2010 (10) TMI 297 - AT - Income Tax

Search - Block Assessment - Undisclosed income - Penalty u/s 158BFA - Hon ble Calcutta High Court in the case of Nawn Estates (P.) Ltd. v. CIT 1974 -TMI - 39107 (Cal.) held that unless the tax is quantified and determined, the penalty cannot be made and that it is conclusive that assessment proceedings must precede penalty proceedings - Accordingly the appeal is allowed

Summary

Issues:
- Appeal against order dated 12/10/2009 of CIT(A), Varanasi regarding penalty u/s 158BFA of the IT Act, 1961.

Analysis:
1. The appeal raised concerns about the Assessing Officer's authority to impose penalties under section 158BFA when the assessment had been completed under section 158BD. The appellant argued that the penalty should be based on determining undisclosed income and tax payable as per section 158BC(c). The Assessing Officer imposed a penalty of Rs. 5,77,000 under section 158BFA(2) considering Rs. 7,60,860 as concealed income. The CIT(A) upheld the penalty, stating that the AO acted within the law by considering only the additions confirmed by the ITAT for penalty purposes. The CIT(A) found the AO's approach justified and in compliance with the law.

2. The core issue revolved around the timing of the penalty order in relation to the assessment order. The appellant contended that the penalty was unjustified as the penalty order preceded the assessment order. The ITAT noted that the assessment order was passed later than the penalty order, contrary to the requirement that tax must be quantified and determined before imposing a penalty. Citing the Nawn Estates case, the ITAT held that penalty proceedings must follow finalization of assessment. Consequently, the ITAT deleted the penalty levied by the Assessing Officer, emphasizing that assessment proceedings must precede penalty proceedings.

3. The ITAT's decision was informed by the principle that penalty proceedings are distinct from assessment proceedings and must be based on quantified tax amounts. The judgment underscored that penalty imposition hinges on the determination of tax payable, necessitating completion of assessment before levying penalties. By aligning with the Nawn Estates case precedent, the ITAT emphasized the sequential nature of assessment and penalty proceedings, leading to the deletion of the penalty in this case. The ITAT clarified that the Assessing Officer could take appropriate action in accordance with the law following the deletion of the penalty.

In conclusion, the ITAT allowed the appeal, emphasizing the necessity for assessment to precede penalty proceedings and deleting the penalty imposed under section 158BFA due to the premature imposition before finalizing the assessment.