2021 (7) TMI 448 - AT - Income Tax

Maintainability of appeal - low tax effect - Penalty u/s. 271(1)(c) - HELD THAT - It is a settled position of law 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 CBDT Circular No. 3/2018 (supra) with respect to penalty also, it could, by no means be construed that penalty was to be treated at par with the quantum additions. As is discernible from Clause 10(e) of the aforesaid CBDT Circular No. 3/2018 (supra), the same applied only to additions that were based on information received from external sources. As noticed by us hereinabove, 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, the aforesaid exception carved out in the CBDT Circular No. 3/ would not 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, as 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.

Summary

Issues:
- Appeal against penalty order under section 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2009-10.
- Dispute over penalty imposition based on additions made on an estimate/ad hoc basis.
- Applicability of CBDT Circular No. 17/2019 regarding the tax effect for filing appeals by the revenue.

Analysis:
1. The appeal was filed by the revenue against the penalty order passed by the CIT(A)-44, Mumbai, under section 271(1)(c) of the Income Tax Act, 1961, for A.Y. 2009-10. The revenue contested the deletion of penalty by the CIT(A) on the grounds that the assessee failed to substantiate transactions claimed in the return of income, leading to tax evasion. The revenue argued that the assessee's actions fell within the ambit of Explanation-1 to section 271(1)(c) as the explanation offered was found to be false.

2. The case involved the assessee claiming purchases from certain parties, which were later deemed to be bogus by the Assessing Officer (A.O.). The A.O. added the entire amount of the impugned purchases under section 69C of the Act, resulting in an increased assessed income for the assessee. However, on appeal, the CIT(A) found that the purchases were made at discounted values from the open/grey market, reducing the addition to a specific amount.

3. Subsequently, a penalty was imposed by the A.O. under section 271(1)(c) based on the sustained addition resulting from the quantum appeal. The CIT(A) vacated the penalty, citing that it could not be imposed on an estimate/ad hoc basis. The revenue appealed this decision, arguing that the penalty should stand. However, the Appellate Tribunal found that the penalty amount was below the threshold set by CBDT Circular No. 17/2019, making the appeal not maintainable.

4. The Tribunal clarified that penalty proceedings are distinct from quantum proceedings, and unless a specific exception is provided in the CBDT Circular, penalty imposition cannot be equated with quantum additions. Since the penalty was based on information from the Sales Tax Department, an external agency, it did not fall within the exception carved out in the circular. Therefore, the appeal of the revenue was dismissed due to the lower tax effect involved, as per the CBDT Circular No. 17/2019.

In conclusion, the Appellate Tribunal dismissed the revenue's appeal against the penalty order, emphasizing the importance of distinguishing between quantum proceedings and penalty imposition, and adhering to the guidelines set forth in the relevant CBDT Circular regarding the tax effect for filing appeals.