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Facts
The assessee's appeal is against the order of the CIT(A)/NFAC that upheld a penalty imposed under section 271AAB of the Income Tax Act. The penalty was based on additions made to the assessee's income regarding business income, cash seized, and jewellery seized, following a search action.
Held
The Tribunal held that since the additions to the income, which formed the basis for the penalty, were deleted by a prior order of the ITAT, the penalty imposed under section 271AAB of the Act is unsustainable and must be revoked. The AO is directed to delete the penalty in its entirety.
Key Issues
Whether a penalty under Section 271AAB can be sustained when the primary additions forming the basis of the penalty have been deleted by the Tribunal.
Sections Cited
271AAB, 250, 132, 143(3)
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Income Tax Appellate Tribunal, “A’’BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
This appeal at the instance of the assessee is directed against the order of the ld. CIT(A)/NFAC dated 15.10.2024 vide DIN & Order No. ITBA/NFAC/S/250/2024-25/1069661868(1) for the AY 2015-16 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”).
The assessee has raised the following grounds of appeal:
1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT[A]/NFAC erred in upholding the order imposing penalty without appreciating that the appellant had filed written submissions on record pointing out that the addition for which penalty was imposed have been deleted by the Hon'ble ITAT and Sri Elavarthy Ramana Reddy, Bangalore Page 2 of 4 therefore, the penalty imposed ought to be cancelled, which submissions have neither been adverted to nor any notice for hearing of the appeal has been issued to the appellant under the facts and in the circumstances of the appellant's case.
3. Without prejudice to the above, the order imposing penalty u/s. 271AAB of the Act is bad in law and void ab-initio since the proceedings have been initiated on a defective notice issued and consequently, the order levying penalty is bad in law and the same deserves to be cancelled.
4. Without prejudice to the above, the learned CIT[A]/NFAC is not justified in upholding the penalty of Rs.12,81,000/- u/s. 271AAB of the Act without appreciating that the additions made in the assessment order have been deleted by the Hon'ble ITAT and therefore, no penalty could have been confirmed under the facts and in the circumstances of the appellant's case.
For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
At the outset, the ld. A.R. of the assessee vehemently submitted that there was a search action u/s 132 of the Act conducted in the premises of the assessee on 9.10.2014. Thereafter, the AO concluded the assessment u/s 143(3) of the Act dated 30.11.2016 determining the total income of the assessee at Rs.87,56,082/- by making the following additions: a) Business income - Rs.27,21,336/- b) Cash seized - Rs. 4,93,000/- c) Jewellery seized - Rs.16,42,900/- Rs.48,57,236/- 3.1 Thereafter, the ld. AO passed the impugned penalty order u/s 271AAB of the Act dated 11.10.2017 by holding that as the assessee has undisclosed income to the extent of Rs.21,35,000/- in respect of the additions made towards cash and jewellery seized of Rs.4,93,000/- and Rs.16,42,900/- respectively and accordingly Sri Elavarthy Ramana Reddy, Bangalore Page 3 of 4 imposed penalty of Rs.12,81,000/- (60% of the undisclosed income of Rs.21,35,000/-), which is the sole issue under consideration.
3.2 Further, the ld. A.R. of the assessee vehemently submitted that there is no case to hold that the assessee has undisclosed income at all and this contention of the assessee is now supported by the order of this Hon’ble ITAT in quantum proceedings, which has disposed of the appeal filed by the assessee for the year under appeal by a common order passed in to 1776/Bang/2017 dated 27.11.2020 and prayed that as there is no case to hold that assessee has any undisclosed income in respect of aforesaid two additions made in the assessment proceedings and therefore, penalty imposed requires to be vacated since the very quantum addition itself stands deleted.
Ld. D.R. on the other hand supported the order of the authorities below but could not controvert to the arguments advanced by the ld. A.R. of the assessee.
5. We have heard the rival submissions and perused the materials available on record. As per the assessee’s contention that addition of Rs.4,93,000/- in respect of cash seized and Rs.16,42,900/- in respect of jewellery seized was deleted by a common order passed in to 1776/Bang/2017 dated 27.11.2020 was found to be correct. Since the original additions has been nullified, the very foundation for the penalty imposition seizes to exist. Being so, the penalty levied in this assessment year u/s 271AAB of the Act cannot stand on its own legs as the quantum addition was already deleted. The revenue has also not provided any legal justification to continue the penalty once the quantum addition has been deleted. Several judicial rulings, including those from the Hon’ble Supreme Court & various High Courts, establish that when an addition is deleted the penalty Sri Elavarthy Ramana Reddy, Bangalore Page 4 of 4 based on such additions must also be revoked. Since the quantum addition forming the basis of the penalty has been deleted, the penalty of Rs.12,81,000/- imposed u/s 271AAB of the Act is unsustainable. Hence, the order of ld. CIT(A)/NFAC confirming the penalty is therefore reversed. The AO is directed to delete the penalty in its entirety. In view of this, the grounds of appeal of the assessee are allowed.