INCOME TAX OFFICER, MANDSAUR vs. OREF SECURITIES PVT. LTD., MANDSAUR
What did the Tribunal hold?
The Tribunal held that the penalty under Section 271(1)(c) is linked to the quantum addition, and if the addition itself is deleted, the penalty cannot survive. The pendency of the revenue's appeal before the High Court does not justify the survival of the penalty.
What were the facts?
The Assessing Officer (AO) made an addition of Rs. 11,77,50,000/- on account of share capital under Section 68 and imposed a penalty of Rs. 5,73,07,050/- under Section 271(1)(c). The Commissioner (Appeals) deleted the penalty, noting that the quantum addition itself had been deleted by the ITAT.
What were the issues?
Whether penalty under Section 271(1)(c) can survive when the underlying quantum addition has been deleted by the ITAT, even if the revenue's appeal against the ITAT order is pending.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI VIJAY PAL RAO & SHRI B.M. BIYANI
आदेश / O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by appeal-order dated 08.05.2023 passed by learned Commissioner of Income-tax, NFAC, Delhi [“CIT(A)”], which in turn arises out of penalty-order dated 07.03.2019 passed by learned ITO, Mandsaur [“AO”] u/s 271(1)(c) of Income-tax Act, 1961 [“the Act”] for assessment-year [“AY”] 2013-14, the revenue has filed this appeal on following solitary ground:
“Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in law in deleting the penalty imposed u/s 271(1)(c) of Income-tax Act,
ITO, Mandsaur vs. OREF Securities P. Ltd., Mandsaur. AY 2013-14 1961, amounting to Rs. 5,73,07,050/- on the basis that quantum of addition has been deleted by ITAT in the assessee’s case, whereas the department has filed before Hon'ble High Court of Madhya Pradesh, Indore Bench against the order of ITAT, Indore in the case of the assessee for assessment year 2013-14 vide case No. Income Tax Appeal (ITA-70/2022) registered at High Court of Madhya Pradesh, Indore, Bench on 13.06.2022 decision on which is still pending.”
The background facts relating to present appeal are such that for the relevant A.Y. 2013-14, the assessee-company filed return of income declaring a total income of Rs. 2,200/-. The case was selected under scrutiny and statutory notices u/s 143(2)/142(1) were issued. Ultimately, the AO made assessment vide order dated 22.03.2016 u/s 143(3) at a total income of Rs. 11,77,52,200/- after making an addition of Rs. 11,77,50,000/- vide para no. 5 of assessment-order on account of share capital u/s 68. Simultaneously, the AO initiated penalty proceedings u/s 271(1)(c) vide notice dated 22.03.2016 qua the addition made by him in assessment-order. Ultimately, the AO passed penalty-order on 07.03.2019 imposing a penalty of Rs. 5,73,07,050/- treating the impugned addition of Rs. 11,77,50,000/- as concealed income. Aggrieved by penalty-order, the assessee carried matter in first appeal and succeeded. Now the Revenue has come before us in next appeal assailing the order of first-appeal.
During the course of hearing before us, it emerged that the Ld. CIT(A) has deleted penalty because the quantum-addition of Rs. 11,77,52,200/-, for which the impugned penalty was imposed by AO, had itself been deleted by ITAT, Indore Bench in order dated 17.11.2021. The order passed by the CIT(A) is reproduced below for an immediate reference:
ITO, Mandsaur vs. OREF Securities P. Ltd., Mandsaur. AY 2013-14
“4. The Hon'ble ITAT, Indore Bench, vide dated 17.11.2021, has allowed the quantum appeal for A.Y. 2013-14 of the appellant’s case. As the quantum appeal has been allowed by the Hon'ble ITAT, Indore. Therefore, any penalty levied on the basis of additions made in the assessment order-cannot survive, the penalty levied u/s 271(1)(c) of the Act is deleted.” 4. As can be seen from above order, the Ld. CIT(A) has observed that the quantum-addition has already been deleted by the ITAT Indore Bench and therefor the penalty u/s 271(1)(c) cannot survive. The revenue/respondent is also accepting this aspect noted by CIT(A) but claiming that since the revenue’s quantum-appeal against the order of ITAT is pending before Hon'ble High Court of M.P., the penalty imposed by AO must survive and the Ld. CIT(A) has erred in granting relief to the assessee. Before us, Ld. DR emphasized the grievance of revenue. Per contra, Ld. AR for assessee submitted that the impugned penalty u/s 271(1)(c) is based on the quantum-addition made by AO and since the quantum-addition itself stands deleted, the CIT(A) was legally justified in granting relief to the assessee.
Therefore, there is no infirmity in the order of CIT(A).
We have considered submissions of both sides. We observe that the CIT(A) has given relief qua the addition deleted. On a careful reading of section 271(1)(c), we observe that the levy of penalty as well calculation- formula of the penalty contemplated in section 271(1)(c) is linked with quantum-addition. Therefore, if the addition itself does not subsist, the penalty has not leg to stand. Due to this position of law, we do not find any merit in the submission of revenue that the penalty must survive during the pendency of quantum-appeal before Hon’ble High Court. Therefore, we are ITO, Mandsaur vs. OREF Securities P. Ltd., Mandsaur. AY 2013-14 in agreement with the order passed by CIT(A). Hence, we uphold the same and dismiss this appeal of revenue which has not merit.
Before parting, we make it clear that in a case the revenue succeeds in its pending appeal before Hon’ble High Court, then the AO shall be at liberty and entitled to re-initiate penalty proceeding as per the relevant provisions of the act and the rules made thereunder in accordance with the outcome of the judgement of Hon’ble High Court.
In the result, this appeal of revenue is dismissed.
Order pronounced in open court on 07.02.2024.
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