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2023 (8) TMI 589 - AT - Income TaxPenalty u/s 271(1)(c) - disallowance of claim of Long Term Capital Gain as exempt u/s 10(38) treating it as business income of the assessee - HELD THAT - We observe that the ITAT Ahmedabad in assessee s own case has deleted the quantum additions in favour of the assessee. Accordingly, since the very basis/foundation on which penalty u/s 271(1)(c) of the Act had been levied on the assessee itself has been vacated, then the consequential penalty imposed u/s 271(1)(c) of the Act is also liable to be vacated. In the case of CIT v Shah Alloys 2012 (9) TMI 957 - GUJARAT HIGH COURT held that penalty cannot be imposed when addition made, which was basis for penalty, was set aside. In the case of LRs Management 2023 (5) TMI 351 - ITAT RAJKOT it was held that Where quantum addition made by AO was deleted by Tribunal, there remained no basis for levy of penalty under Section 271(1)(c) of the Act. In view of the facts of the instant case and the settled legal proposition on the subject that once the quantum proceedings itself have been decided in favour of the assessee, there is no scope of levy of penalty u/s 271(1)(c) - Decided in favour of assessee.
Issues Involved:
The appeal and cross-objection filed against the order passed by the Ld. Commissioner of Income Tax (Appeals)-9, Ahmedabad in Appeal No. CIT(A)-9/10611/ITO Wd-3(1)(4)/16-17 for Assessment Year 2008-09. Revenue's Grounds of Appeal: The Revenue contested the deletion of penalty under Section 271(1)(c) of the Act, related to the disallowance of Long Term Capital Gain claimed as exempt under Section 10(38) of the Act, treated as business income of the assessee. The Revenue argued that the Ld. CIT(A) should have upheld the Assessing Officer's order. Appeal and Cross Objection Details: The appeal by the Revenue and the assessee's Cross Objection pertained to the penalty deletion under Section 271(1)(c) of the Act on the issue of disallowance of Long Term Capital Gain claimed as exempt under Section 10(38) of the Act, treated as business income. Fresh Material Requirement for Reassessment: The Counsel for the assessee highlighted that the penalty proceedings were initiated based on an order under Section 147 of the Act, which was subsequently quashed by the Tribunal. As per legal principles, reopening assessment without fresh material or on a change of opinion basis is impermissible. Precedent and Legal Principles: The ITAT Ahmedabad's decision in the assessee's case favored the assessee, leading to the deletion of quantum additions. Citing legal precedents, it was emphasized that if the basis for the penalty imposition is negated, the penalty itself becomes untenable. Legal Precedents on Penalty Imposition: Various legal cases were referenced to support the stance that when additions forming the basis for penalty imposition are deleted in appellate or quantum proceedings, the penalty orders are liable to be set aside. The settled legal proposition indicates that if quantum proceedings favor the assessee, the penalty under Section 271(1)(c) of the Act cannot be levied. Judgment Outcome: Considering the favorable quantum proceedings and legal precedents, the appeal filed by the Revenue was dismissed. The Cross Objection by the assessee, being in support of the Ld. CIT(A)'s order, was also dismissed as infructuous. Conclusion: The Tribunal's decision, pronounced on 09/08/2023, upheld the deletion of the penalty under Section 271(1)(c) of the Act, emphasizing the importance of fresh material for reassessment and the legal principle that penalty imposition requires a valid basis, which was lacking in this case.
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