2012 (10) TMI 284 - AT - Income Tax

Penalty u/s 271(1)(c) - additions, forming the basis of levy of penalty itself have been set aside - Held that - Where an order of assessment or reassessment on the basis of which penalty has been levied on the assessee, has itself been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot stand by itself and the same is liable to be cancelled - Decided in favor of assessee

Summary

Issues:
1. Canceling penalty u/s 271(1)(c) of the Income-tax Act, 1961.
2. Validity of penalty proceedings based on assessment order.

Analysis:
1. The appeal was filed by the Revenue against the order of the ld. CIT(A) canceling the penalty of Rs.8,52,85,341/- imposed under section 271(1)(c) of the Income-tax Act. The assessment was completed determining a loss, and penalty proceedings were initiated. The CIT-IV set aside the assessment on certain issues, leading to penalty imposition. However, the ITAT concluded that the CIT's order was without jurisdiction. The CIT(A) canceled the penalty, stating that penalty proceedings cannot be independent when the parent proceedings were held not tenable. The decision was supported by the Apex Court's judgment in K.C. Builders case, emphasizing that penalties and prosecution are simultaneous. The High Court's order upheld the cancellation of penalties, indicating that no concealment of income existed.

2. The ITAT's decision set aside the CIT's order, leading to the quashing of consequential assessment and penalty proceedings. The Revenue appealed against the CIT(A)'s decision, arguing that penalty was not leviable after the ITAT's order. The Supreme Court's ruling in K.C. Builders case was cited to support the argument that penalty cannot stand if the assessment itself is set aside. Various judgments, including those by the Delhi High Court and other High Courts, were referenced to emphasize that penalties do not survive after deletion of additions forming the basis for their levy. Consequently, the penalty imposed in this case did not survive as the basis for its imposition was no longer valid. No additional grounds were raised, and the appeal was ultimately dismissed.