2010 (2) TMI 733 - AT - Income Tax

Penalty u/s.271(1)(c) - Income escaping assessment - Held that CIT(A) has taken into consideration the factual aspect that stitching charges were paid to several small scale textile units and the payments were made through A/c. payee cheques. This factual finding is neither found to be false or incorrect. It is a settled position in law that penalty proceedings are distinct from assessment proceedings and if by any reason an addition had been confirmed penalty cannot be levied on the basis of that addition only - In the instant case neither the explanation of the assessee is found to be false nor incorrect - Decided in favor of the assessee

Summary

Issues:
Appeal against cancellation of penalty u/s.271(1)(c) at Rs.63,86,565.

Analysis:
The case involved an appeal by the department against the cancellation of a penalty imposed under section 271(1)(c) amounting to Rs.63,86,565. The assessee was engaged in the business of manufacturing and exporting garments and had given garment stitching jobs to certain workers. The original assessment was completed on 29-1-1998 with an ad hoc disallowance of 1% of total expenditure. Subsequently, proceedings were initiated under section 148, and the assessment under section 143(3) read with section 147 was completed on 27-12-2000, making additions on account of stitching charges and interest paid. The penalty was levied based on the disallowance of stitching charges. The assessee appealed to the CIT(A) and relied on various case laws to support their case. The CIT(A) deleted the penalty based on the grounds that the addition of stitching charges was made based on previous years' enquiries and that penalty proceedings are distinct from assessment proceedings. The department appealed to the Tribunal against the CIT(A)'s decision.

The department argued that the penalty cancellation was based on incorrect facts and that the confirmations of parties to whom stitching charges were paid were not filed by the assessee. On the other hand, the assessee's counsel emphasized that enquiries were made, explanations were provided during assessment and penalty proceedings, and similar disallowances were made in previous years. The Tribunal carefully considered the submissions and found no reason to interfere with the CIT(A)'s decision. It noted that stitching charges were paid to small-scale textile units through A/c. payee cheques, and the explanations provided by the assessee were not found false. The Tribunal reiterated that penalty proceedings are separate from assessment proceedings and that penalties cannot be levied solely based on additions in assessments without evidence of concealment of income. Since the explanations provided were not proven false or incorrect, the Tribunal upheld the CIT(A)'s decision to cancel the penalty.

In conclusion, the Tribunal dismissed the department's appeal, confirming the CIT(A)'s order to cancel the penalty. The decision was based on the distinction between assessment and penalty proceedings, the lack of evidence of income concealment, and the validity of the explanations provided by the assessee.