2015 (9) TMI 278 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - reopening of assessment - addition of the entire on-money amount in the hands of the assessee - CIT(A) deleted penalty - Held that - In the present case, reassessment proceedings were initiated on the basis of incriminating document found against the assessee during search proceedings in the case of Luthra Group. Thus, the right course of action for the Revenue is to initiate proceedings u/s. 153C and not u/s. 148 of the Act. Our view is supported by the decision of Amritsar Bench of Tribunal in the case of ITO Vs. Arun Kumar Kapoor (2012 (6) TMI 403 - ITAT AMRITSAR ), wherein, under similar circumstances the Tribunal has held that the proceedings u/s. 148 are illegal and void ab initio. Since, the substratum for making addition is itself bad in law, no penalty can be levied on such addition. Commissioner of Income Tax (Appeals) has deleted the penalty on the ground that the amount of on-money received as advance by the assessees from the prospective customers of the plots is to be taxed in the year of sale of plots. We do not find any error in the findings of the Commissioner of Income Tax (Appeals). - Decided in favour of assessee.

Issues Involved:
1. Validity of reassessment proceedings under Section 148.
2. Justification for penalty under Section 271(1)(c).
3. Taxation year for on-money received as advance.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 148:

The primary contention raised by the assessees was that the reassessment proceedings initiated under Section 148 were invalid because the incriminating documents were found during a search conducted on the Luthra Group. According to the assessees, the correct procedure would have been to initiate proceedings under Section 153C, which overrides Sections 139, 147, 148, 149, 151, and 153 of the Act. The Tribunal agreed with this contention, noting that Section 153C should have been invoked as it specifically deals with situations where documents belonging to a person other than the one searched are found. The Tribunal cited the case of ITO Vs. Arun Kumar Kapoor, where it was held that proceedings under Section 148 are illegal and void ab initio if Section 153C is applicable. Thus, the Tribunal concluded that the reassessment proceedings initiated under Section 148 were invalid.

2. Justification for Penalty under Section 271(1)(c):

The Revenue imposed penalties under Section 271(1)(c) on the assessees for allegedly concealing income by not disclosing the on-money transactions in their returns. However, the Commissioner of Income Tax (Appeals) deleted the penalties, reasoning that the on-money received as advance should be taxed in the year of sale of the plots, not in the year of receipt. The Tribunal upheld this view, emphasizing that assessment proceedings and penalty proceedings are independent and distinct. The Tribunal noted that the findings in assessment proceedings are not conclusive for the purpose of levying penalties under Section 271(1)(c). The Tribunal cited the Supreme Court case of CIT Vs. Khoday Eswarsa & Sons, which established that findings in assessment proceedings may have some significance but are not decisive for penalty proceedings. Consequently, the Tribunal found no error in the deletion of penalties by the Commissioner of Income Tax (Appeals).

3. Taxation Year for On-Money Received as Advance:

The assessees argued that the on-money received as advance from prospective buyers should be taxed in the year of sale of the plots, not in the year of receipt. The Commissioner of Income Tax (Appeals) accepted this argument, supported by decisions from the Bombay High Court and ITAT Pune. The Tribunal agreed with this position, noting that the on-money received as advance is to be taxed in the year of sale of the plots, and not in the year it was received. The Tribunal observed that the assessees had accepted the additions made by the Assessing Officer in quantum proceedings and had paid the taxes and interest accordingly. However, the Tribunal reiterated that the withdrawal of appeals in assessment proceedings does not impact the penalty proceedings, as both are independent. Therefore, the Tribunal found no merit in the Revenue's contention that the penalties should be upheld due to the withdrawal of quantum appeals.

Conclusion:

The Tribunal dismissed the appeals filed by the Revenue, upholding the orders of the Commissioner of Income Tax (Appeals) that deleted the penalties under Section 271(1)(c). The Tribunal found that the reassessment proceedings under Section 148 were invalid and that the on-money received as advance should be taxed in the year of sale of the plots. The Tribunal also emphasized the independence of assessment and penalty proceedings, concluding that the penalties were not justified.

← Previous Next →