2021 (10) TMI 674 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 - whether notice issued by the ld. A.O. was 'vague' and also because the 'charge' was not specified? - HELD THAT - We are of the view that penalty u/s 271(1)(c) of I.T Act levied by AO has no legs to stand at present, when the corresponding Assessment Order has already been quashed by Ld. CIT(A) holding that the additions made in the assessment order cannot survive. When the assessment order has been quashed, and the additions made therein do not survive; the penalty levied u/s 271(1)(C) of I.T. Act on the corresponding quantum additions also cannot survive. We take support from judicial precedent in the case of K.C. Builders 2004 (1) TMI 7 - SUPREME COURT wherein as held that where the additions made in the Assessment Order, on the basis of which penalty for concealment was levied, are deleted, by ITAT or otherwise, the penalty cannot stand by itself and is liable to be cancelled - Decided in favour of assessee.

Issues Involved:
1. Quashing of the penalty order dated 30.03.2016 under Section 271(1)(c) due to a vague notice and unspecified charge.
2. Deletion of penalty on the addition of ?73,38,000 representing an unsecured loan from a director.
3. Deletion of penalty on the addition of ?2,75,000 representing an unsecured loan from another director.
4. Deletion of penalty on the addition of ?6,44,817 representing unrecorded expenses.

Issue-wise Detailed Analysis:

1. Quashing of the Penalty Order Due to a Vague Notice and Unspecified Charge:
The Assessee argued that the penalty order dated 30.03.2016 should be quashed because the notice issued by the Assessing Officer (A.O.) was vague and the charge was not specified. The notice was titled "NOTICE UNDER SECTION 274 READ WITH SECTION 271D OF THE INCOME TAX ACT, 1961," which the Assessee claimed did not clarify whether the penalty was for concealing particulars of income or furnishing inaccurate particulars. The Commissioner of Income Tax (Appeals) [CIT(A)] rejected this argument, stating that the mention of '271D' was a typographical error and did not affect the jurisdiction of the A.O.

2. Deletion of Penalty on Addition of ?73,38,000 Representing Unsecured Loan from a Director:
The CIT(A) confirmed the levy of penalty under Section 271(1)(c) for the addition of ?73,38,000, stating that the nature and source of the credit entries purported as a loan from a director were not explained. However, the Assessee argued that since the assessment order dated 30.03.2013, which initiated the penalty proceedings, was quashed by the CIT(A) on 15.09.2020, the penalty could not survive.

3. Deletion of Penalty on Addition of ?2,75,000 Representing Unsecured Loan from Another Director:
Similarly, the CIT(A) confirmed the penalty for the addition of ?2,75,000, again stating that the nature and source of the credit entries were not explained. The Assessee reiterated that the quashing of the assessment order invalidated the penalty.

4. Deletion of Penalty on Addition of ?6,44,817 Representing Unrecorded Expenses:
The CIT(A) confirmed the penalty for the addition of ?6,44,817, stating that the onus was on the Assessee to rebut the findings of the A.O. The Assessee argued that the appellate order dated 15.09.2020, which quashed the initiation of proceedings under Section 147 and deleted the additions, rendered the penalty unsustainable.

Comprehensive Analysis:

Background and Procedural History:
The initial assessment order dated 30.03.2013 assessed an income of ?88,59,589 against a declared loss of ?23,827, making additions under Section 68 of the Income Tax Act, 1961. A penalty of ?27,44,790 was levied under Section 271(1)(c) on 30.03.2016. The Assessee's appeal against the quantum additions was dismissed by the CIT(A) on 23.03.2015, but the ITAT, Delhi, set aside the matter to the CIT(A), who subsequently quashed the initiation of proceedings under Section 147 and deleted the additions on 15.09.2020.

Hearing and Final Judgment:
During the ITAT hearing, the Assessee's counsel argued that the penalty could not survive as the assessment order had been quashed and no appeal was filed by the Revenue against the CIT(A)'s order dated 15.09.2020. The Revenue's Senior Departmental Representative (DR) did not dispute these claims.

ITAT's Decision:
The ITAT found that the penalty levied under Section 271(1)(c) had no legs to stand on since the corresponding assessment order had been quashed. Citing the judicial precedent in K.C. Builders vs. ACIT, the ITAT held that when the additions in the assessment order are deleted, the penalty cannot stand by itself and must be canceled. Consequently, the ITAT set aside the CIT(A)'s order dated 17.09.2018 and canceled the penalty levied by the A.O. on 30.03.2016.

Conclusion:
The Assessee's appeal was allowed, and the penalty order under Section 271(1)(c) was quashed due to the quashing of the corresponding assessment order. The ITAT emphasized that without a surviving assessment order, the penalty could not be sustained.

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