2019 (6) TMI 89 - AT - Income Tax

Penalty u/s 271(1)(c) - change of head of income - assessee submitted that the issues relating to various additions on the basis of which penalty u/s 271(1)(c) was imposed, in the meanwhile, have been restored back to the Assessing Officer by the Tribunal while deciding assessee s quantum appeal 2017 (4) TMI 1444 - ITAT MUMBAI - HELD THAT - Tribunal while deciding the quantum appeal of the assessee in the order referred to above restored all the issues to the AO for fresh adjudication. In the assessment order passed in pursuance to the directions of the Tribunal, the Assessing Officer has accepted some of the claim of the assessee and decided a couple of issues against the assessee. As could be seen from the fresh assessment order, the Assessing Officer had not initiated any proceeding for imposition of penalty u/s 271(1)(c). Be that as it may, once the additions / disallowances on the basis of which penalty u/s 271(1)(c) lost its existence due to the order passed by the Tribunal in quantum appeal filed by the assessee, penalty u/s 271(1)(c) cannot survive. In view of the aforesaid, we are inclined to delete the penalty imposed u/s 271(1)(c) - Decided in favour of assessee

Summary

Issues:
Challenge to penalty under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2010-11.

Analysis:
The appeal was filed by the assessee against the order confirming a penalty of &8377; 2,33,38,168 imposed under section 271(1)(c) of the Income Tax Act, 1961. The issues leading to the penalty were related to additions and changes made by the Assessing Officer in the original assessment order. However, during the assessee's quantum appeal, the Tribunal restored all issues to the Assessing Officer for fresh adjudication. Subsequently, the Assessing Officer, in the fresh assessment order as per the Tribunal's directions, did not initiate any penalty proceedings under section 271(1)(c) of the Act. The Tribunal noted that once the additions/disallowances forming the basis for the penalty lost their existence due to the Tribunal's order in the quantum appeal, the penalty under section 271(1)(c) could not be sustained. Therefore, the Tribunal decided to delete the penalty imposed under section 271(1)(c) of the Act, allowing the appeal.

This judgment highlights the importance of the relationship between assessment proceedings and penalty imposition under section 271(1)(c) of the Income Tax Act, 1961. It emphasizes that if the additions/disallowances forming the basis for the penalty are nullified during the assessment process, the penalty itself cannot be upheld. The Tribunal's decision in this case was based on the principle that once the issues leading to the penalty were set aside for fresh adjudication, the penalty could not be maintained in the absence of valid grounds. The judgment serves as a reminder of the procedural requirements and the interconnection between assessment and penalty proceedings in tax matters.