2020 (12) TMI 449 - AT - Income Tax

Penalty u/s 271(1)(c) - HELD THAT - Hon ble jurisdictional High Court in the case of CIT v. Dr.Harsha N.Biliangady 2015 (3) TMI 1146 - KARNATAKA HIGH COURT had held that when substantial question has been admitted on quantum assessment, penalty u/s 271(1)(c) cannot survive since the additions made were apparently debatable / doubtful. Penalty imposed u/s 271(1)(c) of the I.T.Act in given facts and circumstances of the case need to be deleted. Accordingly, we delete the penalty u/s 271(1)(c) - Decided in favour of assessee.

Summary

Issues:
Imposition of penalty under section 271(1)(c) of the Income Tax Act.

Analysis:

1. Quantum Assessment Dispute:
The case involved an agreement between the assessee and a construction company, wherein the assessee received a sum of ?1.5 crore in the assessment year 2012-2013. The Assessing Officer taxed this amount, but the assessee contended that the full consideration of ?3.5 crore needed to be received for taxation. The CIT(A) and ITAT upheld the taxation of the entire sum in the relevant assessment year. Subsequently, the CIT(A) imposed a penalty under section 271(1)(c) for the enhancement made in the quantum assessment. The CIT(A) justified the penalty by stating that the assessee did not declare the receipts initially and that the entire consideration should have been taxed as capital gains. The penalty amount was determined at ?57,29,893, being 100% of the tax sought to be evaded.

2. Penalty Imposition Challenge:
The assessee challenged the penalty imposition on various grounds, alleging errors in the CIT(A)'s order. The grounds included lack of findings, failure to pass a speaking order, absence of conclusive findings under section 271(1)(c), and not considering the reply to the penalty notice. The assessee argued that the penalty order was passed without proper consideration and application of mind, urging for the penalty to be quashed and deleted.

3. High Court Intervention:
During the appeal process, the assessee highlighted that an appeal against the quantum assessment had been filed with the High Court, which had admitted the appeal on substantial questions of law. Citing precedent, the High Court's decision in a similar case, it was argued that when substantial questions are admitted, penalties under section 271(1)(c) cannot be sustained as the additions made are debatable. The High Court's ruling emphasized that penalties can only be imposed for concealment or furnishing inaccurate particulars, which was not applicable in this case.

4. Tribunal Decision:
After considering the arguments and precedents, the Tribunal held that due to the admission of substantial questions of law by the High Court regarding the quantum assessment, the penalty imposed under section 271(1)(c) needed to be deleted. The Tribunal concluded that since the additions made were debatable, the penalty could not be upheld. Therefore, the appeal by the assessee was allowed, and the penalty under section 271(1)(c) was deleted.

In conclusion, the Tribunal's decision to delete the penalty under section 271(1)(c) was based on the admission of substantial questions of law by the High Court regarding the quantum assessment, rendering the penalty unsustainable due to the debatable nature of the additions made.