2021 (3) TMI 652 - AT - Income Tax

Penalty u/s 271(1)(c) - additions made on account of disallowance of rent and disallowance of alleged bogus expenditure - HELD 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. The quantification of the penalty is depended upon 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 Tribunal the impugned penalty does not survive. In other words, there is no room for the Revenue to impose penalty under section 271(1)(c) in this case. Therefore, we cancel the orders of the Revenue authorities on this issue, and allowed grounds of appeal of the assessee.

Summary

Issues:
Appeal against penalty under section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
The assessee appealed against the penalty imposed by the ld.CIT(A) under section 271(1)(c) of the Income Tax Act, 1961. The case involved the assessee, a company providing consultancy services, which filed its return of income declaring total income at &8377; 92,14,300/-. The assessment order passed later determined the income at &8377; 1,23,50,300/-. The ld.AO made two additions: disallowance of rent expenses under section 37(1) and under section 40A(2)(b), and disallowance of bogus expenses amounting to &8377; 25,30,500/-. The matter was taken to the ld.CIT(A) and later to the Tribunal. The Tribunal, in an order dated 10.11.2020, deleted both major additions. The penalty under section 271(1)(c) was based on these additions, which were subsequently deleted by the Tribunal.

The Tribunal analyzed section 271(1)(c) of the Act, which provides a mechanism for quantification of penalty based on additions made to the income of the assessee. The Tribunal noted that since the basis for imposing the penalty was extinguished by deleting the additions in the order dated 10.11.2020, the penalty did not hold. The Tribunal emphasized that the quantification of penalty is dependent on the additions made to the income. As the additions were deleted, the penalty under section 271(1)(c) could not be sustained. Consequently, the Tribunal canceled the orders of the Revenue authorities and allowed the grounds of appeal of the assessee. The appeal of the assessee was allowed, and the penalty under section 271(1)(c) was canceled.

In conclusion, the Tribunal's decision in this case revolved around the deletion of major additions made by the ld.AO, which formed the basis for the penalty imposed under section 271(1)(c). The Tribunal, after considering the facts and circumstances, found that since the additions were deleted, there was no basis for the penalty to be upheld. Therefore, the Tribunal canceled the penalty imposed by the Revenue authorities and allowed the appeal of the assessee.