2019 (3) TMI 496 - AT - Income Tax

Penalty u/s 271(1)(c) - quantum addition deleted - HELD THAT - It is an admitted fact that the addition on the basis of which the penalty u/s 271(1)(c) of the Act was levied by the Assessing officer has been deleted by the ITAT. On a similar issue in the case of K. C. Builders & Others Vs ACIT 2004 (1) TMI 7 - SUPREME COURT held that Where the additions made in the assessment order on the basis of which penalty for concealment is levied, are deleted, there remains no basis at all for levying penalty for concealment and, therefore, in such a case no penalty can survive - Decided in favour of assessee.

Summary

Issues:
- Appeal against deletion of penalty under section 271(1)(c) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Whether the penalty under section 271(1)(c) was correctly deleted?

The appeal was filed by the Department against the order of the Commissioner of Income Tax (Appeals)-2, Ludhiana, dated 19.7.2018, which deleted the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961. The Counsel for the assessee pointed out that the additions, which formed the basis for the penalty, were deleted by the ITAT. The Ld. CIT(A) also confirmed this fact in paragraph 5.2 of the impugned order. The ITAT observed that the additions leading to the penalty imposition were indeed deleted. The Ld. DR representing the Department supported the Assessing officer's orders. Citing the decision in K. C. Builders & Others Vs ACIT (2004) 265 ITR 562, the ITAT noted that if the additions forming the basis for the penalty are deleted, there is no justification for levying the penalty. Consequently, the ITAT upheld the decision of the Ld. CIT(A) to delete the penalty under section 271(1)(c) based on the Supreme Court's precedent. The ITAT dismissed the Department's appeal, affirming the deletion of the penalty.

This judgment highlights the importance of a valid basis for imposing penalties under section 271(1)(c) of the Income-tax Act, 1961. It underscores that if the additions leading to the penalty are subsequently deleted, the penalty itself becomes unjustified and liable to be canceled. The decision also emphasizes the significance of legal precedents, such as the ruling in K. C. Builders & Others Vs ACIT, to guide the interpretation and application of tax laws. The judgment serves as a reminder that penalties must be based on valid grounds and that the deletion of such grounds can render the penalty unsustainable.