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Facts
The Assessing Officer (AO) levied penalty under section 271(1)(c) of the Income Tax Act after computing income under the head "Income from property" instead of "business". The CIT(A) deleted this penalty. The revenue appealed against the CIT(A)'s order.
Held
The Tribunal noted that the quantum assessment itself was deleted by a prior order of the Tribunal, wherein it was held that the income was business income and not from house property. Following the legal maxim "Sublato Fundamento credit opus" (where the foundation is removed, the superstructure falls), the Tribunal held that the penalty must also be deleted.
Key Issues
Whether the penalty levied under section 271(1)(c) is sustainable when the basis for the quantum addition, which led to the penalty, has been deleted by a higher authority.
Sections Cited
271(1)(c), 143(3)
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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM & SHRI AMARJIT SINGH, AM
O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the revenue against the order of the Ld. CIT(A), Central-1, Mumbai dated 25.07.2006 for AY. 2002-03 wherein the Ld. CIT(A) was pleased to delete the penalty levied u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter “the Act”).
None appeared for the assessee. However, we note that this is a penalty appeal preferred by the revenue against the action of the Ld. CIT(A) deleting the penalty imposed by the AO u/s 271(1)(c) the Act.
The AO had levied the penalty pursuant to the quantum addition made in the assessment order framed on 07.03.2005 u/s 143(3) of the Act wherein he computed the income under the head “Income from property” instead of income from ‘business’ as offered by the assessee. The quantum assessment was confirmed by the Ld. CIT(A), but deleted by the Tribunal vide order dated 04.04.2008 (ITA. No.6901/Mum/2005 for AY. 2002-03) [along with (for AY. 2001-02), ITA. No.4571/Mum/2006 (for AY. 2000-01) and ITA. No.4572/Mum/2006 (for AY. 2003-04)].
2 A.Y. 2002-03 M/s Asha Mangal 4. The AO levied penalty u/s 271(1)(c) of the Act on 10.05.2006 which was deleted by Ld. CIT(A) by passing the impugned order dated 25.07.2006. Even though, none appeared for the assessee, the Tribunal vide order dated 04.04.2008 in assessee’s own case (supra) was pleased to hold that the income returned by the assessee was nothing but the business income and cannot be treated as the “income from house property” and allowed the expenditure as well as the depreciation claimed by assessee. Thus, the quantum assessment made on this score by the AO was deleted. In such a scenario, when the quantum assessment has been deleted in the hands of the assessee, the penalty levied has to be deleted. For this proposition, we rely on the legal Maxim “Sublato Fundamento credit opus” meaning in case foundation is removed, the super-structure falls which squarely applies to the case in hand. The Hon’ble Supreme Court while applying this maxim in the case of Badarinath Vs. Tamilnadu [AIR 2000 (SC) 3243 SC] held that once the basis of proceeding is gone, all consequential order and acts would fall on the ground automatically which is applicable to judicial and quasi-judicial proceedings. In the light of the above discussion, we do not find any infirmity in the action of the Ld. CIT(A) deleting the penalty levied by AO.