No Penalty if no inaccurate Reporting and no Concealment by Assessee

CIT Vs Standard Chartered Grindlays Pty Ltd (Delhi High Court)

Introduction: The recent decision by the Delhi High Court in the case of CIT vs. Standard Chartered Grindlays Pty Ltd involves the condonation of delay and an appeal against the Income Tax Appellate Tribunal’s (ITAT) order dated 21.07.2020. The key contention is the imposition of a penalty under Section 271(1)(c) of the Income-tax Act, 1961, by the Assessing Officer (AO).

1. Delay Condonation:

• The appellant/revenue sought condonation of a delay of 400 days in re-filing the appeal.
• Despite the delay, the court decided to consider the appeal on its merits, and the delay was condoned.

2. Background and Penalties:

• The appeal pertains to Assessment Year 1997-98, challenging the ITAT order that set aside the penalty imposed on the respondent/assessee.
• The AO had levied a penalty under Section 271(1)(c) alleging deliberate concealment of facts and furnishing inaccurate particulars.

3. Quantum Proceedings and Additions:

• The AO’s penalty was based on additions, including disallowed training expenses, disallowance of provision under Section 36(1)(via), disallowance under Section 115(3), and VRS expenses.
• The Tribunal, in quantum proceedings, deleted three out of four additions, affirming the deduction under Section 36(1)(viia) and rejecting the disallowance under Section 115(3).

4. ITAT’s Rationale for No Penalty:

• The Tribunal, in its order, highlighted that the assessee neither furnished inaccurate particulars nor concealed income regarding the disallowance under Section 115(3).
• Emphasizing the absence of concealment, the Tribunal set aside the penalty order.

5. Delhi High Court’s Decision:

• The High Court, after considering the appeal on merits, agreed with the Tribunal’s view.
• Given the success of the assessee in getting three out of four additions deleted, the court found no substantial question of law to be addressed.
• The appeal was accordingly closed.

Conclusion: The Delhi High Court’s decision reaffirms that penalties under the Income Tax Act are not applicable in the absence of concealment of income. The court upheld the ITAT’s order, emphasizing that the assessee’s success in getting additions deleted in quantum proceedings is indicative of the absence of deliberate concealment. This decision provides clarity on penalty imposition criteria and sets a precedent for cases where the taxpayer successfully challenges additions. The appeal is closed, marking a conclusion to this legal matter.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. This is an application moved on behalf of the appellant/revenue seeking condonation of delay in re-filing the appeal.

1.1. According to the appellant/revenue, there is a delay of four hundred (400) days.

2. Given the fact that we intend to decide the appeal on merits, delay in re-filing the appeal is condoned.

3. The application is disposed of in the aforesaid terms.

ITA 567/2023

4. This appeal concerns Assessment Year (AY) 1997-98.

5. Via the instant appeal, the appellant/revenue seeks to assail the order dated 21.07.2020 passed by the Income Tax Appellate Tribunal [in short, “Tribunal”].

5.1. The Tribunal, via the impugned order, has set aside the penalty order passed qua the respondent/assessee.

6. The record shows that the Assessing Officer (AO) passed a penalty order dated 30.03.2007 against the respondent/assessee under Section 271(1)(c) of the Income-tax Act, 1961 [in short, “Act”] on the ground that the respondent/assessee had deliberately concealed facts and furnished inaccurate particulars concerning its taxable income.

7. The penalty order was confirmed by the Commissioner of Income Tax (Appeals) [in short, “CIT(A)”] via the order dated 28.04.2017. The respondent/assessee was, thus, mulcted with a penalty amounting to Rs. 21,48,56,826/-.

8. A perusal of the impugned order shows that the trigger for the penalty was the following additions that had been made by the AO, which were, then sustained by the CIT(A). The details of the additions are set for hereafter:

9. The Tribunal, however, in quantum proceedings, via order dated 30.01.2017, deleted the expenses that were disallowed under Rule 6D of the Income-tax Rules, 1962, as well as VRS expenses that had been amortized.

10. Likewise, upon remand by the Tribunal, via the appeal effect order, the AO fully allowed the deduction claimed by the respondent/assessee under Section 36(1)(viia). It is required to be noticed that, insofar as disallowance under Section 115(3) of the Act was concerned, the Tribunal, in quantum proceedings, in the order dated 30.01.2017, had directed the AO to recompute the same as per the formula outlined in paragraph 48 of its order.

11. Therefore, out of the four (4) additions referred to hereinabove, in the quantum proceedings, the respondent/assessee ultimately succeeded in getting three (3) out of the (4) additions deleted.

12. As regards disallowance made under Section 115(3) of the Act, the Tribunal noted that, since the assessee had neither furnished inaccurate particulars nor did it conceal income, a penalty could not be levied on that score. These aspects are noted by the Tribunal in paragraphs 9 to 11 of the impugned order. We tend to agree with the view taken in that behalf by the Tribunal.

13. Therefore, having regard to the aforesaid, in our opinion, no substantial question of law arises for our consideration.

14. The appeal is, accordingly, closed.