2010 (1) TMI 1249 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of penalty u/s 271(1)(c) by CIT (A).
2. Validity of reasons given by CIT (A) for confirming the penalty.
3. Impact of High Court admitting the quantum appeal on penalty proceedings.

Summary:

Issue 1: Confirmation of penalty u/s 271(1)(c) by CIT (A)
The assessee challenged the impugned order of CIT (A)-XIII Mumbai dated 3.6.2009 for the assessment year 2001-02, wherein the penalty levied by the Assessing Officer (A.O.) u/s 271(1)(c) of the Act was confirmed. The A.O. had made an addition of Rs. 27 lakhs u/s 68 of the Act, considering the capital introduced by the partners as unexplained cash credits. The Tribunal had earlier reversed the CIT (A)'s order deleting the additions and restored the A.O.'s order. Consequently, the A.O. levied a penalty of Rs. 10,58,000/- u/s 271(1)(c) on the said addition.

Issue 2: Validity of reasons given by CIT (A) for confirming the penalty
The CIT (A) upheld the penalty, reasoning that the capital introduced by the partners was unexplained cash credits of the appellant firm, thus constituting concealment of income and filing of inaccurate particulars. The CIT (A) dismissed the argument that no penalty could be levied if the High Court admitted a question of law, stating that the outcome of the High Court's decision would determine the validity of the penalty.

Issue 3: Impact of High Court admitting the quantum appeal on penalty proceedings
The assessee argued that the capital was introduced by the partners and the identity and source of the donor were explained. The assessee contended that the penalty u/s 271(1)(c) should not be levied merely because the Tribunal confirmed the addition, as the addition was made u/s 68, a deeming provision. The assessee also highlighted the divergence of judicial opinions on whether such additions could be made in the firm's hands for capital introduced by partners.

Judgment:
The Tribunal noted that the penalty proceedings are distinct from assessment proceedings and that the confirmation of addition by the Tribunal cannot solely justify the penalty. The Tribunal found that there were missing links in the facts relevant to the penalty proceedings and that the assessee's explanation was not convincingly refuted by the A.O. The Tribunal emphasized that u/s 68 is a deeming provision and should be interpreted in a limited context. Given the divergence of judicial opinions and the facts of the case, the Tribunal concluded that the assessee did not conceal income or furnish inaccurate particulars. Therefore, the penalty levied by the A.O. was deleted, and the assessee's appeal was allowed.

Order pronounced on 27th day of January 2010.