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2025 (2) TMI 159 - AT - Income TaxPenalty u/s 271(1)(c) - addition by treating supervision income as Income from Other Sources instead of allowing it as manufacturing income eligible for deduction u/s 80IB - HELD THAT - This Bench vide order ELECTRONIC INSTRUMENTATION CONTROL PRIVATE LIMITED 2019 (12) TMI 141 - ITAT AHMEDABAD had already deleted the quantum addition which formed the basis for the penalty u/s 271(1)(c). This order was placed on record before the CIT(A) yet it was not even acknowledged in the impugned appellate order. It is trite law that when the very foundation of the penalty ceases to exist the penalty itself cannot survive. The manner in which the CIT(A) has handled this case raises serious concerns about the casual and mechanical approach adopted in discharging appellate functions. CIT(A) is expected to act as an independent quasi-judicial authority and is duty-bound to pass a reasoned and speaking order addressing the contentions of both parties. In the present case he has failed in this fundamental duty. We take strong exception to such an approach and direct that a copy of this order be forwarded to the Pr. Chief Commissioner of Income Tax (Pr. CCIT) Ahmedabad for appropriate administrative review of such deficient appellate adjudication. Since the quantum addition has been deleted by the ITAT the penalty u/s 271(1)(c) does not survive. CIT(A) s order is set aside as being perverse arbitrary and passed without application of mind. Penalty is deleted. Appeal is allowed.
ISSUES PRESENTED and CONSIDERED
The core issue considered in this judgment was whether the penalty of Rs. 1,13,900/- levied under Section 271(1)(c) of the Income Tax Act, 1961, was justified. This penalty was imposed due to the addition of Rs. 12,18,000/- to the assessee's income, which was initially treated as "Income from Other Sources" instead of being eligible for deduction under Section 80-IB as manufacturing income. The Tribunal considered whether the CIT(A) had erred in confirming the penalty despite the ITAT's previous decision to delete the quantum addition. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The legal framework revolves around Section 271(1)(c) of the Income Tax Act, which deals with penalties for concealment of income or furnishing inaccurate particulars. The Tribunal referenced established principles that penalties cannot be sustained if the foundational addition to income is deleted. Court's Interpretation and Reasoning The Tribunal noted that the CIT(A) failed to independently assess the facts and merely reiterated the Assessing Officer's conclusions. This lack of independent reasoning and disregard for the ITAT's prior order, which deleted the addition, was deemed a violation of judicial principles and natural justice. Key Evidence and Findings The Tribunal highlighted the ITAT's order dated 14.10.2019, which deleted the addition of Rs. 12,18,000/-, thereby eliminating the basis for the penalty. The Tribunal found that the CIT(A) ignored this crucial evidence, leading to an unjust confirmation of the penalty. Application of Law to Facts The Tribunal applied the principle that a penalty under Section 271(1)(c) cannot survive if the corresponding addition is deleted. Since the ITAT had already removed the addition, the penalty was deemed unsustainable. Treatment of Competing Arguments The Tribunal considered the arguments from both the assessee and the Department. The Departmental Representative conceded the facts, while the assessee's representative argued that the penalty could not stand in light of the ITAT's previous order. The Tribunal found the assessee's arguments compelling and criticized the CIT(A) for ignoring them. Conclusions The Tribunal concluded that the CIT(A)'s order was arbitrary and lacked application of judicial mind. The penalty was deleted, and the Tribunal directed that a copy of the order be sent to the Pr. Chief Commissioner of Income Tax for review of the CIT(A)'s deficient adjudication. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning The Tribunal stated, "It is trite law that when the very foundation of the penalty ceases to exist, the penalty itself cannot survive." This principle was central to the Tribunal's decision to delete the penalty. Core Principles Established The judgment reinforced the principle that penalties under Section 271(1)(c) cannot be upheld if the underlying addition to income is invalidated. It also underscored the duty of appellate authorities to provide reasoned decisions and consider all relevant evidence. Final Determinations on Each Issue The Tribunal determined that the CIT(A) had erred in confirming the penalty without considering the ITAT's prior order. The penalty of Rs. 1,13,900/- was deleted, and the appeal was allowed in favor of the assessee.
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