2015 (4) TMI 546 - HC - Income Tax

Penalty u/s. 271(1)(c) - ITAT deleted penalty levy - Held that - The answer to the question is in the affirmative, i.e. the Appellate Tribunal was right in deleting the penalties imposed by the Assessing Officer under Section 271(1)(C) as the facts emerge, it is clear that assessee furnished relevant details i.e. names, addresses, confirmations etc. and offered AO to call some of them for examination. It appears that these details were not inquired into further, however, assessee offered about amount for addition purpose. We find merit in the argument of learned counsel that assessment proceedings and penalty proceedings are separate and distinct and merely because additions has been made, same will not lead to automatic levy of penalty. See ACIT, Udaipur Versus M/s. Gebilal Kanhaialal HUF, Through Karta, Udaipur 2012 (9) TMI 297 - SUPREME COURT and Northland Development and Hotel Corporation v. CIT 2012 (9) TMI 629 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues:
1. Whether the Appellate Tribunal was correct in deleting the penalty imposed under Section 271(1)(c) of the Income Tax Act?

Analysis:
The case involved an appeal by the Revenue challenging the deletion of a penalty of Rs. 13,12,666 imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act. The facts revealed that the assessee firm, engaged in civil construction, had filed its income tax returns for the Assessment Year 2001-2002, declaring an income of Rs. 1,98,170. However, the Assessing Officer completed the assessment at an income of Rs. 38,05,860, making an addition of Rs. 36,07,690 on account of bogus/non-existing liabilities related to labour charges. The penalty proceedings were initiated under Section 271(1)(c) of the Act, and the minimum penalty of Rs. 13,12,666 was imposed by the Assessing Officer. The CIT(A)-VI confirmed the penalty, but the Appellate Tribunal allowed the appeal and deleted the penalty.

The appellant argued that the assessee failed to prove the genuineness of the outstanding liabilities related to labour charges, and the addition was agreed upon to avoid litigation. However, the Tribunal found merit in the argument that assessment and penalty proceedings are distinct, and the mere addition in assessment does not automatically lead to the levy of a penalty. The Tribunal noted that the explanation offered by the assessee remained uncontroverted, and the penalty was solely imposed based on the agreed addition without independent inquiry in the penalty proceedings. Citing relevant case laws, the Tribunal held that the penalty imposition solely on the basis of the agreed addition, overlooking the assessee's explanation, cannot be sustained.

The High Court, after considering the submissions and the Tribunal's reasoning, agreed with the Tribunal's decision to delete the penalty. The Court highlighted the importance of independently assessing the explanation provided by the assessee in penalty proceedings and emphasized that penalty cannot be imposed solely based on agreed additions without proper inquiry. The Court also referenced recent Supreme Court decisions supporting the view in favor of the assessee and against the Revenue. Consequently, the appeal was deemed devoid of merits and dismissed.