2020 (8) TMI 321 - AT - Income Tax

Penalty levied u/s 271(1)(c) - investment in unaccounted purchases made by the AO pursuant to survey conducted at the premises of the assessee - HELD THAT - Tribunal in the quantum proceedings has however held that it was not a case of unexplained investment/unaccounted purchases as wrongly understood by the authorities below and it was only the suppressed sales made out of recorded purchases and in respect of undisclosed sales, only profit element can be added and the AO was accordingly directed to restrict the addition to the extent of ₹ 28,240/-, being the profit element on unaccounted sales. Where the very basis of levy of penalty, being the quantum addition, has been restricted to ₹ 28,240/-, the consequent levy of penalty shall also stand restricted to ₹ 28,240/-. No other arguments have been taken or canvassed during the hearing in support of ground no. 2, hence the same is dismissed. In the result, the AO is directed to restrict the penalty to ₹ 28,240/- and the remaining penalty is hereby directed to be deleted - Appeal of the assessee is partly allowed.

Summary

Issues:
- Appeal against penalty order under section 271(1)(c)
- Validity of penalty proceedings
- Restriction of penalty amount

Analysis:
1. The appeal was filed against the penalty order under section 271(1)(c) by the assessee, challenging the jurisdiction and validity of the penalty. The grounds of appeal included arguments regarding the legality of the penalty order and the lack of specificity in the show-cause notice issued under section 274 r/w 271(1)(c) of the Act. The appellant sought to quash the penalty order based on these grounds.

2. The assessee firm, engaged in the business of cattle feed, had filed its income tax return declaring a total income. A survey conducted under section 133A revealed undisclosed income, which the assessee offered during the survey but did not include in the income tax return. The assessment made additions to the income based on the alleged excess cash, unaccounted investments, and GP on short stock. The CIT(A) partly reduced the additions, sustaining a specific amount.

3. The matter was taken to the Tribunal, which rejected the approach of the lower authorities and restored the income as declared in the return. Citing various precedents, the Tribunal directed the AO to restrict the addition to a specific amount, emphasizing that the computation of undisclosed income solely based on confessional statements was not justified.

4. The penalty was imposed on the basis of the addition of a specific amount, which was subsequently deleted by the Tribunal. The appellant argued that since the basis for the penalty was no longer valid, the penalty should be deleted. The appellant contended that the penalty was solely related to the now-deleted addition.

5. The Department argued that the addition was made by the AO post-survey and was not a voluntary disclosure by the assessee. They suggested that the matter be remanded to recalculate the penalty in light of the quantum proceedings where the addition was restricted to a lesser amount.

6. The Tribunal noted that the penalty was levied on the now-deleted addition and, based on the Tribunal's decision in the quantum proceedings, restricted the penalty amount to match the reduced addition. As the basis for the penalty no longer existed, the Tribunal directed the AO to restrict the penalty amount accordingly. The Tribunal dismissed other arguments and directed the deletion of the remaining penalty amount, partly allowing the appeal of the assessee.