2018 (1) TMI 896 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - Undisputedly, no penalty proceedings have been initiated by the AO during the course of assessment proceedings. During the appellate proceedings, the ld CIT(A) has enhanced the income of the assessee and satisfaction has been recorded to initiate the penalty proceedings in relation to such enhancement of income by issuance of notice u/s 274 of the Act. The Coordinate Bench in the quantum proceedings, as we have noted above, has since deleted the enhancement of income so made by the ld CIT(A). Where the very basis of levy of penalty has been deleted, the penalty cannot stand by itself and the same is liable to be cancelled. In the result, the ground taken by the Revenue is dismissed.

Summary

Issues:
- Challenge to deletion of penalty by ld. CIT(A)
- Application of section 145(3) and enhancement of income
- Levy of penalty under section 271(1)(c) of the Act
- Authority to initiate and levy penalty proceedings

Analysis:

1. Challenge to Deletion of Penalty by ld. CIT(A): The Revenue challenged the action of the ld. CIT(A) in deleting the penalty amounting to ?26,95,277. The AO had made an addition to the declared income of the assessee, but no satisfaction was recorded during assessment proceedings regarding the levy of penalty. The ld. CIT(A) enhanced the income, resulting in a total addition of ?80,07,358. However, the Co-ordinate Bench later deleted the enhancement made by the ld. CIT(A) in the quantum proceedings.

2. Application of Section 145(3) and Enhancement of Income: The AO invoked section 145(3) and enhanced the N.P rate, resulting in an addition to the declared income of the assessee. The ld. CIT(A) upheld the application of section 145(3) and enhanced the income further. The Coordinate Bench sustained an addition to plug revenue leakage but deleted the enhancement made by the ld. CIT(A). The penalty was levied by the AO without considering the reduction in additions by the Co-ordinate Bench.

3. Levy of Penalty under Section 271(1)(c) of the Act: The AO levied a penalty of ?26,95,277 under section 271(1)(c) based on the alleged concealment of income by the assessee. The ld. CIT(A) referred to legal precedents and held that the penalty was wrongly imposed by the AO. The ld. CIT(A) deleted the penalty considering that the additions were made purely on an estimate basis without concrete facts, making the levy of penalty unjustified.

4. Authority to Initiate and Levy Penalty Proceedings: The ld. CIT(A) relied on legal authorities to determine that penalty proceedings should have been initiated and completed by the authority examining the issue. In this case, as the basis for the penalty was deleted by the Coordinate Bench, the penalty could not stand. The Revenue's appeal challenging the deletion of penalty was dismissed, emphasizing that where the basis for penalty levy is removed, the penalty itself becomes unsustainable.

In conclusion, the judgment highlighted the importance of proper initiation and levy of penalty proceedings, the application of legal precedents in penalty matters, and the significance of concrete evidence for imposing penalties under the Income Tax Act.