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Facts
The Revenue appealed against the deletion of penalty under Section 271(1)(c) by the CIT(A). The penalty was levied on additions made by the AO which were subsequently deleted by the ITAT. The assessee argued that with no quantum additions, no penalty could be sustained.
Held
The Tribunal noted that the quantum additions forming the basis for the penalty were quashed. While the Revenue mentioned a pending High Court appeal against the quantum deletion, they failed to provide proof. The Tribunal held that deciding on penalty while the quantum is disputed is premature.
Key Issues
Whether penalty under Section 271(1)(c) can be sustained when the underlying quantum additions have been deleted by the ITAT, despite a pending appeal before the High Court.
Sections Cited
250, 271(1)(c)
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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: SH. UDAYAN DASGUPTA & SH. KRINWANT SAHAY
This appeal is filed by the revenue against the order of the ld. CIT (A) NFAC, Delhi dated 04.03.2025 passed u/s 250 of the Income Tax Act, 1961(henceforth the Act) which has emanated from the penalty order passed u/s 271(1)(c) of the Income Tax Act, 1961 dated 25.03.2019.
2. There is no appearance by the assessee in course of hearing on repeated calls neither physically or virtually, but the assessee has filed a written submission praying for deletion of penalty imposed u/s 271(1) ( c ) of the Act amounting to Rs.5.30 crores, by the DCIT , Circle – II , Bhatinda, on the ground that the Hon’ble ITAT, Amritsar, Bench, has already deleted the quantum addition made by the AO and has allowed the quantum appeal vide order dated 15/02/2023 in / ASR / 2018 .
3. The assessee submitted that since the additions to income itself has already been deleted there is no tax liability on which penalty could be imposed and as such, he prayed for deleting the penalty.
4. The Ld. AR has filed a written submission which is reproduced as follows:
“1. The present appeal has been filed by the department before this Hon'ble Bench against the order of CIT(A), NFAC dt. 04.03.2025 in which the appeal filed by the assessee against penalty order u/s 271(1)(c) dt. 25.03.2019 has been decided in favour of the assessee as the Hon'ble ITAT Amritsar Bench, Amritsar vide order in dated 15.02.2023 for A.Y.2014-15 has allowed the quantum appeal of the assessee.
The present appeal filed by the department may kindly be decided on the basis of written submissions being filed before this Hon'ble Bench and the appeal of the department may kindly be dismissed.
That the relevant part of the CIT(A), NFAC order dt. 04.03.2025 is reproduced as under:
6. Discussion and direction:
6.1 Hon'ble ITAT Amritsar Bench, Amritsar vide order in dated 15.02.2023 for A.Y.2014-15 has allowed the quantum appeal of the assessee observing as under:
"6.3. The assessee disclosed the entire sales, payment was received through banking channel. The assessee is not at all beneficial of the said amount. The stock of goods and purchase was duly accepted in the order of assessment and in the subsequent assessment order. The entire submissions were submitted before the revenue authorities by the assessee including stock statement and the details of purchase. The recorded statement of the part had the evidentiary value. But without the cross examination, the statement is itself in nullity, respectfully relied on SMC Share Brokers Ltd, supra. The addition cannot be made more on the basis of doubts or conjecture. We are setting aside the appeal order passed by the Id. CIT(A). Considering the above, the addition amount of Rs15,54,20,000/- is quashed.
In the result the appeal of the assessee is allowed." Since the quantum addition, which formed the basis for the present penalty proceedings, has been deleted by the Hon'ble ITAT, the penalty proceedings-initiated u/s.271(1)(c) on the same quantum addition have been rendered infructuous. Therefore, the appeal filed against the penalty order u/s.271(1)(c) is allowed.
7. In the result, the appeal filed by the appellant Allowed.
That Since the quantum appeal has been decided in favour of the assessee and the assessment order has been set aside, the consequential order of penalty has been rightly cancelled for which the reliance is placed on the judgment of supreme court in the case of K.C. Builders v. Assistant Commissioner of Income-tax [2004] 135 Taxman 461 (SC) in which the following judgmensts have been discussed.
CIT v. Bahri Bros. (P.) Ltd. [1987] 167 ITR 880 (Pat.)
"Held, that the penalty was based on the earlier assessment order wherein the amount representing cash credits was included. Since that order had been set aside and the Assessment Year: 2014-15 cash credits deleted from the assessment, the consequent order of penalty had been rightly cancelled." (p. 881)
CIT v. Bhagwan Ltd. [1987] 168 ITR 846 (Cal.)
"Held, that the orders of reassessment on the basis of which penalties were levied had been set aside by the Tribunal. Hence, the order of penalty could not stand by itself. The cancellation of penalty was justified." (p. 846)
CIT v. Bengal Jute Mills Co. Ltd. [1988] 174 ITR 402 (Cal.)
"Where penalty was imposed solely on the basis of an addition of Rs. 4 lakhs to the assessee's total income and the addition was deleted by the Tribunal:
Held, that it was evident from the material on record that the penalty had been Imposed solely on the basis of the addition of Rs. 4 lakhs to the assessee's income. If the addition was deleted, the charge of concealment of income could not be sustained.”
The Ld. DR relied on the order of the Ld. CIT (A) and submitted that the revenue has already filed an appeal before the Hon’ble jurisdictional High court (Punjab and Haryana High Court), against the order of the tribunal deleting the quantum addition, and the matter is sub judice and the penalty imposed must not be cancelled.
However, the Ld. DR has not filed any details of the appeal pending before the Hon’ble High court regarding the date of filing, appeal number, the stamped copy of the acknowledgement of the memorandum of appeal issued by the High Court Registry or any other document, as proof thereof, and could not enlighten us regarding its present status. first appellate authority by the assessee, the penalty proceedings should have been kept in abeyance till disposal of the same by the Hon’ble High court, because deciding on a penalty while the underlying quantum is still in dispute is considered premature.
As such under the circumstances we remand the penalty order, back to the AO, for de novo consideration to be decided afresh after the Hon’ble High court verdict, because it cannot survive if the quantum is deleted, but if the quantum assessment is subsequently modified as a result of the Hon’ble High Court order (sub-judice before the court) the penalty also needs to be aligned with the modified quantum.
As such we remand the penalty back to the AO with the above observation.
In the result, the appeal of the revenue is allowed for statistical purpose.