2018 (8) TMI 1758 - AT - Income Tax

Tribunal Overturns Penalties, Emphasizes Consistency and Connection

The Tribunal allowed all five appeals filed by the assessee, overturning the penalties imposed under section 271(1)(c) of the Income Tax Act, 1961. The ... Levy of penalty u/s 271(1)(c) - addition u/s 69C in respect of expenditure on purchase and stitching of clothes - Defective notice - ‘satisfaction’ of the AO - Held that:- As decided in the case of Kantibhai Naranbhai Prajapati [2018 (2) TMI 1823 - ITAT AHMEDABAD] penalty has been confirmed on a different premise and the original satisfaction for imposition of penalty has been altered or modified by the appellate authority. In such circumstances, where the original basis of imposition of penalty has been altered in a significant way by the first appellate authority, the very basis for sustaining the penalty is rendered non-existent. The imposition of penalty is solely dependent upon the ‘satisfaction’ of the AO [unless initiated by CIT(A)] and non-else. The ground for action by AO was allegation of ‘concealment’. This ground has been substituted by CIT(A) to ‘furnishing inaccurate particulars of income’ while confirming the penalty quantified by the AO. - Decided in favour of assessee. Issues:- Appeal against penalty u/s 271(1)(c) of the Income Tax Act, 1961.- Confirmation of penalty by CIT(A) on different grounds than those initiated by AO.- Addition of expenditure on purchase and stitching of clothes.- Connection of impugned addition with incriminating material seized during search.- Levy of penalty for concealment of income.Issue 1: Appeal against penalty u/s 271(1)(c) of the Income Tax Act, 1961The appellant contested the penalty imposed under section 271(1)(c) of the Act, challenging the confirmation by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Assessing Officer (AO) initiated penalty proceedings on the ground of concealment of income but later confirmed the penalty for furnishing inaccurate particulars of income. The appellant argued that the penalty was imposed on different grounds, and relied on a Tribunal case where penalties were deleted due to altered basis for imposition by the appellate authority. The Tribunal, considering similar facts, reversed the orders of the lower authorities, stating that where the original basis for penalty imposition is altered significantly by the appellate authority, the penalty becomes unsustainable. Consequently, the Tribunal allowed the appeal against the penalty.Issue 2: Confirmation of penalty by CIT(A) on different grounds than those initiated by AOThe appellant raised concerns about the confirmation of the penalty by the CIT(A) on grounds different from those initiated by the AO. The appellant argued that the penalty was initially based on concealment of income by the AO but was confirmed for furnishing inaccurate particulars of income by the CIT(A). Citing a Tribunal case with similar circumstances, the appellant contended that such alteration in the basis for penalty imposition renders the penalty unsustainable. The Tribunal, following the precedent, reversed the orders of the lower authorities, emphasizing the importance of continuity in the findings of the AO and the appellate authority for sustaining the penalty.Issue 3: Addition of expenditure on purchase and stitching of clothesThe appellant contested the addition of expenditure on purchase and stitching of clothes, amounting to Rs. 84,350, in the assessment order. The AO made this addition under section 69C of the Act based on seized documents. The appellant argued that the addition was not connected to incriminating material seized during the search, making it unjustifiable. Despite the appellant's explanation that the expenditure was from withdrawals for household expenses, the AO rejected it. The Tribunal noted that the appellant's explanation was neither accepted nor proven false, leading to the conclusion that the penalty on this addition was unwarranted. As a result, the Tribunal directed the AO to delete the penalty levied on this amount.Issue 4: Connection of impugned addition with incriminating material seized during searchThe appellant raised concerns about the connection of the impugned addition with incriminating material seized during the search. The addition of Rs. 84,350 on account of purchases and stitching of clothes was made based on seized documents, but the appellant argued that it was not linked to any incriminating material. The Tribunal acknowledged this argument and directed the AO to delete the penalty imposed on this addition, emphasizing the lack of justification for penalizing the appellant for this specific amount.Issue 5: Levy of penalty for concealment of incomeThe appellant contested the penalty imposed for concealment of income, emphasizing discrepancies in the grounds for penalty imposition between the AO and the CIT(A). The appellant argued that the CIT(A) confirmed the penalty on the ground of concealment of particulars of income, which was different from the original basis for penalty initiation by the AO. Citing a Tribunal case with a similar scenario, the appellant sought the deletion of the penalty. The Tribunal, considering the inconsistency in the penalty grounds, reversed the orders of the lower authorities and directed the AO to delete the penalty under section 271(1)(c) of the Act.In conclusion, the Tribunal allowed all five appeals filed by the assessee, overturning the penalties imposed under section 271(1)(c) of the Income Tax Act, 1961. The Tribunal emphasized the importance of consistency in the grounds for penalty imposition and highlighted the need for a clear connection between additions and incriminating material seized during searches to justify penalties.