2014 (6) TMI 534 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act Proper reply not filed by assessee Receipt of salary not added in income Held that - The additions have been accepted is no reason to come to the conclusion that the penalty necessarily has to be imposed - penalty proceedings and quantum proceedings are separate and distinct - The explanation offered by the assessee in the penalty proceedings despite there being no challenge to the addition in quantum order necessarily has to be considered on merit in the light of the matrix within which the penalty provisions are required to be examined - there is no bar to the assessee to raise a new contention argument or proposition in the penalty proceedings which has not been taken in the quantum proceedings - There can be many reasons on the basis of which the assessee may not agitate the addition however that inaction cannot be the criteria that arguments, contentions and propositions in penalty proceedings have to be smothered thus, the matter is required to be remitted back to the CIT(A) for fresh adjudication Decided in favour of Assessee.

Summary

Issues:
Appeal against penalty imposed under section 271(1)(c) - Resident but not ordinarily resident status - Challenge of penalty upheld by CIT(A) - Request for restoration of issue for bringing relevant evidences on record - Separate nature of penalty and quantum proceedings - Liberty to assessee for new contentions in penalty proceedings.

Analysis:
The appeal was filed against the penalty imposed under section 271(1)(c) by the CIT(A) for the assessment year 2005-06. The assessee, a resident but not ordinarily resident, contended that the salary earned from services performed outside India should not be taxed in India. The CIT(A) rejected this argument, stating that the grounds raised were vague and the status issue should have been specifically challenged. The CIT(A) also noted that the assessee had accepted the addition without challenging the status issue. Additionally, the CIT(A) highlighted that raising a new contention requiring fresh evidence without proper petition was not permissible under Rule 46A.

The assessee appealed to the Tribunal, arguing that relevant evidence regarding residential status had not been brought on record, leading to injustice. The assessee requested either quashing of the penalty or restoration of the issue to bring relevant evidence. The Tribunal, after hearing both parties, emphasized the separate nature of penalty and quantum proceedings. It held that the assessee could raise new contentions in penalty proceedings even if not raised in quantum proceedings. The Tribunal directed the issue to be restored to the CIT(A) for reevaluation, allowing the assessee to present fresh evidence. The CIT(A) was instructed to provide a remand report and decide the issue afresh after considering the new evidence and giving the assessee a fair opportunity to be heard.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the importance of considering new contentions and evidence in penalty proceedings separate from quantum proceedings. The decision was pronounced in open court on 30th May 2014.