2021 (4) TMI 482 - AT - Income Tax

Validity of the penalty u/s 271(1)(c) or 158BFA - in search certain documents of incriminating nature were found and accordingly the assessment was framed under section 158BC after making certain addition - AO also initiated the penalty proceedings under section 158BFA(2) of the Act by issuing notice dated 30- 07-2004 - AO finally passed the order under section 271(1)(c) of the Act levying the penalty - HELD THAT - Reading of provision u/s 158BFA (2) shows that it is applicable for the specified years in the case of search carried our u/s 132 of the Act, on or after first day of June 2007, but before the first day of July 2012. In case of search proceedings it is compulsory to make the assessment in particular manner under the different provision of the sections of the Act. Similarly, the penalty is levied with respect to search proceedings under a different provisions. AO has levied the penalty under section 271(1)(C) of the Act by observing that the assessee has concealed/furnished inaccurate particular of income whereas there is no concept of concealment/furnishing inaccurate particular of income under the provisions of section 158BFA(2) of the Act as discussed above. In view of the above we hold that the penalty levied under section 271(1)(c) of the Act is not sustainable and accordingly we quash the same. Hence the ground of appeal of the assessee is allowed.

Summary

Issues:
1. Challenge to penalty levied under section 158 BFA(2)/(3) of the Income Tax Act.
2. Challenge to penalty towards bad debts.
3. Validity of penalty order under section 271(1)(c) of the Income Tax Act.

Issue 1: Challenge to penalty under section 158 BFA(2)/(3):
The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) sustaining the penalty levied under section 158 BFA(2)/(3) of the Income Tax Act. The Assessee contended that the penalty was unwarranted as there was no factual concealment of income, and the addition made was contrary to established case laws. The Assessee also argued against the penalty imposed for bad debts. The Tribunal admitted an additional ground challenging the penalty order, citing the judgment of the Hon'ble Supreme Court. The Assessee's legal representative emphasized that the penalty order was not sustainable under the relevant provisions. The Tribunal, after considering the arguments, held that the penalty levied under section 158 BFA(2)/(3) was not justified and consequently quashed the penalty.

Issue 2: Challenge to penalty towards bad debts:
The Assessee contested the penalty imposed towards bad debts amounting to ?62.06 lakhs, asserting that the debts had turned bad before the end of the relevant year and before the due date of return under section 139(1) of the Act. The Assessee sought relief from the penalty on these grounds. However, the Tribunal did not delve into the merits of this issue as the Assessee succeeded on a technical point related to the penalty under section 158 BFA(2)/(3). Consequently, the Tribunal dismissed the grounds raised on the merits as infructuous.

Issue 3: Validity of penalty order under section 271(1)(c):
The Assessee challenged the validity of the penalty order under section 271(1)(c) of the Income Tax Act. The Assessee argued that the penalty should have been levied under section 158 BFA of the Act, considering the nature of the proceedings. The Assessee's representative contended that the penalty order was not sustainable under section 271(1)(c) and should have been under section 158 BFA. The Department did not object to the admission of the additional ground challenging the penalty order. After hearing both parties, the Tribunal observed that the penalty was erroneously imposed under section 271(1)(c) instead of the appropriate section 158 BFA. Citing relevant provisions and precedents, the Tribunal held that the penalty under section 271(1)(c) was not justified in this case and consequently quashed the penalty.

In conclusion, the Tribunal partially allowed the Assessee's appeal, quashing the penalties imposed under section 158 BFA(2)/(3) and section 271(1)(c) of the Income Tax Act. The Tribunal did not address the challenge regarding the penalty towards bad debts as the Assessee succeeded on technical grounds. The decision was pronounced on 17/03/2021 at Ahmedabad.