2017 (8) TMI 1237 - AT - Income Tax

Penalty u/s 271(1)(c) - addition on account of purchase of coal outside the books of accounts and on account of Kattha business - quantum proceedings altered by the CIT(A) - notice issued under section 153A - penalty u/s 271AAA or u/s 271(1)(c) Held that - It is an admitted fact that the addition of ₹ 9,26,640/- made by the AO on account of unaccounted purchases outside the books of accounts has been reduced substantially by the Ld.CIT(A). Thus the order in the quantum proceedings has been altered by the Ld.CIT(A) in a significant way. Therefore, in view of the decision of Hon ble Delhi High Court in the case of Principal CIT vs. Fortune Technocomps P.Ltd.(2016 (5) TMI 859 - DELHI HIGH COURT), the very basis of initiation of penalty proceedings has been rendered as nonexistent. Further find the search in the instant case took place on 30.06.2009. Provision of section 271 AAA speaks of penalty leviable in case of searches conducted on or after 1.6.2007 but before 1.7.2012. Thus penalty should have been levied u/s 271AAA and not u/s 271(1)(c) of the Act. Since the penalty has been levied u/s 271(1)(c) instead of S.271AAA and considering the fact that the Ld.CIT(A) in the instant case in the quantum proceedings has altered the assessment order in a significant way, therefore, in view of the decision cited (supra), the very basis of initiation of penalty proceedings has to be treated as nonexistent - Decided in favour of assessee.

Summary

Issues:
Levy of interest under section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
The appeal challenges the interest levy of ?1,06,097 by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961, confirmed by the CIT(A). The case involves a company engaged in Kattha business, part of the Mahesh Mehta Group of Companies. The AO made additions on account of purchases of coal outside the books of accounts and Kattha business. The CIT(A) deleted the addition related to Kattha business but restricted the addition for coal purchases. The AO then initiated penalty proceedings under section 271(1)(c), which was confirmed by the CIT(A).

In the penalty appeal, the assessee argued that the penalty under section 271AAA should have been applicable instead of section 271(1)(c) as the assessment was for AY 2008-09. The assessee cited relevant case laws to support this argument. The DR supported the CIT(A)'s order, referring to various legal precedents.

The Tribunal analyzed the case, noting that substantial relief was granted by the CIT(A) in the quantum proceedings. The Tribunal agreed with the assessee's arguments, citing the decision of the Delhi High Court in a similar case. The Tribunal highlighted that the penalty should have been levied under section 271AAA instead of 271(1)(c) due to the search date falling within the applicable period. Considering the significant alteration in the assessment order by the CIT(A), the Tribunal concluded that the penalty proceedings' basis was nonexistent. Therefore, the Tribunal set aside the CIT(A)'s order and directed the AO to cancel the penalty, allowing the assessee's appeal.

In conclusion, the Tribunal allowed the appeal, emphasizing the inapplicability of the penalty under section 271(1)(c) and directing the cancellation of the penalty imposed by the AO.