2023 (4) TMI 330 - AT - Income Tax

Penalty u/s.271(1)(c) - addition towards unexplained credit u/s.68 and addition u/s.56(2)(viib) - HELD THAT - As the very basis for imposing penalty in the hands of the assessee company u/s.271(1)(c) had been vacated by the Tribunal, therefore, the penalty imposed by the A.O u/s.271(1)(c) of the Act cannot be sustained and has to meet the same fate. In terms of our aforesaid observations, vacate the penalty imposed by the A.O u/s.271(1)(c) - Appeal of assessee allowed.

Summary

Issues Involved:
1. Confirmation of penalty u/s 271(1)(c) of the Income Tax Act, 1961.
2. Consideration of pending appeal against the assessment order.
3. Validity of additions towards unexplained credit u/s 68 of the Act.
4. Validity of additions u/s 56(2)(viib) of the Act.

Summary of Judgment:

1. Confirmation of Penalty u/s 271(1)(c) of the Income Tax Act, 1961:
The assessee challenged the penalty of Rs.10,95,149/- imposed by the Assessing Officer (A.O) u/s 271(1)(c) of the Income Tax Act, 1961. The CIT(Appeals)-NFAC confirmed the penalty, leading the assessee to appeal before the ITAT.

2. Consideration of Pending Appeal Against the Assessment Order:
The assessee argued that the CIT(Appeals)-NFAC erred in confirming the penalty without considering that the merits of the case against the assessment order were still pending before the ITAT.

3. Validity of Additions Towards Unexplained Credit u/s 68 of the Act:
The A.O had added Rs.34,46,600/- towards unexplained credit u/s 68 of the Act. The Tribunal, in its order dated 26.07.2022, vacated this addition, concluding that the investment made by M/s. Aayush Steelco Pvt. Ltd. towards share application money was duly explained and sourced from its capital account with M/s. Sri Balaji Iron & Steel Traders.

4. Validity of Additions u/s 56(2)(viib) of the Act:
The A.O had also made an addition of Rs.75,000/- u/s 56(2)(viib) of the Act, which was upheld by the CIT(Appeals). The Tribunal found that the additional shares were allotted on a pro-rata basis to existing shareholders, and there was no disproportionate allotment. Therefore, the provisions of section 56(2)(viib) were not applicable, and the addition was vacated.

Conclusion:
Since the basis for imposing the penalty u/s 271(1)(c) of the Act had been vacated by the Tribunal, the penalty imposed by the A.O could not be sustained. The ITAT vacated the penalty of Rs.10,95,149/- imposed by the A.O and allowed the appeal of the assessee.

Order Pronounced:
The order was pronounced in the open court on 13th March 2023.