2021 (6) TMI 726 - AT - Income Tax

Maintainability of appeal - Monetary limit for filing of appeal by revenue in case of penalty - Penalty u/s 271(1)(c) on bogus purchases - HELD THAT - Quantum proceedings and penalty proceedings are independent and distinct proceedings and confirmation of an addition cannot on a standalone basis justify imposition/upholding of a penalty u/s 271(1)(c) of the Act. Adopting the same logic, we are of the considered view that unless a specific exception is provided in the Circular w.r.t penalty also, it could by no means be construed that penalty was to be treated at par with the quantum additions. Quantum proceedings and penalty proceedings are independent and distinct proceedings and confirmation of an addition cannot on a standalone basis justify imposition/upholding of a penalty u/s 271(1)(c) of the Act. Adopting the same logic, we are of the considered view that unless a specific exception is provided in the Circular w.r.t penalty also, it could by no means be construed that penalty was to be treated at par with the quantum additions. Since the levy of penalty by no means could be construed as an addition within the meaning of Clause 10(e) of the aforesaid circular therefore, we do not find any merit in the contentions advanced by the ld. D.R that the aforesaid exception carved out in the CBDT Circular No. 3/2018 (supra) would also take within its realm a penalty imposed under Sec. 271(1)(c) w.r.t the additions made by the A.O towards bogus purchases on the basis of information received from Sales Tax Department, i.e an external agency. Accordingly, finding favour with the claim of the ld. A.R that the appeal of the revenue is covered by the CBDT Circular No. 17/2019, dated 08.08.2019, the same, thus, in our considered view is not maintainable. Accordingly, we herein dismiss the appeal of the revenue, for the reason, that the tax effect therein involved is lower than that contemplated in the aforesaid CBDT Circular fixing the monetary limit of filing of appeals by the revenue before the Tribunal. Appeal of the revenue is dismissed.

Summary

Issues:
1. Penalty under Sec. 271(1)(c) for inaccurate particulars of income based on bogus purchases.
2. Maintainability of the appeal by the revenue due to tax effect being below the prescribed limit.
3. Interpretation of CBDT Circular regarding exceptions for contesting adverse judgments.

Analysis:
1. The appeal involved a penalty imposed under Sec. 271(1)(c) for inaccurate particulars of income due to bogus purchases claimed by the assessee. The Assessing Officer disallowed the purchases of ?5,19,375 from a tainted party as the genuineness was not substantiated. Subsequently, a penalty of ?80,243 was imposed under Sec. 271(1)(c) by the AO. The CIT(A) vacated the penalty as it was based on an estimate, leading to the revenue's appeal before the ITAT.

2. The revenue contested the appeal despite the tax effect being below the monetary limit specified in CBDT Circular No. 17/2019. The revenue argued that the appeal falls under an exception in clause 10(e) of CBDT Circular No. 3/2018, as the addition was based on information from external sources like the Sales Tax Department. However, the ITAT held that penalty and quantum proceedings are distinct, and the exception in the circular only applied to additions based on external information, not penalties. Therefore, the appeal by the revenue was deemed not maintainable due to the lower tax effect.

3. The ITAT interpreted the CBDT Circulars to clarify that penalties cannot be equated with quantum additions for the purpose of exceptions. The exception in clause 10(e) of CBDT Circular No. 3/2018 was specific to additions based on external information, not penalties. As the penalty in question did not fall under the exception, the ITAT dismissed the revenue's appeal based on the prescribed monetary limit in the CBDT Circular No. 17/2019.

This comprehensive analysis highlights the grounds for the penalty imposition, the challenge to the appeal's maintainability, and the interpretation of CBDT Circulars in deciding the outcome of the case.