2016 (8) TMI 654 - AT - Income Tax

Penalty under section 271(1)(c) - Held that - There are no two opinions about the settled position of law that regular assessment proceedings and penalty proceedings are two entirely different subjects which operate in distinct and separate spheres so much so that entirely different parameters are applicable for making quantum addition and for levying penalty under section 271(1)(c) of the Act. There can be no dispute with regard to the position of law that under section 271(1)(c) penalty can be levied only if either the act of concealment of particulars of income or furnishing of inaccurate particulars of income is found to have been committed by the assessee. These are two different omissions or defaults albeit they refer to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of either suppressio veri or suggestio falsy. By the mere reason of such concealment or of furnishing of inaccurate particulars alone, the assessee does not, ipso facto, become liable to a penalty. Imposition of penalty is not at all automatic. Meaning thereby, any addition in quantum would not lead to automatic levy of penalty and this is also true in respect of furnishing of inaccurate particulars of income. Not only is the levy of penalty discretionary in nature but the discretion has to be exercised keeping the relevant factors in mind and the approach of the taxman must be fair and objective. This subject has been a matt1er of great controversy. We are satisfied that the penalty u/s 271(1)(c) of the Act on the issue of VAT paid to the Sales tax department and disallowed by the AO cannot be imposed and thus explanation of the assessee in this regard cannot be brushed aside at the threshold and action of the AO and impugned order on this issue is not sustainable. On the basis of foregoing discussion, to reach to a logical conclusion that the CIT(A) did not provide due opportunity of being heard to the assessee and passed an order without proper adjudication and she simply upheld the penalty order which is not a proper and justified approach of a first appellate authority. On merits, as per discussion in the earlier part of this order, we are inclined to hold that the penalty imposed by the AO u/s 271(1)(c) of the Act and upheld by the CIT(A) is not sustainable on all the three counts and thus we demolish the same and the AO is directed to delete the entire penalty. - Decided in favour of assessee.

Summary

Issues:
1. Denial of natural justice by the CIT(A) in upholding penalty under section 271(1)(c).
2. Allegation of concealment of income and furnishing inaccurate particulars by the assessee.
3. Disallowance of deduction on VAT paid to Sales tax department.

Issue 1: Denial of natural justice by CIT(A):
The appeal was filed against the order of the CIT(A) upholding a penalty imposed by the AO under section 271(1)(c) of the Income-tax Act, 1961. The main grounds challenged were denial of opportunity of being heard and upholding the penalty. The CIT(A) did not allow the assessee to present arguments despite written submissions. The AR argued that the CIT(A) wrongly assumed the assessee requested a decision based on written submissions only. The tribunal observed a violation of principles of natural justice by the CIT(A) for not allowing the assessee to explain its stand.

Issue 2: Allegation of concealment of income and furnishing inaccurate particulars:
The AR contended that the penalty imposed by the AO and upheld by the CIT(A) was erroneous. The AR argued that the AO did not discuss how the assessee concealed income and wrongly imposed penalties. The tribunal noted that the CIT(A) did not specifically discuss the issues leading to the penalty. On the donation, depreciation, and deduction issues, the tribunal found that the penalty was not justified. The tribunal emphasized that penalties under section 271(1)(c) can only be levied if there is concealment or furnishing of inaccurate particulars, which was not established in this case.

Issue 3: Disallowance of deduction on VAT paid to Sales tax department:
The AR argued that the deduction disallowed by the AO was based on technical grounds and that the details were correctly disclosed in Form 3CD. The tribunal found that the disallowance of the deduction on VAT paid to the Sales tax department cannot be a basis for imposing a penalty under section 271(1)(c). The tribunal concluded that the penalty imposed was not sustainable on all three counts and directed the AO to delete the entire penalty.

In conclusion, the tribunal allowed the appeal of the assessee, finding that the penalty imposed under section 271(1)(c) was not justified and should be deleted. The judgment highlighted the importance of natural justice, the requirement for establishing concealment or inaccurate particulars for penalties, and the need for a fair and objective approach in penalty proceedings.