2019 (5) TMI 1314 - AT - Income Tax

Penalty u/s 271(1)(c) - claim of deduction u/s 54 - quantum addition deleted by Tribunal - HELD THAT - It is evident, the basis for imposition of penalty under section 271(1)(c) of the Act is the disallowance of assessee s claim of deduction under section 54. Tribunal while deciding assessee s quantum appeal in the order referred to above has allowed assessee s claim of deduction under section 54 - the very foundation on which the penalty under section 271(1)(c) of the Act was imposed no longer exists. That being the case, the penalty imposed under section 271(1)(c) of the Act cannot also survive. Accordingly, we delete the penalty imposed under section 271(1)(c) of the Act for the impugned assessment year. Assessee's Grounds are allowed.

Summary

Issues:
Challenge to penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for Assessment Year 2010-11.

Analysis:
The appeal was filed by the assessee against the order confirming the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for the Assessment Year 2010-11. The Assessing Officer disallowed the assessee's claim of deduction under section 54 of the Act, leading to the initiation of penalty proceedings. Despite the assessee challenging the penalty before the Commissioner (Appeals), it was upheld. However, during the quantum appeal for the same assessment year, the Tribunal allowed the assessee's claim of deduction under section 54 of the Act, which formed the basis for the penalty imposition.

The Tribunal noted that the very foundation for imposing the penalty under section 271(1)(c) was the disallowance of the deduction claimed under section 54 of the Act. As the Tribunal had allowed the deduction in the quantum appeal, the basis for the penalty no longer existed. Consequently, the Tribunal ruled that the penalty could not stand without the underlying disallowance. Therefore, the penalty imposed under section 271(1)(c) of the Act for the impugned assessment year was deleted, and the appeal was allowed.

In conclusion, the Tribunal found that since the deduction under section 54 of the Act was allowed in the quantum appeal, the penalty imposed under section 271(1)(c) could not be sustained. The Tribunal emphasized that the penalty was based on the disallowance of the deduction, which was subsequently overturned. Hence, the penalty was deemed unjustified and was consequently deleted.