2023 (9) TMI 738 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - addition on account of Deemed Dividend u/s 2(22)(e) - CIT(A) deleted penalty levy - HELD THAT - The fact that the very basis for imposition of penalty, does not survive, there can be no question of any imposition of penalty thereon. When the quantum addition does not survive, the penalty levied u/s 271(1)(c) on the corresponding quantum addition also cannot survive. We take support from judicial precedent in the case of K.C. Builders 2004 (1) TMI 7 - SUPREME COURT in which as held that where the additions made in the Assessment Order, on the basis of which penalty for concealment was levied, are deleted, there remains no basis at all for levying the penalty for concealment, and therefore, in such a case, no such penalty can survive and the same is liable to be cancelled. Appeal filed by Revenue against the impugned order whereby the penalty is deleted on merits, do not stand any more

Summary

Issues involved:
The judgment involves multiple appeals filed by the Revenue against penalty orders passed by the Commissioner of Income Tax (Appeals) Panaji-1 for assessment years 2009-10 & 2010-11, concerning the imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961.

Issue 1: Imposition of Penalty
In the case under consideration, the assessee's return of income declared a total income, but an addition was made on account of Deemed Dividend under section 2(22)(e) of the Act, leading to the initiation of penalty proceedings under section 271(1)(c). The penalty was levied at 100% of the tax sought to be evaded. The assessee challenged the penalty before the first appellate authority, resulting in the present appeal by the Revenue. The grounds of appeal primarily focused on the accuracy of the particulars of income furnished by the assessee and the validity of the penalty imposition.

Issue 2: Deletion of Penalty
The controversy in this appeal revolved around the survival of the penalty levied following the addition made under section 2(22)(e) of the Act. The Tribunal observed that the only basis for imposing the penalty was the aforementioned addition, which had been deleted in a separate order. Citing judicial precedents, the Tribunal noted that when the quantum addition does not survive, the penalty imposed under section 271(1)(c) cannot be sustained. Referring to the case law of 'K.C. Builders vs. ACIT,' the Tribunal held that if the additions forming the basis for the penalty are deleted, there is no justification for upholding the penalty for concealment.

Outcome:
Considering the settled legal position, the Tribunal upheld the order deleting the penalty on its merits. Consequently, all grounds of appeal raised by the Revenue were dismissed, leading to the dismissal of all eight appeals. The Tribunal emphasized that when the basis for penalty imposition ceases to exist, the penalty itself cannot be sustained. The judgment was pronounced on July 13th, 2023, with the appeals of the Revenue being dismissed in accordance with Rule 34 of ITAT Rules.