2019 (7) TMI 369 - AT - Income Tax

Rectification u/s 254 - penalty u/s 271(1)(c) - assessee offer explanation in penalty proceedings - HELD THAT - CIT(A) upheld the assessment order passed by AO confirming additions wherein expenses claimed by assessee were not allowed against the said income. It is well settled now that penalty proceedings u/s 271(1)(c) are independent proceedings than the quantum assessment proceedings and merely because additions in quantum are sustained by appellate authorities, leviability of penalty u/s 271(1)(c) is not automatic. The tribunal while setting aside back to the file of the AO for fresh adjudication has directed AO to re-adjudicate the leviability of penalty u/s. 271(1)(c) on merits of the penalty provisions as are contained u/s. 271(1)(c) . Provisions of Section 271(1)(c) are to be read with Explanations . If the assessee comes with an explanation in penalty proceedings u/s 271(1)(c) , which explanations are genuine and bonafide as provided under Explanation1 to Section 271(1)(c) the assessee will be out of clutches of penalty provisions as are contained in Section 271(1)(c). The explanations which are offered before the tribunal by assessee as detailed in order dated 09.04.2018 needed verification by the AO as it is a factual matter and thus, tribunal was pleased to set aside the matter to the file of AO for re-adjudication on merits in accordance with law. Thus, when tribunal directed AO to decide the matter on merits in accordance with law , it meant merits under the provisions of Section 271(1)(c) - No merit in MA filed by Revenue which stand dismissed.

Summary

Issues:
1. Whether the matter was rightly remanded back to the Assessing Officer for fresh adjudication on merits?
2. Whether the penalty appeal under section 271(1)(c) of the Income-tax Act, 1961 should be re-adjudicated on merits?

Issue 1: The Appellate Tribunal remanded the matter back to the Assessing Officer for fresh adjudication on merits. The Tribunal observed that the Co-operative Group Housing Society had received service charges from Tata Teleservices Maharashtra Limited, and the Assessing Officer had brought this income to tax without allowing the claimed expenses incurred in relation to the earning of the said income. The Tribunal held that the matter needed to be restored back to the file of the Assessing Officer for fresh adjudication on merits in accordance with the law. The Tribunal emphasized that the Assessing Officer should provide proper and adequate opportunity of being heard to the assessee in accordance with the principles of natural justice. The Tribunal directed the Assessing Officer to allow the assessee to file necessary evidences/explanations in support of its contentions.

Issue 2: The Revenue contended that the matter had attained finality as the issue was decided against the assessee on merits in the quantum assessment, and thus, there was no need to re-adjudicate the additions on merits. However, the Tribunal clarified that penalty proceedings under section 271(1)(c) of the Income-tax Act were independent of quantum assessment proceedings. The Tribunal highlighted that the assessee's explanations in penalty proceedings, if genuine and bonafide, could exempt the assessee from penalty provisions. The Tribunal directed the Assessing Officer to re-adjudicate the leviability of penalty under section 271(1)(c) on merits in accordance with the law. The Tribunal emphasized that the explanations offered by the assessee needed verification by the Assessing Officer, and hence, the matter was set aside for re-adjudication on merits. The Tribunal dismissed the Miscellaneous Application filed by the Revenue, upholding the decision to remand the matter back to the Assessing Officer.

In conclusion, the Appellate Tribunal upheld the decision to remand the matter back to the Assessing Officer for fresh adjudication on merits and clarified the independent nature of penalty proceedings under section 271(1)(c) of the Income-tax Act, directing re-adjudication on merits in accordance with the law.