2019 (8) TMI 509 - AT - Income Tax

Penalty u/s 271(1)(c) - addition u/s 68 regarding outstanding balance of sundry creditor - Addition u/s 40A(2)(b) - CIT(A) rejected the additional evidence filed by the assessee being confirmation letter from the creditor under Rule 46A of the I.T. Rules - HELD THAT - Prime facie, the contention of the ld. AR that the penalty u/s 271(1)(c) is not sustainable as the assessee has not contested the quantum i.e. Assessment Order u/s 143(3) to buy peace with the Department whereas the CIT(A) has overlooked the evidence produced before in the appellate proceedings and confirmed the penalty order of AO. On this issue, we find the CIT(A) has rejected the additional evidence under Rule 46A of the IT Rules. We are of the opinion that the assessee shall not gain any benefit by delaying the litigation and support our view on the principle of natural justice, and admit the additional evidence filed by the assessee. In respect to addition made in due to unreasonable salary paid to the assessee's wife u/s 40A(2)(b), we are of the opinion that in the penalty proceedings, the assessing authority shall deal the issues independently and any addition in the quantum proceedings cannot be a gateway for levying the penalty. Therefore considering the overall facts and circumstances of the case, we restore the disputed issues to the file of CIT (A) to adjudicate afresh considering the additional evidence filed by the assessee and allow the grounds of the assessee for statistical purposes. Appeal of assessee is treated as allowed for statistical purposes.

Summary

Issues:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Sustaining penalty due to addition of salary paid to the assessee's wife under Section 40A(2)(b) of the Act.

Levy of Penalty Issue Analysis:
The assessee appealed against the Commissioner of Income Tax (Appeals)'s order under Section 271(1)(c) and 250 of the Income Tax Act, 1961. The Assessing Officer added an amount to the total income due to the inability of the assessee to provide confirmation regarding a sundry creditor and disallowed the salary paid to the assessee's wife under Section 40A(2)(b) of the Act. The penalty was levied under Section 271(1)(c) based on these additions. The assessee contended that he did not challenge the assessment order under Section 143(3) to maintain peace with the Department and had additional evidence, which was rejected by the CIT(Appeals). The Tribunal found that the CIT(Appeals) erred in rejecting the additional evidence and admitted it, emphasizing the principle of natural justice. The penalty order was not sustainable, and the case was remanded to the CIT(Appeals) for fresh adjudication.

Sustaining Penalty Issue Analysis:
Regarding the penalty sustained due to the addition of the salary paid to the assessee's wife, the Assessing Officer and the Departmental Representative supported the CIT(Appeals)'s decision, while the assessee argued that the salary was accepted voluntarily and the wife's contribution to the business was explained. The Tribunal opined that the penalty should be independently dealt with in the penalty proceedings, and any addition in the quantum proceedings should not automatically lead to penalty imposition. Considering the facts, the Tribunal remanded the issues to the CIT(Appeals) for reevaluation, allowing the assessee's grounds for statistical purposes. Ultimately, the appeal of the assessee was treated as allowed for statistical purposes.

In conclusion, the Tribunal found in favor of the assessee on both issues, emphasizing the importance of considering additional evidence and dealing with penalty issues independently from quantum proceedings. The case was remanded for fresh adjudication, providing relief to the assessee on the penalty levied under Section 271(1)(c) and the addition related to the salary paid to the assessee's wife under Section 40A(2)(b) of the Act.