2021 (2) TMI 613 - AT - Income Tax

Penalty u/s 271(1)(c) - deemed dividend addition - HELD THAT - As quantum addition added by the AO with aid of section 2(22)(e) of the Act on account of deemed dividend was deleted by the ld.CIT(A) in the second round of litigation. Against this order of the ld.CIT(A), the appeal filed by the Revenue was dismissed by the ITAT on the ground that tax effect involved in this appeal was less than ₹ 50 lakhs. Thus the addition for which the assessee is being visited with penalty stands deleted by the ld.CIT(A) and confirmed by the ITAT on the ground that appeal is not maintainable. But one fact is clear that the addition stands deleted by the ld.CIT(A). We find that sub-clause (iii) of section 271(1)(c) provides mechanism for quantification of penalty. It contemplates that the assessee would be directed to pay a sum in addition to taxes, if any, payable him, which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by reason of concealment of income and furnishing of inaccurate particulars of income As quantification of the penalty is depended upon the addition made to the income of the assessee. Since in the present case, basis for visiting the assessee with penalty has been extinguished by deleting addition by the ld.CIT(A) vide order dated 24.7.2018, and the Tribunal has dismissed the appeal of Revenue the impugned penalty has no leg to stand. In other words, there is no room for the Revenue to impose penalty under section 271(1)(c) - Decided in favour of assessee.

Summary

Issues:
- Appeal against deletion of penalty under section 271(1)(c) of the Income Tax Act, 1961.
- Applicability of CBDT Circular on tax effect for filing appeals.
- Legitimacy of penalty imposition after deletion of addition by ld.CIT(A) and dismissal by ITAT.

Analysis:

1. The appeal before the Tribunal was regarding the deletion of a penalty under section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer had imposed a penalty of &8377; 52,32,351/- on the assessee for an addition of &8377; 79,29,156/- made under section 2(22)(e) of the Act. However, the ld.CIT(A) deleted the penalty, stating that since the addition was deleted in earlier proceedings, there was no basis for the penalty imposition.

2. The Tribunal dismissed the Revenue's appeal on the grounds that the tax effect of the addition was less than &8377; 50 lakhs, in accordance with a CBDT Circular. The Circular stipulated that the department would not file an appeal before the Tribunal in cases where the tax effect is below the specified amount. The penalty imposed by the Assessing Officer was also cancelled by the ld.CIT(A) based on the deletion of the addition.

3. Section 271(1)(c) provides for the quantification of penalties based on the tax sought to be evaded due to concealment of income or furnishing inaccurate particulars. In this case, since the addition leading to the penalty imposition was deleted by the ld.CIT(A) and the ITAT dismissed the Revenue's appeal, the penalty had no basis. The Tribunal upheld the decision of the ld.CIT(A) and rejected the Revenue's appeal, stating that there was no justification for imposing the penalty under section 271(1)(c) in this scenario.

4. The Tribunal concluded that since the basis for the penalty imposition was extinguished by the deletion of the addition, there was no legal ground for the Revenue to maintain the penalty. The ld.DR did not contest the factual position of the case, leading to the dismissal of the Revenue's appeal against the deletion of the penalty.

In conclusion, the Tribunal upheld the decision of the ld.CIT(A) to delete the penalty imposed under section 271(1)(c) due to the deletion of the underlying addition and the dismissal of the Revenue's appeal based on the tax effect criterion outlined in the CBDT Circular.