2016 (1) TMI 119 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee has not substantiating that the source of money was M/s Mangla Brothers - Held that - Penalty for concealment or furnishing inaccurate particulars was levied and after deleting the quantum addition, there remains no basis at all for levying the penalty. Ordinarily, penalty cannot stand in itself if the addition made in the assessment itself is set aside or cancelled by the superior authority/Court. The penalty cannot stand by itself because false result may be produced by the falsity of one or more of the constituent items in the return. The word inaccurate particulars would cover falsity in the final figure and also the constituent elements or items. They simply would mean inaccurate in some specific or definite respect whether in the constituent or subordinate items of income or the end result. Concealment or furnishing inaccurate particulars implies some deliberate act on the part of the assessee in withholding the true facts from the authorities. Since, the basis of levying penalty remains no more in existence, after deletion of quantum addition, therefore, from this angle, the stand of the ld. Commissioner of Income tax (Appeals) is not sustainable. - Decided in favour of assessee

Summary

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Determination of whether the payment made to customs authorities was a business expenditure or an unexplained expenditure.
3. Compliance with procedural requirements for reopening assessment and issuing penalty notices.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee was aggrieved by the order dated 28/01/2014, which confirmed the penalty of Rs. 39,15,712/- under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was imposed for allegedly furnishing inaccurate particulars of income. The Tribunal noted that the quantum addition had been decided in favor of the assessee, allowing the payment as business expenditure. Therefore, the imposition and confirmation of the penalty were deemed unjustified. The Tribunal referenced a similar case (Smt. Neeta P. Doshi, ITA No.6859/Mum/2013) where the penalty was deleted following the deletion of the quantum addition.

2. Determination of Whether the Payment Made to Customs Authorities was a Business Expenditure or an Unexplained Expenditure:
The facts revealed that the assessee declared an income of Rs. 1,47,020/- in the return filed on 28/6/1988, which was initially accepted. However, the assessment was reopened due to information that a penalty of Rs. 75 lakh was paid for importing almonds against the import policy. The assessee claimed that the penalty amount was paid by M/s Rajnikant Bros. and not by him. However, the Assessing Officer, based on the accountant's statement from M/s Rajnikant Bros., concluded that the assessee paid the penalty and treated it as unexplained expenditure under Section 69C of the Act. The Tribunal, in its order dated 31/10/2014, found that the payment was a redemption fine and allowed it as a business expenditure, thus deleting the quantum addition.

3. Compliance with Procedural Requirements for Reopening Assessment and Issuing Penalty Notices:
The assessment was reopened with a notice under Section 148 of the Act, and subsequent notices under Sections 143(2) and 142(1) were issued. Despite initial non-compliance, the assessee eventually attended the proceedings and provided the necessary details. The Tribunal noted that the basis for the penalty-i.e., the quantum addition-had been deleted. Hence, the penalty could not survive. The Tribunal cited decisions from other cases (e.g., Ms. Vilma M. Pereira, ITA No.2253/Mum/2014) where penalties were deleted following the deletion of quantum additions.

Conclusion:
The Tribunal concluded that since the quantum addition had been deleted and the payment was allowed as a business expenditure, the penalty under Section 271(1)(c) could not be sustained. The appeal of the assessee was allowed, and the penalty was deleted. The Tribunal emphasized that penalties could not stand if the basis for their imposition (i.e., the quantum addition) was no longer valid.