NAGAIAH KEKKIRENI,SURYAPET vs. ITO., WARD-1, SURYAPET

Facts

The assessee filed his return of income for AY 2009-10 declaring an income of Rs. 4,48,780. During scrutiny assessment, it was found that the assessee purchased land worth Rs. 42.84 lakhs, and the source of these funds was not satisfactorily explained. The Assessing Officer (AO) made an addition for unexplained investment and initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.

Held

The Tribunal held that the penalty proceedings are an outcome of the assessment, and if the assessment itself is debatable and the issue has been admitted as a substantial question of law by the High Court, then the penalty cannot survive. Relying on various High Court judgments, the Tribunal found that since the substantial addition was admitted by the High Court, the penalty was not sustainable.

Key Issues

Whether the penalty under section 271(1)(c) of the Income Tax Act, 1961, is sustainable when the addition forming the basis of the penalty has been admitted as a substantial question of law by the High Court?