2014 (5) TMI 695 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) of the Act Suppression of job charges Unexplained expenditure - Held that - The addition was made by the AO on account of suppression of job charges and unexplained expenditure - the Tribunal vide order dated 28.12.2012 confirmed the addition to the extent of Rs. 13 lac and Rs. 10 lac on account of suppression of job charges and unexplained expenditure respectively - the addition made by AO has been reduced on account of the order of Co-ordinate Bench of Tribunal and thereby the addition to the extent upheld by the Tribunal has attained finality - since the penalty is on the original disallowance made by AO - the levy of penalty on the such amount cannot be sustained thus, the matter of levy of penalty is remitted back to the AO for fresh adjudication Decided in favour of Assessee.

Summary

Issues:
Appeal against penalty order under section 271(1)(c) of the Income Tax Act for A.Y. 2005-06.

Analysis:
1. The appeal was filed by the Revenue against the order of CIT(A)-II, Surat for the assessment year 2005-06. The Assessee, a firm engaged in dyeing and printing of fabric cloth on job charge basis, declared Nil income in its return. The assessment under section 143(3) resulted in determining the total income at Rs. 50,22,980/- after setting off unabsorbed business loss. The Assessing Officer (A.O) made additions on account of suppression of job charges and unexplained expenditure, leading to a penalty of Rs. 41,82,237/- under section 271(1)(c) of the Act.

2. The Assessee raised multiple grounds challenging the penalty order, arguing that it was bad in law, against the facts, and needed to be quashed. The A.O and CIT(A) were accused of levying the penalty without considering the Assessee's submissions, treating labor charges as unexplained expenses, and making additions based on surmises and adverse presumptions. The Assessee contended that the penalty was unjust and needed to be vacated or remitted.

3. The Tribunal noted that a previous order had substantially reduced the additions made by the A.O, confirming only a portion of the original amounts. Since the penalty was based on the original disallowances, the Tribunal held that the levy of penalty on the reduced amounts was not justified. The matter was remitted back to the A.O. for a fresh decision on the penalty as per law, considering the upheld additions and the Assessee's submissions.

4. The Tribunal found that the penalty imposed by the A.O was not sustainable due to the reduction in the additions confirmed by the Tribunal in a previous order. Therefore, the appeal of the Assessee was allowed for statistical purposes, and the matter of levy of penalty was remitted back to the A.O. for fresh consideration based on the final upheld additions and the Assessee's submissions.

5. The Tribunal's decision highlighted the importance of considering the upheld additions in determining the justification for levying a penalty under section 271(1)(c) of the Income Tax Act. The case demonstrated the need for a thorough review of the facts and submissions before imposing penalties related to income discrepancies and unexplained expenses.