TMI Blog2018 (12) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... edings we have examined this issue and observe that assessee was having sufficient interest free fund for taking care of interest expenditure relatable to earning of tax free income on the estimate basis. Adhoc disallowance was confirmed in A.Y 2007-2008 and on same analogy adhoc additions stand confirmed for A.Y 2009-2010. Assessee has disclosed complete fact about the tax free income and how funds have been used. The Ld.CIT(A) has appreciated this aspect and thereafter deleted the penalty. Thus, we find that major additions which goad the AO to visit with penalty stands deleted in the quantum proceedings. The amount which have been added to income of the assessee on three issues were basically adhoc disallowances. The Ld.CIT(A) has appreciated this aspect and thereafter deleted penalty. We do not see any reason to interfere in the order of Ld.CIT(A) as far as Revenue’s appeal is concern. As far as assessee’s appeal is concern, we have already set aside the issue to the file of Ld.AO for re-adjudication in the quantum proceedings. There is no basis to visit the assessee with the penalty on this issue because the AO has yet to examine whether any disallowances/additions on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Ld.CIT(A). Such details read as under: (a) Transfer Pricing Addition (interest on loan) ₹ 34,86,035/- (b) Prior period Income ₹ 2,60,696/- (c) Excess claim of depreciation on electrical installation ₹ 8,502/- (d) Foreign Exchange difference loss ₹ 11,27,589/- (e) Disallowance u/s 14A ₹ 1,21,423/- (f) Non-deduction of TDS u/s.40(a)(ia) ₹ 44,58,072/- (g) Disallowance u/s.10B ₹ 44,90,967/- 5. Ld.AO has issued showcause notice u/s.271(1)(c) of the Act r.w.s 274, inviting an explanation of the assessee as to why penalty be not imposed upon it. After hearing, penaltywas imposed of ₹ 47,46,721/-. Dissatisfied with the penalty order dated 31/03/2015, assessee carried the matter in appeal before First App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, penalty deserves to be deleted. Penalty on Prior period income ₹ 2,60,696/- Assessee earned Prior period income (PPI) of ₹ 1,30,352/- and incurred prior period expenses (PPE) of ₹ 13,36,441/-. After setting off PPE against PPI, assessee debited net sum of ₹ 12,06,089/- as expenses in P L. However, sum of ₹ 12,06,097/- was added back by the assessee while filing the return of income. AO did not agree with the above treatment since he was of the view that entire PPE ought to have been disallowed. Hence, he made addition of ₹ 1,30,344/- (i.e 13,36,441 ₹ 12.06,097/-). AO made total addition of ₹ 1,30,352/- being PPI. Accordingly, AO made total addition of ₹ 2,60,696/- (i.e ₹ 1,30,344 + ₹ 1,30,352/). In quantum appeal,Hon ble ITAT held that PPI is to be set-off against PPE and only net differential sum is to be brought to tax. Accordingly, Net Prior period expenses have been allowed as deduction (para 22-25 @ 25, pgs. 28-30 of the order). Hence penalty deserves to be deleted. Penalty on Depreciation on Electric Installation Rs.8,502/- Assessee claimed depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble the ITAT has set-aside the issue to the file of AO for adjudication afresh (para 39-42 @ 42, pgs. 33-37 of the order). Copy of the quantum order is annexed and marked as Annexure A to Department s appeal bearing ITA 138/Ahd/2017. Hence, penalty deserves to be deleted. 12. Sub-clause (iii) of section 271(1)(c) provides mechanism for quantification of penalty. It contemplates that the assessee would be directed to pay a sum in addition to taxes, if any, payable by him, which shall not be less than, but which shall not exceed three times the amount of tax sought to be evaded by reason of concealment of on income and furnishing of inaccurate particulars of income. In other words, the quantification of the penalty is dependant upon the additions made to the income of the assessee. 13. On perusal of the details placed before us as well as order of the ITAT in the quantum proceedings would indicate that addition for TP adjustment, disallowance u/s.40(a)(i) disallowance u/s.10B of the Act stands deleted. These are the major additions for visiting the assessee with penalty. Therefore with regard to these items there is no basis on which it could be alleged that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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