2008 (11) TMI 288 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty u/s 271(1)(c) for the assessment years 1994-95 and 1995-96.
2. Validity of the reassessment proceedings u/s 148.

Summary:

1. Levy of Penalty u/s 271(1)(c):
The assessee's appeals were against the levy of penalty u/s 271(1)(c) for Rs. 60,941 in AY 1994-95 and Rs. 4,12,797 in AY 1995-96. The penalty was based on the difference between the cost of construction of a factory building as per the assessee's books and the valuation reports. The AO reopened the assessment based on information from the Dy. Assessor and Collector, MCD, which indicated a higher construction cost than recorded by the assessee. The AO adopted the DVO's valuation of Rs. 27,76,654, leading to additions in the assessee's income. The CIT(A) partly confirmed the additions based on the registered valuer's report submitted by the assessee, which valued the construction at Rs. 20,45,400. The Tribunal upheld the CIT(A)'s order. The assessee argued that penalty proceedings are separate and relied on various judgments, including CIT vs. J.K. Synthetics Ltd. and CIT vs. Chetan Dass Lachhman Dass, to contend that penalty cannot be upheld merely because the addition was confirmed. However, the Tribunal found that the difference in construction cost was significant and unexplained, justifying the penalty under Explanation 1 to s. 271(1)(c).

2. Validity of Reassessment Proceedings u/s 148:
The assessee contended that the reopening u/s 148 was invalid as it was based on the MCD report for ratable value. However, the Tribunal held that the validity of assessment proceedings cannot be examined at the penalty stage unless the assessment itself is shown to be invalid. Since the Tribunal upheld the addition, the validity of the assessment proceedings stood, and the argument regarding the invalidity of reassessment proceedings could not support the contention that the penalty was vitiated.

Conclusion:
The Tribunal dismissed both appeals, upholding the penalty imposed by the AO and confirmed by the CIT(A) for both assessment years. The Tribunal found no reason to interfere with the CIT(A)'s order, as the assessee failed to provide a reasonable explanation for the significant difference in the cost of construction.