2017 (1) TMI 557 - AT - Income Tax

Penalty u/s 271(1)(c) - addition made on protected assessment - Held that - It is well settled law that the assessment proceedings and penalty proceedings are separate and distinct as held in the case of Anatharam Veerasinghaiah & Co. vs. CIT 1980 (4) TMI 2 - SUPREME Court . We agree with the contention of the assessee s counsel that merely because an addition has not been contested, it cannot be presumed that the addition represents concealed income and placed the reliance of the decision of the Hon ble Supreme Court of India in the case of Sir Shadilal Sugar & General Mills Ltd. 1987 (7) TMI 3 - SUPREME Court that from the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income. Also further find that addition in this case was made on protected assessment/addition on estimated basis which is against the law laid down in the case of M/s Bahilal Manilal Patel vs. CIT (2014 (10) TMI 621 - GUJARAT HIGH COURT). Also further find that section 271(1)(c) postulates imposition of penalty for furnishing of inaccurate particulars and concealment of income. On the facts and circumstances of this case the assessee s conduct cannot be said to be contumacious so as to warrant levy of penalty. - Decided in favour of assessee

Summary

Issues:
Assessment order legality and maintainability, imposition of penalty, grounds of appeal, distinction between assessment and penalty proceedings, applicability of legal precedents, justification of penalty levy.

Assessment Order Legality and Maintainability:
The appellant challenged the assessment order passed by the CIT(A), claiming it to be illegal and not maintainable. The assessing officer had levied tax at 10% of gross receipts on an estimated basis under Section 143(3) of the Income Tax Act. The appellant argued that the penalty imposed was without basis and fresh material. The AO issued a notice under Section 274 of the Act, which did not specify whether it was for concealment of income or furnishing incorrect particulars.

Imposition of Penalty:
The AO initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income. The appellant did not contest this assessment order in appeal, leading to the imposition of a penalty three times the normal tax amounting to ?4,80,045. The appellant argued that penalty initiation on a protective assessment basis was not justified.

Grounds of Appeal and Legal Precedents:
The appellant contended that assessment and penalty proceedings are separate, citing legal precedents to support the argument. The appellant relied on the decision of the Hon'ble Supreme Court to emphasize that agreeing to additions to income does not necessarily imply concealment. The appellant also highlighted that the addition in this case was made on a protective assessment basis, contrary to legal principles established by the Hon'ble Gujarat High Court.

Distinction Between Assessment and Penalty Proceedings:
The Tribunal noted that assessment and penalty proceedings are distinct, as per legal precedents. Merely agreeing to additions does not automatically imply concealment. The Tribunal found that the penalty levy in this case was not justified, considering the appellant's conduct and the nature of the additions made on an estimated basis.

Justification of Penalty Levy:
The Tribunal referenced a decision by the Hon'ble Apex Court to emphasize that making unsustainable claims does not amount to furnishing inaccurate particulars regarding income. The Tribunal concluded that the levy of penalty in this case was not warranted, quashing the orders of the authorities below and deleting the penalty levy.

In conclusion, the Tribunal allowed the appeal filed by the Assessee, ruling in favor of quashing the penalty levy based on the legal arguments presented and the precedents cited.