2019 (2) TMI 1539 - AT - Income Tax

Penalty u/s 271(1)(c) - Quantum addition deleted in appeal - HELD THAT - When undisputedly addition on the basis of which penalty proceedings have been initiated is no more in existence having been deleted by the Tribunal, penalty levied by AO and confirmed by the CIT(A) is not sustainable in the eyes of law, hence ordered to be deleted in view of the judgment rendered in the case of K.C. Builders & Anr vs. ACIT 2004 (1) TMI 7 - SUPREME COURT wherein it is held that, when the addition made in the assessment order on the basis of which penalty for concealment is levied have been deleted there remains no basis at all for levying the penalty for concealment and in such case, no penalty can survive and the penalty is liable to be cancelled. So, in view of the matter, penalty levied by the ld. CIT (A) is ordered to be deleted - Decided in favour of assessee.

Issues Involved:
Penalty proceedings under section 271(1)(c) - Sustainability of penalty - Addition made by AO and confirmed by CIT (A) - Deletion of quantum addition by Tribunal - Legality of penalty imposition - Principles of law governing penalty for concealment.

Analysis:

Issue 1: Sustainability of Penalty Proceedings under section 271(1)(c)
The Tribunal addressed the issue of the sustainability of penalty proceedings under section 271(1)(c) in light of the addition made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (CIT) (A). The Tribunal noted that since the co-ordinate bench had deleted the quantum addition, the penalty levied on the basis of the assessment order was deemed unsustainable. The Tribunal referred to the judgment in the case of K.C. Builders & Anr vs. ACIT, where it was held that if the addition forming the basis for the penalty has been deleted, there is no legal basis for levying the penalty for concealment. Therefore, the Tribunal ordered the deletion of the penalty imposed by the CIT (A) as it could not survive without the underlying addition.

Issue 2: Legality of Penalty Imposition
The Tribunal examined the grounds raised by the appellant, M/s. Jubilant Biosys Limited, challenging the penalty imposed under section 271(1)(c) of the Income Tax Act. The appellant contended that the penalty order by the CIT (A) was passed hastily without providing a reasonable opportunity and that the show cause notice was issued mechanically. Furthermore, the appellant argued that the CIT (A) erred in initiating and imposing the penalty on the enhanced income, alleging willful furnishing of inaccurate particulars and deliberate concealment. However, the Tribunal, after considering the facts and submissions, concluded that since the quantum addition had been deleted, the penalty imposed by the CIT (A) was not sustainable in law.

Issue 3: Principles of Law Governing Penalty for Concealment
In its analysis, the Tribunal referred to the decision of the Hon'ble Supreme Court in the case of Empire Jute Company Ltd vs. CIT, emphasizing that the test of enduring benefit cannot be applied blindly without considering the specific circumstances of each case. The Tribunal highlighted the contractual obligations of the appellant and the ownership provisions related to research services, supporting the conclusion that the expenditure incurred was in the normal course of business activity. By citing legal precedents and contractual terms, the Tribunal justified granting the appellant the benefit of the expenditure incurred, ultimately leading to the deletion of the penalty imposed by the CIT (A).

In conclusion, the Tribunal allowed the appeal filed by the assessee, ordering the deletion of the penalty levied by the CIT (A) due to the deletion of the underlying quantum addition. The judgment exemplifies the application of legal principles governing penalty proceedings and the significance of factual considerations in determining the sustainability of penalties for concealment under tax laws.

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