter in appeal before the ld. CIT(A) and drawing reference to the provisions of Section 145A, the memorandum explaining the provisions of Section 145A, it was submitted that, from the perusal of the provisions of Section 145A of the Act and the object behind insertion of the section, the valuation of purchase, sale and inventory should be adjusted to include the amount of any tax, duty, cess or fee actually paid or incurred to bring the goods to the place of its location and condition as on the date of valuation. It ....
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....the assessee and decisions of the Hon'ble Bombay High Court in case of Indo-Nippon as affirmed by the Hon'ble Supreme Court and at the same time, accepted the alternative submissions of the assessee and allowed partial relief to the assessee amounting to Rs. 1,43,02,534/- in respect of MODVAT credit relating to opening stock, and upheld the addition made to the closing stock amounting to Rs. 4,36,30,284/-, following the decision of Hon'ble Bombay High Court in case of Mahalaxmi Glass Works Limited (supra). The Revenue thereafter carried the matter in appeal against the relief granted by the Ld CIT(A) which was dismissed by the Coordinate Bench and the findings of the ld CIT(A) were confirmed. 53. Thereafter, during the course of penalty proceedings, the AO referred to the findings in the quantum proceedings, and stated that since the ld. CIT(A) has allowed partial relief of Rs. 1,43,02,534/- and the fact that addition of Rs. 4,36,30,284/- is confirmed by the ld. CIT(A) and in view of the same, an amount of Rs. 1,29,00,000/- (wrongly stated instead of figure of Rs 4,36,30,284/-) is evaded by the assessee and thus penalty under section 271(1)(c) is attracted on this issue. ....
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....n respect of MODVAT credit relating to opening stock, and upheld the addition relating to the closing stock of Rs. 4.36 crore and reference was drawn to the written submissions filed before the ld CIT(A). It was submitted that the adjustment on account of MODVAT credit is essentially a timing difference, wherein adjustment to closing stock in year one would have a parallel adjustment in the opening stock in year two. It was submitted while passing the penalty order, no specific finding has been recorded by the AO in terms of whether the penalty is levied for concealment of particulars of income or furnishing in accurate particulars of income. It was further submitted that the ld. CIT(A) deleted the penalty on the ground that no penalty can be levied where addition is solely based on a decision of the Hon'ble High Court, where the issue involved is debatable, and where the addition merely results in a timing difference and our reference was drawn to the findings of the ld CIT(A). Further, reliance was placed on the Coordinate Mumbai Benches decision in the case of Steelfab Building Systems vs. ACIT (ITA No. 6509/Mum/2018 dated 04.03.2020), wherein it was held that no penalty is ....
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....at there is no specific finding recorded by the Assessing Officer while levying the penalty in terms of specific charge against the assessee as to whether it is a case of concealment of particulars of income or furnishing of inaccurate particulars of income, and going merely by the fact that in the quantum proceedings, the additions have been upheld by the ld. CIT(A), he has gone ahead and levied the penalty. On this ground itself, the penalty so levied deserves to be set aside. 60. Further, we find that the ld. CIT(A) has recorded a finding that the assessee has consistently followed an exclusive method of accounting whereby opening stock, purchases and closing stock are valued exclusive of excise duty, while sales are recorded inclusive of excise duty. The adjustment made by the AO by adding MODVAT credit to the closing stock arises solely due to the application of Section 145A and does not stem from any concealment of income or furnishing of inaccurate particulars of income. It has been held that any increase in the value of closing stock in one year necessarily results in a corresponding increase in the opening stock of the subsequent year as evident from the quantum proceed....