SANGEETA TRADERS,CHENNAI vs. DCIT, CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -19, Chennai, dated 03.03.2017 and pertains to assessment year 2004-05.

The only issue arises for consideration is with regard to levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961 (in short 'the Act').

Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the Assessing Officer levied penalty under Section 271(1)(c) of the Act in respect of the commission paid by the assessee to the extent of `12,78,565/-. According to the Ld. counsel, the assessment order was challenged before this Tribunal and this Tribunal remitted back the matter to the file of the Assessing Officer by an order dated 08.09.2014. Therefore, according to the Ld. counsel, the original assessment order in which the commission paid by the assessee was disallowed cannot be a reason for levying penalty under Section 271(1)(c) of the Act. In fact, the order of this Tribunal is dated 08.09.2014 and the penalty was levied on 28.02.2014 itself. According to the Ld. counsel, the CIT(Appeals) confirmed the penalty order of the Assessing Officer without considering the order passed by this Tribunal. Since the order passed by the Assessing Officer was set aside and the matter was remitted back to the file of the Assessing Officer by this Tribunal in the quantum assessment proceeding, according to the Ld. counsel, the penalty cannot be levied based upon the order which was already set aside by this Tribunal. In other words, the order of the Assessing Officer is not in existence on the date on which the CIT(Appeals) confirmed the penalty order of the Assessing Officer.

On the contrary, Shri N. Madhavan, the Ld. Departmental Representative, submitted that the Assessing Officer found that the assessee has paid bogus commission to several concerns, therefore, the addition was made disallowing the claim of the assessee. Since Assessing Officer found that there was bogus claim made by the assessee, he levied penalty under Section 271(1)(c) of the Act. In the meantime, according to the Ld. D.R., for the assessment year 2004-05, this Tribunal set aside the assessment order and remitted back the matter to the file of the Assessing Officer for reconsideration on the basis of the material that may be filed by the assessee. The Assessing Officer, after considering the material filed by the assessee, made the same addition as in the original assessment. Therefore, according to the Ld. D.R., the concealment of income which was found by the Assessing Officer in the original assessment order continues to exist. Hence, according to the Ld. D.R., the penalty levied by the Assessing Officer was rightly confirmed by the CIT(Appeals).

We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the order of the assessment in which the disallowance was made towards payment of commission, was set aside by this Tribunal by an order dated 08.09.2014. Therefore, the order of the Assessing Officer where the disallowance was made is not in existence as on date. The Assessing Officer while giving effect to the order of this Tribunal dated 08.09.2014, has made the same addition. The question arises for consideration is whether the penalty levied by the Assessing Officer consequent to the earlier order would continue to exist when the order was not in force? This Tribunal is of the considered opinion that when the base order on which the penalty was levied is not in existence, the penalty levied by the Assessing Officer cannot stand in the eye of law.

It is open to the Assessing Officer to initiate a separate proceeding for levy of penalty consequent to the order passed by the Assessing Officer on 05.03.2015 provided the time limit for initiating the penalty proceeding has not expired. Suffice to say that the impugned orders of the Assessing Officer and the CIT(Appeals) levying penalty on the assessee on the basis of order of assessment, which was set aside by this Tribunal, cannot stand in the eye of law. Therefore, we are unable to uphold the orders of both the authorities below. Accordingly, orders of both the authorities below are set aside and penalty levied by the Assessing Officer is deleted.

In the result, the appeal filed by the assessee is allowed.