2022 (7) TMI 555 - AT - Income Tax

Penalty u/s 271(1)(c) - appeal of the assessee allowed the set off of loss claimed by the assessee against the undisclosed income - HELD THAT - Considering the order of Tribunal in the quantum assessment, wherein the entire additions on the basis of which the penalty was levied has already been deleted, therefore, the order of penalty will not survive. Hence, we direct the assessing officer to delete the entire penalty levied under section 271(1)(c) - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing appeals.
2. Legitimacy of penalty levied under section 271(1)(c) of the Income Tax Act.
3. Validity of set-off of losses against undisclosed income.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The appeals were filed with a delay of 876 days. The assessee attributed the delay to the medical condition of his accountant, who was undergoing treatment for kidney failure. The Tribunal reviewed the medical records and accepted the explanation, noting that the delay was neither intentional nor deliberate but due to reasons beyond the assessee's control. The Tribunal cited various case laws, including N. Balakrishnan Vs M. Krishnamurthy and Collector of Land Acquisition Vs Mst Katiji, to support the condonation of delay, emphasizing that substantial justice should prevail over technicalities. Consequently, the delay in filing the appeals was condoned.

2. Legitimacy of Penalty Levied under Section 271(1)(c):
The penalty was initially levied by the Assessing Officer (AO) for the assessment years 2009-10 to 2011-12 due to the disallowance of set-off of losses against undisclosed income. The AO had imposed a penalty of Rs. 3,71,643/- for AY 2009-10. The CIT(A) confirmed the penalty. However, the Tribunal noted that the additions, which formed the basis for the penalty, had been deleted by the Tribunal in the quantum assessment. The Tribunal reiterated that if the additions are deleted, the penalty under section 271(1)(c) cannot survive. Therefore, the Tribunal directed the AO to delete the entire penalty levied under section 271(1)(c).

3. Validity of Set-off of Losses Against Undisclosed Income:
The assessee had declared undisclosed income and claimed a set-off of losses incurred in share trading against this income. The AO disallowed the set-off, leading to the imposition of the penalty. The Tribunal, in its quantum assessment order, allowed the set-off of losses against the undisclosed income, referencing several judicial precedents and administrative instructions. The Tribunal emphasized that the law permits the set-off of losses against income under different heads, as per sections 70 and 71 of the Income Tax Act. The Tribunal concluded that the set-off of share business losses against undisclosed income was valid and directed the AO to allow the set-off.

Conclusion:
The Tribunal allowed the appeals for all three assessment years, condoning the delay in filing the appeals, and directed the deletion of the penalties levied under section 271(1)(c). The Tribunal upheld the validity of the set-off of losses against undisclosed income, aligning with the principles of substantial justice and established legal precedents. The judgment underscores the importance of considering genuine reasons for delays and the necessity of aligning penalty orders with the outcomes of quantum assessments.