ITO, MOHINDERGARH vs. THE MAHENDERGARH CENTRAL CO-OP BANK LTD., MAHENDERGARH

This appeal by Revenue is filed against the order of Learned Commissioner of Income Tax (Appeals)-Rohtak, [“Ld. CIT(A)”, for short], dated 24.11.2014 and 19.08.2016 respectively for Assessment Year 2010-11, on the following grounds:

“1. The CIT(A) has erred in deleting the penalty amounting to Rs. 43,15,142/- for furnishing inaccurate particulars of income as the appellant had written

ITA No.- 5580/Del/2016 Mahendergarh Central Co-op Bank Ltd. off Rs. 1,39,64,587/- as OTS interest relief without making any effort to recover (also confirmed by the (CIT(A)). 2. The CIT(A) has erred in deleting the penalty, while CIT(A) herself has sustained the quantum of addition on which this penalty was imposed.”

(2) The Assessment order dated 28.03.2013, U/s 143(3) of the Income Tax Act, 1961 (“I.T. Act”, for short) was passed wherein an addition of 1,39,64,857/- was made by Assessing Officer (“AO”, for short). This addition was confirmed by Ld. CIT(A) vide order dated 24.11.2014. Thereafter, penalty U/s 271(1)(c) was levied by the AO vide order dated 30.09.2015, amounting to Rs. 43,15,142/- which was @ 100% of tax sought to be evaded, in respect of the aforesaid addition of Rs. 1,39,64,857/-. Against the penalty order dated 30.09.2015, assessee appealed before the Ld. CIT(A), who, vide her order dated 19.08.2016 allowed the appeal of the assessee. The present appeal before Income Tax Appellate Tribunal (“ITAT”, for short) has been filed by Revenue against the aforesaid order dated 19.08.2016 wherein the Ld. CIT(A) deleted the penalty. At the time of hearing before us, the Learned Counsel for Assessee submitted that vide order dated 04.07.2018, ITAT has set aside the issues regarding the aforesaid quantum addition of Rs. 1,39,64,857/- to the file of the AO vide order dated 04.07.2018 in for Assessment Year 2010-11. He filed a copy of the aforesaid order dated 04.07.2018 passed in ITA No. 883/Del/2015. The relevant portion of the order of ITAT is reproduced as under:

“5. We have heard the rival submissions and have perused the material available on record. A perusal of the order of the Assessing Officer shows that the Assessing Officer has disallowed the entire amount claimed as expenditure on the ground that the impugned amount was huge as compared to the interest receipts credited by the ITA No.- 5580/Del/2016 Mahendergarh Central Co-op Bank Ltd. assessee in its profit and loss account. The Assessing Officer has disallowed the assessee’s claim at the threshold itself without examining the details in this regard and also without examining as to whether the provisions of the afire mentioned Circular, as being relied upon by the assessee, were applicable in the assessee’s case or not. It is also apparent that the Assessing Officer has also not examined whether the assessee had claimed the deduction of one time interest waiver as per the provisions of the aforesaid circular or not. The Ld. CIT (Appeals), while dismissing the assessee’s appeal, has dismissed the assessee’s appeal on the ground that no follow up action had been taken up by the assessee bank to recover the outstanding amount. Therefore, it is very much apparent that none of the lower authorities have examined the deduction claimed by the assessee in light of the terms of the aforesaid Circular issued by the Registrar of Cooperative Societies, Haryana. In view of these facts, it is our considered opinion that in the interest of justice, the matter should be re-examined by the Assessing Officer. Accordingly, we restore the issue to the file of the Assessing Officer to be examined afresh after taking into account the provisions of the Circular as well as after duly examining whether the assessee has claimed the waiver of interest in terms of the aforesaid Circular or not. Needless to say, the assessee will be afforded due opportunity by the Assessing Officer in this regard.”

(2.1) The Ld. Counsel for assessee submitted that the penalty levied by the AO is unsustainable in view of the aforesaid order of the ITAT. The Ld. Sr. Departmental Representative (“DR”, for short) appearing for Revenue relied on the order of the AO. We have heard both sides patiently and we have also carefully perused the materials available on record. We are of the view that penalty U/s 271(1)(c) of I.T. Act of Rs. 43,15,142 /- levied by AO, has no legs to stand when the issues regarding corresponding additions made by the AO have already been set aside by ITAT vide its aforesaid order dated 04.07.2018. When the quantum addition is already set aside by ITAT, the penalty levied U/s 271(1)(c) of I.T. Act on the corresponding quantum addition also cannot survive. We take support from judicial precedent in the case of K.C. Builders vs. ACIT 135 Taxman 461 (SC), in which the Hon’ble Apex Court held that where the additions made in the Assessment Order, on the basis of which penalty for concealment was levied, are set aside

ITA No.- 5580/Del/2016 Mahendergarh Central Co-op Bank Ltd. or cancelled by ITAT or otherwise, the penalty cannot stand by itself and is liable to be cancelled. In such a situation, there remains no basis at all for levying the penalty for concealment, and therefore, in such a case, no such penalty can survive and the same is liable to be cancelled. In view of the foregoing, appeal filed by Revenue is hereby dismissed.

(3) In the result, appeal of Revenue is dismissed.

Order pronounced in the open court on 24th day of July, 2019.