2017 (7) TMI 259 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - addition on account of unexplained cash credit u/s 68 - Held that - Since the issues have either been set aside to the file of the Assessing officer for reconsideration or deleted, the additions no longer remains in existence and therefore, there is no cause or basis for levy of penalty. The penalty levied is, therefore, directed to the deleted and the appeal of the assessee is therefore, allowed.

Summary

Issues Involved:
1. Whether the CIT(A) was justified in confirming the penalty under Explanation 5A to Section 271(1)(c) of the Act.
2. Whether the assessment order passed u/s 271(1)(c) should be quashed due to lack of proper opportunity of hearing.
3. Whether the penalty levied based on the addition made u/s 68 of the Act was justified.
4. Whether the penalty levied based on the addition made u/s 69C of the Act was justified.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Explanation 5A to Section 271(1)(c):
The CIT(A) confirmed the penalty levied under Explanation 5A to Section 271(1)(c) amounting to ?18,39,180/-. The penalty was based on the addition of ?29,34,872/- u/s 68 of the Act, which was treated as unexplained cash credit due to the assessee's failure to reconcile entries in seized documents with regular books of accounts. The ITAT, however, noted that the quantum addition had been restored to the AO for fresh adjudication. Since the addition no longer existed, the basis for penalty also ceased to exist. Therefore, the penalty levied was deleted.

2. Quashing of Assessment Order due to Lack of Proper Opportunity of Hearing:
The assessee contended that the assessment order passed u/s 271(1)(c) should be quashed as the Assessing Officer did not provide a proper opportunity of hearing, which was against natural justice. The ITAT considered the submissions and found that since the quantum addition had been remanded for fresh adjudication, the penalty proceedings based on the same lacked a valid basis. Consequently, the penalty was deleted.

3. Justification of Penalty based on Addition u/s 68:
For ITA No. 556/Chd/2016, the penalty was levied on an addition of ?29,34,872/- u/s 68, which was based on peak credit calculated from seized documents. The ITAT had remanded the quantum addition to the AO for fresh consideration, thus nullifying the basis for the penalty. The ITAT concluded that without the existence of the addition, there was no cause for the penalty, and hence, it was deleted.

For ITA No. 557/Chd/2016, the penalty was levied on an addition of ?7,38,700/- u/s 68, based on peak credit from seized documents. The ITAT had remanded this addition to the AO for fresh adjudication. Consequently, the penalty based on this addition was also deleted.

4. Justification of Penalty based on Addition u/s 69C:
In ITA No. 557/Chd/2016, the penalty was also levied on an addition of ?1,20,000/- u/s 69C, related to unexplained expenditure from seized documents. The ITAT found that the document did not specify the year and there was no evidence linking it to the assessment year 2008-09. The addition was deemed unwarranted and was deleted. Consequently, the penalty based on this addition was also deleted.

Conclusion:
The ITAT allowed both appeals of the assessee, deleting the penalties levied under Section 271(1)(c) of the Act. The penalties were based on additions that had either been remanded for fresh adjudication or deleted, thus nullifying the basis for the penalties. The ITAT emphasized the principle that penalties cannot be sustained without a valid and existing basis for the underlying additions.