2022 (4) TMI 111 - AT - Income Tax

Penalty u/s 271(1)(c) - AO disallowed the claim of exemption u/s 54F of the Act on the basis that the investment in the new property was made beyond the due date of filing of return of income u/s 139(1) of the Act and also that assessee had merely booked the flat which was yet to be completed to get the possession - HELD THAT - The Bench is of firm view that the foundation of issuing show cause notice for penalty u/s 271(1)(c) being crumbled by a verdict of this Tribunal, by deletion of additions, the penalty order alone cannot stand by its own against the assessee. The Hon ble Allahabad High Court in the cases of Shadiram Balmukand 1971 (2) TMI 16 - ALLAHABAD HIGH COURT and Dwarka Prasad Subhas Chandra 1972 (1) TMI 40 - ALLAHABAD HIGH COURT and the Hon ble Gujarat High Court in the case of Lakkdhir Lalji 1971 (9) TMI 33 - GUJARAT HIGH COURT have also held that when the original basis of initiation of the penalty proceeding is altered or modified by the appellate authority, the authority initiating the penalty proceedings has no jurisdiction thereafter to proceed on the basis of the findings of the appellate authority. The Hon ble Supreme Court in the case of K.C. Builders vs. ACIT 2004 (1) TMI 7 - SUPREME COURT has made it crystal clear that where the additions made in the Assessment Order, on the basis of which penalty for concealment was levied, are deleted, by ITAT or otherwise, the penalty cannot stand by itself and is liable to be cancelled. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of exemption u/s 54F of the Income Tax Act.
2. Imposition of penalty u/s 271(1)(c) of the Act.
3. Grounds for challenging the penalty imposition.

Issue 1: Disallowance of exemption u/s 54F:
The assessee claimed exemption u/s 54F of the Act for capital gains from the sale of a property. The Assessing Officer disallowed the exemption as the investment in a new property was made after the due date of filing the income tax return. Additionally, the AO noted that the assessee had only booked a flat that was yet to be completed. This led to the initiation of penalty proceedings u/s 271(1)(c) of the Act.

Issue 2: Imposition of penalty u/s 271(1)(c):
A penalty of ?15,79,847 was imposed on the assessee for alleged income evasion. The First Appellate Authority upheld the penalty, leading to the assessee's appeal. The assessee argued that the penalty was imposed on a debatable issue and questioned whether it was for concealment of income or furnishing inaccurate particulars.

Issue 3: Grounds for challenging the penalty imposition:
The assessee contended that since the ITAT Delhi Bench had allowed the deduction claim u/s 54 of the Act in a previous quantum appeal, the penalty order could not stand. The Tribunal noted that once the assessment order was altered significantly in favor of the assessee, the basis for initiating penalty proceedings ceased to exist. Citing various judicial precedents, including decisions from the Delhi High Court, Allahabad High Court, and Gujarat High Court, the Tribunal emphasized that if additions leading to penalty imposition are deleted, the penalty itself cannot be sustained.

In conclusion, the Tribunal allowed the appeal, setting aside the penalty orders imposed by the Assessing Officer and confirmed by the First Appellate Authority. The Tribunal's decision was based on the principle that when the basis for initiating penalty proceedings is undermined by subsequent favorable verdicts for the assessee, the penalty cannot be upheld.