2019 (3) TMI 744 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - addition on account of difference in sale consideration - substratum for levy of penalty eroded - HELD THAT - AO had levied penalty u/s. 271(1)(c) in respect of addition on account of difference in sale consideration. In First Appeal against the said addition, the CIT (Appeals) deleted the addition on merits and allowed the appeal of assessee. Since, the substratum for levy of penalty has eroded, the penalty does not survive. In any case the Commissioner of Income Tax (Appeals) had dismissed the appeal of assessee for want of prosecution in limine, the impugned order is unsustainable in eye of law. Thus, impugned order is liable to be quashed on both the counts. - Decided in favour of assessee.

Summary

Issues involved:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2005-06.

Detailed Analysis:

1. Background and Appeal Against Penalty:
The appeal by the assessee was directed against the order of the Commissioner of Income Tax (Appeals)-1, Aurangabad confirming the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2005-06. The assessee's representative submitted that the appeal against the penalty was dismissed by the Commissioner of Income Tax (Appeals) for non-prosecution. However, subsequent to this, the Commissioner of Income Tax (Appeals) deleted the addition on which the penalty was imposed, rendering the basis for the penalty invalid.

2. Admission by Department's Representative:
The Department's representative admitted that the addition on which the penalty was imposed had been deleted by the Commissioner of Income Tax (Appeals) through an order dated 09-01-2018. This admission further supported the argument that the penalty could not be sustained due to the absence of the underlying addition.

3. Judicial Review and Decision:
Upon reviewing the orders of the authorities, it was noted that the Assessing Officer had levied the penalty for a specific addition related to a difference in sale consideration. However, the Commissioner of Income Tax (Appeals) had later deleted this addition on merits in the first appeal, thereby nullifying the basis for the penalty. The Tribunal concluded that since the substratum for the penalty had eroded, the penalty could not be upheld. Additionally, the Tribunal found that the dismissal of the appeal by the Commissioner of Income Tax (Appeals) for want of prosecution was unsustainable in the eyes of the law. Therefore, the Tribunal quashed the impugned order on both grounds and directed accordingly.

4. Final Decision and Outcome:
As a result of the above analysis, the Tribunal allowed the appeal of the assessee. The order was pronounced on Friday, the 8th day of March, 2019. This comprehensive review and subsequent decision by the Tribunal highlight the importance of a valid basis for the imposition of penalties under the Income Tax Act, ensuring that penalties are justified and legally sustainable.