2024 (7) TMI 644 - AT - Income Tax

Penalty u/s 271(1)(c) levied consequent to order passed u/s. 143(3) r.w.s. 263 - HELD THAT - As the assessee challenged the order of the PCIT in an appeal before the ITAT, Jaipur Bench and in that appeal the order of ld. PCIT passed u/s 263 of the Act was quashed by the ITAT 2022 (3) TMI 1514 - ITAT JAIPUR . In appreciation of these set of facts the consequential assessment order passed is not sustainable and as such when the very basis for levy of penalty, which is the assessment order in this case is not sustainable the consequent levy of penalty has not leg to stand. Appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act.
2. Validity of the assessment order under Section 143(3) read with Section 263.
3. Impact of the ITAT's decision on the penalty proceedings.
4. Revenue's appeal against the deletion of penalty.

Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) of the Income Tax Act:

The primary issue revolves around whether the CIT(A) was justified in deleting the penalty of Rs. 50,78,834/- levied under Section 271(1)(c) of the Income Tax Act. The penalty was initially imposed by the Assessing Officer (AO) for the alleged concealment of particulars of income by the assessee. The AO noted that the assessee had included the income from the sale of a building in its profit and loss account but reduced the same amount in the computation of income, which was deemed incorrect and led to furnishing inaccurate particulars of income.

2. Validity of the Assessment Order under Section 143(3) read with Section 263:

The assessment for the year 2014-15 was initially completed under Section 143(3) on 28.12.2016, assessing the total income at Rs. 1,69,76,200/-. Subsequently, the Principal Commissioner of Income Tax (Pr.CIT) passed an order under Section 263 on 08.03.2019, setting aside the assessment order and directing the AO to verify and examine the claim regarding the computation of book profit under Section 115JB and finalize the assessment. The reassessment order under Section 143(3) read with Section 263 was completed on 02.12.2019, determining the total income at Rs. 1,69,76,201/- and book profit at Rs. 3,88,43,584/-. Penalty proceedings under Section 271(1)(c) were initiated based on this reassessment.

3. Impact of the ITAT's Decision on the Penalty Proceedings:

The assessee appealed against the Pr.CIT's order under Section 263, and the ITAT quashed the order of the Pr.CIT on 15.03.2023. Consequently, the jurisdictional AO passed an order under Section 254 read with Section 143(3)/263 on 16.06.2023, determining the income of the assessee at Rs. 1,69,76,200/- as per the original assessment order dated 28.12.2016. The CIT(A) deleted the penalty levied under Section 271(1)(c), reasoning that since the addition made in the reassessment order was deleted by the ITAT, the penalty imposed on such addition had no basis and was unsustainable.

4. Revenue's Appeal Against the Deletion of Penalty:

The Revenue appealed against the CIT(A)'s order, arguing that the CIT(A) had not decided the issue of levy of penalty on its merits and had merely deleted the penalty based on the quashing of the Section 263 order by the ITAT. The Revenue contended that since the ITAT's order was under challenge before the Rajasthan High Court, the deletion of the penalty was premature and required reconsideration on merits.

Judgment:

The Tribunal upheld the CIT(A)'s decision to delete the penalty, noting that the penalty was levied based on an assessment order that was quashed by the ITAT. The Tribunal emphasized that the very basis for the levy of penalty, which was the reassessment order under Section 143(3) read with Section 263, was no longer valid. The Tribunal also noted that there was no stay or contrary order from the High Court regarding the ITAT's decision. Consequently, the Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal.

Conclusion:

The Tribunal concluded that the deletion of the penalty by the CIT(A) was justified as the reassessment order, which formed the basis for the penalty, had been quashed by the ITAT. The Revenue's appeal was dismissed, and the penalty of Rs. 50,78,834/- under Section 271(1)(c) was deleted.

Order Pronounced:

The order was pronounced in the open court on 01/07/2024.