In ITA No.1536/Mum/2023 -ITAT- ITAT (Mumbai) grants relief to Knight Riders Sports Pvt. Ltd.; Clarifies that when additions made in Assessment Order, forming the basis for levying penalty, are subsequently deleted, the penalty becomes untenable
Members Vikas Awasthy (Judicial) & Padmavathy S. (Accountant) [25-07-2023]

Read Order: The Deputy Commissioner of Income Tax, CC-4(2), Central Range-4 v. Knight Riders Sports Pvt. Ltd.

Chahat Varma

New Delhi, August 2, 2023: The Mumbai bench of the Income Tax Appellate Tribunal has ruled in favour of Knight Riders Sports Pvt. Ltd. (assessee), stating that when the additions made in the assessment order, which formed the basis for levying the penalty under Section 271(1)(c) of the Income Tax Act, were subsequently deleted in the quantum appeal, the penalty would not stand.

The case involved disallowances faced by the assessee, a 100% subsidiary of Red Chillies Entertainment Pvt. Ltd., during the assessment under section 143(3). The disallowances included franchise fees treated as capital in nature, airfare and traveling expenses, website design charges treated as capital with depreciation, and lodging & boarding/food and catering charges. The disallowances were upheld by the CIT(A). Subsequently, the Assessing Officer initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars. The Assessing Officer levied a penalty of 100% of tax sought to be evaded, amounting to Rs. 4,42,44,913 for A.Y. 2011-12 and Rs. 3,53,05,323 for A.Y. 2012-13. The assessee appealed to the CIT(A) against the penalty. The CIT(A) ruled in favour of the assessee and deleted the entire penalty imposed by the Assessing Officer for both assessment years.

The coram of Vikas Awasthy (Judicial) and Padmavathy S. (Accountant) noted that a Co-ordinate bench in assessee’s own case, had already deleted the quantum addition related to Franchise Fees, and the other issues concerning disallowance of airfare, traveling expenses, website charges, lodging & boarding/food, and catering charges were sent back to the Assessing Officer for a fresh examination. In the present case, the CIT(A) had considered the order of the Tribunal and the order of the Assessing Officer, and had subsequently, deleted the penalty imposed under Section 271(1)(c) of the Income Tax Act.

The bench clarified that it was a well-settled legal principle that when the additions made in the assessment order, forming the basis for levying the penalty, were subsequently deleted, the penalty became untenable.

The bench further stated that until the constitution and pronouncement of the decision of the Special Bench, the decision of the Co-ordinate bench in the quantum appeal was binding on them. Thus, after considering the facts, the bench concluded that the penalty levied on the assessee was not sustainable. Therefore, they upheld the decision of the CIT(A) and dismissed the appeal of the Revenue.