2021 (5) TMI 756 - AT - Income Tax

Penalty u/s. 271(1)(c) - quantum addition made as long term capital gain - HELD THAT - In the present case, it is noticed that the quantum addition on the basis on which, the impugned penalty was levied by the A.O. has been deleted by the ITAT 2020 (2) TMI 776 - ITAT CHANDIGARH therefore, the addition on the basis of which the penalty u/s. 271(1)(c) of the Act was levied by the A.O. is not in existence, therefore, penalty u/s. 271(1)(c) of the Act levied by the A.O. was rightly deleted by the Ld. CIT(A). Also see KC BUILDERS AND ANOTHER VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX 2004 (1) TMI 7 - SUPREME COURT - Decided against revenue.

Summary

Issues:
1. Deletion of penalty under section 271(1)(c) of the Income Tax Act by CIT(A).
2. Treatment of land as a capital asset.
3. Validity of penalty levied by the Assessing Officer.
4. Applicability of judgment in K.C. Builders and Anr. vs. ACIT.

Analysis:

Issue 1: Deletion of penalty under section 271(1)(c) of the Income Tax Act by CIT(A)
The appeal was filed by the Revenue against the order of the Ld. CIT(A) deleting the penalty of ?10,44,93,793/- levied under section 271(1)(c) of the Act. The Ld. Counsel for the assessee argued that the quantum addition, the basis for the penalty, had been deleted by the ITAT. The ITAT noted that since the quantum addition was no longer valid, the penalty under section 271(1)(c) was rightly deleted by the CIT(A). The ITAT upheld the CIT(A)'s decision based on the principle that if the additions forming the basis for the penalty are deleted, the penalty cannot be sustained.

Issue 2: Treatment of land as a capital asset
The Revenue contended that the land in question was treated as a capital asset under section 2(14) of the Act, resulting in the levy of penalty on the quantum addition made as long-term capital gain. However, since the quantum addition was deleted by the ITAT, the basis for treating the land as a capital asset was no longer valid. As a result, the penalty levied by the Assessing Officer was rightly deleted by the CIT(A).

Issue 3: Validity of penalty levied by the Assessing Officer
The Assessing Officer had levied a penalty under section 271(1)(c) of the Act based on the quantum addition. However, since the ITAT had deleted the quantum addition, the basis for the penalty ceased to exist. The ITAT concurred with the CIT(A) that in the absence of a valid basis for the penalty, it could not be sustained, leading to the dismissal of the Revenue's appeal.

Issue 4: Applicability of judgment in K.C. Builders and Anr. vs. ACIT
The ITAT referred to the judgment of the Hon'ble Supreme Court in K.C. Builders and Anr. vs. ACIT, which held that if the additions forming the basis for the penalty are deleted, the penalty cannot survive. The ITAT relied on this precedent to support its decision to uphold the deletion of the penalty by the CIT(A). By following the principle established in the cited case law, the ITAT dismissed the Revenue's appeal and affirmed the CIT(A)'s decision to delete the penalty.

In conclusion, the ITAT upheld the CIT(A)'s decision to delete the penalty under section 271(1)(c) of the Act, emphasizing the importance of a valid basis for imposing penalties and the applicability of relevant case law in determining the outcome of such appeals.