GAUTAM KUMAR,NEW DELHI vs. ACIT, CENTRAL CIRCLE- 12, NEW DELHI

The brief facts are that a search and seizure operation u/s 132 of the Act, was carried out on 12.12.2006 at the residential premises of the assessee and as the assessee had failed to furnish the source of investment in the cars found during search, thus, the Assessing Officer estimated the cost of cars and made additions which were confirmed in the appeal. Therefore, after issuing show cause notice u/s 271(1)(c), the penalty for Rs. 58,275/- was imposed upon the assessee for the assessment year 2003-04 and of Rs. 2,70,072/- for the assessment year 2004-05. The assessee had challenged the same u/s 250 of the Act and by the impugned orders dated 27.02.2018, the appeals were dismissed by the Ld. First Appellate Authority.

The assessee preferred the present appeals primarily on the ground that the penalty was imposed on the basis of vague show cause notice and that no penalty can be imposed on additions made on an estimate basis.

The Ld. Counsel for AR and Ld. Sr. DR were heard and record has been perused.

The Ld. Counsel for the assessee, without going on meirts of grounds, has submitted that the quantum appeals in the present cases bearing for the assessment year 2003-04 and ITA No. 839/Del/2011 for the assessment year 2004-05 have been allowed by the consolidated order dated 28.09.2021 of the ITAT Delhi , “C” Bench, while deleting the additions, so the penalty order cannot be sustained. The copy of order dated 28.09.2021 has been placed on record. 5.1 This fact could not be controverted by the Ld. Sr. DR while he stood with orders of ld. AO and Ld. First Appellate Authority. 6. The Bench is of firm view that the foundation of issuing show cause notice for penalty u/s 271(1)(c) of the Act, being crumbled by a verdict of this Tribunal, by deletion of additions, the penalty order alone cannot stand by its own against the assessee. Reliance in this regard can be placed on the judgement of Hon'ble Delhi High Court in the case of Principal CIT vs. Fortune Technocomps P.Ltd. vide ITA 313/2016 dated 13th May, 2016 where it has held that once the assessment order of the AO in the quantum proceedings was altered by the Ld.CIT(A), in a significant way, the very basis of initiation of penalty proceedings was nonexistent. The Hon’ble Allahabad High Court in the cases of Shadiram Balmukand [1972] 84 ITR 183 and Dwarka Prasad Subhas Chandra [1974] 94 ITR 154 and the Hon’ble Gujarat High Court in the case of Lakkdhir Lalji [1972] 85. ITR 77 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 135 Taxman 461 (SC), 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.

Consequently, both the appeals before the Bench succeed and the same are allowed. The impugned orders of the Ld. AO of levying penalty and of Ld. First Appellate Authority, confirming the penalty, stand set aside.