2021 (9) TMI 678 - AT - Income Tax

Maintainability of appeal low tax effect - Penalty imposed u/s 271(1)(c) - HELD 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) - 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. As is discernible from Clause 10(e) of the aforesaid CBDT Circular No. 3/2018 (as amended on 20.08.2018), the same applied 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, finding favour with the claim of the appeal of the revenue is covered by the CBDT Circular No. 17/2019, dated 08.08.2019, the same, thus, in our considered view is not maintainable - tax effect therein involved is lower than that contemplated in the aforesaid CBDT Circular fixing the monetary limit of filing of appeals by the revenue before the Tribunal. - Appeal of revenue dismissed.

Summary

Issues:
1. Validity of penalty under Sec. 271(1)(c) of the Income Tax Act, 1961.
2. Maintainability of the revenue's appeal based on tax effect threshold.
3. Interpretation of CBDT Circulars regarding exceptions for filing appeals.

Analysis:

Issue 1: Validity of Penalty under Sec. 271(1)(c)
The appeal pertains to a penalty imposed under Sec. 271(1)(c) of the Income Tax Act, 1961, against an assessee who had booked bogus purchases. The Assessing Officer (A.O) disallowed a portion of the purchases and assessed the income accordingly. The CIT(A) restricted the addition to 12.5% of the disallowance amount. The Tribunal upheld this decision. The A.O then imposed a penalty, which the CIT(A) vacated, citing that the addition was made on an estimate basis. The Tribunal concurred, stating that penalty cannot be imposed where income was estimated, leading to the dismissal of the penalty.

Issue 2: Maintainability of Revenue's Appeal
The revenue's appeal was challenged on the grounds of maintainability due to the tax effect involved. The CBDT Circular No. 17/2019 set a threshold limit for filing appeals by the revenue. The revenue argued that the appeal fell under an exception in a previous circular, making it maintainable. However, the Tribunal ruled that the tax effect was below the threshold set in the latest circular, rendering the appeal not maintainable, and subsequently dismissed it.

Issue 3: Interpretation of CBDT Circulars
The Tribunal analyzed the CBDT Circulars to determine the maintainability of the revenue's appeal. It highlighted an exception in the circular regarding cases based on external sources. The Tribunal emphasized the independence of quantum and penalty proceedings, stating that confirmation of an addition does not automatically justify a penalty. It concluded that unless a specific exception was provided, penalties could not be equated with quantum additions. Based on this interpretation, the Tribunal found the revenue's appeal not maintainable as per the latest circular, leading to its dismissal.

In conclusion, the Tribunal dismissed the revenue's appeal based on the tax effect threshold outlined in the CBDT Circular, emphasizing the need for specific exceptions to justify penalties in tax proceedings.