2016 (5) TMI 859 - HC - Income Tax

Penalty under Section 271 (1) (c) - bogus purchases - Held that - Having examined the impugned order of the ITAT and having considered the submissions of the learned counsel for the Revenue the Court is unable to discern any legal infirmity in the analysis or conclusion reached by the ITAT. Once the assessment order of the AO in the quantum proceedings was altered by the CIT (A) in a significant way the very basis of initiation of the penalty proceedings was rendered non-existent. The AO could not have thereafter continued the penalty proceedings on the basis of the same notice. Also the Court concurs with the CIT (A) and the ITAT that once the finding of the AO on bogus purchases was set aside it could not be said that there was any concealment of facts or furnishing of inaccurate particulars by the Assessee that warranted the imposition of penalty under Section 271 (1) (c) of the Act. - Decided in favour of assessee

Summary

Issues:
1. Appeal against deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Jurisdiction of Assessing Officer to initiate penalty proceedings post modification by CIT (A).

Analysis:

Issue 1:
The appeal before the Delhi High Court pertained to the deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961. The Income Tax Appellate Tribunal (ITAT) affirmed the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which had deleted the penalty imposed by the Assessing Officer (AO). The CIT(A) had disallowed the loss claimed by the Assessee on the sale of unbranded items and added an amount as additional income based on an estimated gross profit rate. The ITAT concluded that the penalty was not leviable under Section 271(1)(c) of the Act due to the modifications made by the CIT(A) in the assessment order.

Issue 2:
The second issue revolved around the jurisdiction of the Assessing Officer to initiate penalty proceedings after modifications were made by the CIT(A) in the assessment order. Despite the CIT(A) deleting the additions made by the AO in the original assessment proceedings, the AO continued with the penalty proceedings and imposed the penalty. However, both the CIT(A) and the ITAT held that once the basis for the penalty proceedings was altered by the CIT(A), the AO could not proceed based on the original findings. The ITAT relied on the decision of the Calcutta High Court to support this position. The Delhi High Court concurred with the ITAT's analysis, stating that the AO could not continue the penalty proceedings on the same basis after significant modifications were made by the CIT(A).

In conclusion, the Delhi High Court dismissed the appeal, finding no legal infirmity in the ITAT's analysis and agreeing that the penalty was not warranted after the modifications made by the CIT(A). The judgment emphasized the importance of the CIT(A)'s modifications in altering the basis for penalty proceedings and highlighted the jurisdictional limitations of the Assessing Officer in such circumstances.