2016 (7) TMI 323 - AT - Income Tax

Levy of penalty u/s.271(1)(c) - Held that - The assessee had disclosed the material facts before the AO. When the assessee has made a particular claim in the return of income and has also furnished all the material facts relevant thereto, the disallowance of such claim cannot automatically lead to the conclusion that there was concealment of particulars of his income by the assessee or furnishing inaccurate particulars thereof. It is settled law that penalty proceedings and assessment proceedings are two independent proceedings and the penalty order cannot be solely based on the reasons given in the original order of assessment. Further apart from the falsity of the explanation given by the assessee, the Department must have before it before levying the penalty, cogent material or evidence from which it could be inferred that assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars of income. It is well settled that the parameters of judging the justification for addition made in the assessment case of the asssessee is different from the penalty imposed on account of concealment of income or filing inaccurate particulars of income and that certain disallowance/addition could legally be made in the assessment proceedings on the preponderance of probabilities but no penalty could be imposed u/s. 271(1)(c) of the Act on the preponderance of probabilities and Revenue has to prove that the claim of expenses by the assessee was not genuine or was inflated to reduce its tax liability. Further merely because additions have confirmed in appeal or no appeal has been filed by assessee against additions made, it cannot be the sole ground for coming to the conclusion that assessee has concealed any income. Considering the aforesaid facts, we are of the view that in the present case no case for levy of penalty u/s. 271(1)(c) of the Act has been made out. We thus direct the deletion of penalty u/s. 271(1)(c) of the Act - Decided in favour of assessee

Summary

Issues:
- Revenue's appeals for Asst. Years 2004-05 & 2007-08 against CIT(A) orders
- Assessee's appeals for Asst. Years 2004-05, 2006-07, 2008-09 & 2010-11 against penalty u/s.271(1)(c) of the Act

Revenue's Appeals Analysis:
The Revenue appealed against CIT(A) orders for Asst. Years 2004-05 & 2007-08, contesting deletions of additions made. The ITAT Ahmedabad noted that the tax effect in the appeals was below the limit set by CBDT Circular No. 21 of 2015. As per the Circular, no Department appeals were to be filed if the tax effect did not exceed ?10 lakhs. Since the tax effect was below this threshold and no exemptions applied, the Revenue's appeals were dismissed without expressing any opinion on merits.

Assessee's Appeals Analysis:
The Assessee appealed against penalty u/s.271(1)(c) of the Act for Asst. Years 2004-05, 2006-07, 2008-09 & 2010-11. The issue revolved around the levy of penalty on upheld additions by the CIT(A). In the case of AY 2004-05, the Assessee's penalty was upheld by the CIT(A) based on the AO's findings of concealment. However, the ITAT ruled in favor of the Assessee, stating that penalty cannot be imposed solely based on disallowances in assessment. The ITAT emphasized the distinction between assessment and penalty proceedings, requiring concrete evidence of deliberate concealment. Thus, the penalty u/s.271(1)(c) was deleted for AY 2004-05. Subsequently, the Assessee's appeals for AYs 2006-07, 2008-09 & 2010-11 were also allowed based on similar reasoning as in the AY 2004-05 case.

In conclusion, the ITAT Ahmedabad dismissed Revenue's appeals due to low tax effect and allowed Assessee's appeals by deleting the penalties imposed under section 271(1)(c) of the Act for various assessment years. The judgments were delivered on 31/05/2016 by the members of the tribunal.