2021 (8) TMI 921 - AT - Income Tax

Maintainability of appeal - low tax effect - Penalty u/s 271(1)(c) - Estimation of income on bogus purchases - whether addition is based on information received from external sources in the nature of law-enforcement agencies namely Sales Tax Authorities? - scope of CBDT Circular no 17/2019 dated 08.08.2019 r.w Circular No. 3/2018 dtd. 11/07/2018 as amended on 20.08.2018 - HELD THAT - Admittedly, it is a settled position of law that quantum proceedings and penalty proceedings are independent and distinct proceedings and confirmation of an addition cannot on a standalone basis justify imposition/upholding of a penalty u/s 271(1)(c) of the Act. Adopting the same logic, we are of the considered view that unless a specific exception is provided in the circular w.r.t penalty also, it could by no means be construed that penalty was to be treated at par with the quantum additions. discernible from Clause 10(e) of the aforesaid CBDT Circular No. 3/2018 (as amended on 20.08.2018), the same applies only to additions which were based on information received from external sources. As noticed by us hereinabove, since the levy of penalty by no means could be construed as an addition within the meaning of Clause 10(e) of the aforesaid circular, therefore, we do not find any merit in the contentions advanced by the ld. D.R that the aforesaid exception carved out in the CBDT Circular No. 3/2018 (supra) would also take within its realm a penalty imposed under Sec. 271(1)(c) w.r.t the additions made by the A.O towards bogus purchases on the basis of information received from Sales Tax Department, i.e an external agency. Accordingly, we are of the considered view that the appeal of the revenue is covered by the CBDT Circular No. 17/2019, dated 08.08.2019, and thus, in our considered view is not maintainable. - Decided against revenue.

Summary

Issues:
Appeal against penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Years 2009-10, 2010-11, and 2011-12 based on disallowed purchases. Applicability of CBDT Circulars on maintaining the appeal.

Analysis:

Issue 1: Penalty under Section 271(1)(c) for AY 2009-10
The Assessing Officer (A.O) imposed a penalty of ?7,58,217 under section 271(1)(c) based on disallowed purchases of ?21,89,946. The CIT(A) vacated the penalty, citing lack of specific observations on incorrectness by the assessee. The ITAT upheld the CIT(A)'s decision, emphasizing the independence of quantum and penalty proceedings. The appeal was dismissed as the tax effect was below the CBDT Circular limit.

Issue 2: Applicability of CBDT Circulars
The revenue contended that the appeal was maintainable under an exception in CBDT Circular No. 3/2018 due to external source information. However, the ITAT ruled that the exception did not cover penalties, only additions. As the penalty was not considered an addition, the appeal was dismissed based on the CBDT Circular No. 17/2019 monetary limit.

Issue 3: Appeals for AY 2010-11 and 2011-12
The appeals for these years were dismissed following the same reasoning and decision as for AY 2009-10. The ITAT applied the judgment on penalty and CBDT Circulars mutatis mutandis to these appeals, resulting in their dismissal.

In conclusion, the ITAT dismissed all appeals by the revenue for AYs 2009-10 to 2011-12 based on the lack of merit in maintaining the appeals under the CBDT Circulars and the independent nature of penalty proceedings from quantum assessments. The decision highlighted the importance of specific exceptions and limits in circulars regarding penalties and additions, ultimately upholding the CIT(A)'s decision to vacate the penalty imposed by the A.O.