2021 (1) TMI 1286 - AT - Income Tax

Penalty initiated u/s 271(1)(c) - HELD THAT - Undisputedly, coordinate Bench of the Tribunal 2020 (11) TMI 116 - ITAT DELHI deleted the additions. In these circumstances, the penalty levied by the AO and confirmed by ld. CIT (A) is not sustainable in view of the law laid down in case cited as K.C. Builders Anr 2004 (1) TMI 7 - SUPREME COURT by holding that when the addition made in the assessment order on the basis of which penalty for concealment is levied have been deleted there remains no basis at all for levying the penalty for concealment and in such case, no penalty can survive and the penalty is liable to be cancelled. So, in view of the matter, penalties levied by the AO and confirmed by the ld. CIT (A) is ordered to be deleted. Consequently, the appeal filed by the assessee stands allowed.

Issues:
1. Challenge to penalty order under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2008-09.
2. Validity of penalty proceedings and order passed by the Commissioner of Income-tax (Appeals).
3. Justification of penalty levied for alleged furnishing of inaccurate particulars of income.
4. Compliance with the provisions of Explanation 7 to section 271(1) of the Act.
5. Assessment of arm's length price and its impact on penalty imposition.
6. Adequacy of explanation provided by the appellant.
7. Applicability of penalty under section 271(1)(c) based on difference in opinion with the Transfer Pricing Officer.
8. Mens rea requirement for penalty imposition.
9. Consideration of judicial pronouncements in penalty imposition.

Analysis:

1. The appellant challenged the penalty order under section 271(1)(c) of the Income-tax Act for the assessment year 2008-09, seeking to set aside the order passed by the Commissioner of Income-tax (Appeals) affirming the penalty. The grounds of challenge included procedural irregularities and legal errors in the penalty proceedings.

2. The penalty proceedings were initiated based on additions made in the assessment order, which were subsequently deleted by the Tribunal in a related case. The Tribunal held that when the basis for penalty imposition no longer existed due to deletion of additions, the penalty could not be sustained, citing legal precedent. Consequently, the penalties levied were deemed unsustainable and were ordered to be deleted, resulting in the appeal being allowed in favor of the appellant.

3. The Tribunal emphasized the importance of aligning penalty imposition with the underlying assessment findings, highlighting that if the additions forming the basis for penalty are overturned, the penalty itself cannot stand. This principle was supported by a Supreme Court ruling, reinforcing the necessity for a valid basis for penalty imposition under the Income-tax Act.

4. The Tribunal's decision underscored the significance of ensuring that penalty proceedings are substantiated by valid and upheld assessment outcomes, thereby safeguarding taxpayers against arbitrary or unjust penalty imposition. The judgment served as a reminder of the legal principles governing penalty imposition under the Income-tax Act, aiming to uphold fairness and procedural integrity in tax matters.

5. The Tribunal's thorough analysis and application of legal precedents demonstrated a meticulous approach to assessing the validity and justification of penalties under the Income-tax Act. By aligning penalty imposition with the underlying assessment findings, the Tribunal upheld the principles of justice and legal consistency in tax penalty proceedings, providing clarity and guidance for future cases involving penalty imposition under the Act.

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