2013 (7) TMI 1150 - AT - Income Tax

Penalty under section 271(1)(c) deleted by Tribunal for assessment year 2005-06

The Tribunal upheld the CIT(A)'s decision to delete the penalty u/s 271(1)(c) for the assessment year 2005-06. The department's appeal against the ... - Issues involved: Appeal against deletion of penalty u/s 271(1)(c) of the Income Tax Act, 1961 for assessment year 2005-06.Summary:The department appealed against the deletion of penalty u/s 271(1)(c) by the ld. CIT(A) for the assessment year 2005-06. The assessee, an Investment Bank and tax resident of Singapore, had taken forward contracts in foreign exchange to hedge against currency fluctuations. Upon the sale of debentures, the foreign cover was terminated, resulting in a profit claimed as capital gains under Article 13(6) of the Indo-Singapore Treaty. The AO disagreed, treating the profit as 'income from other sources' and initiated penalty proceedings u/s 271(1)(c). The penalty imposed was Rs. 92,71,410, equivalent to 100% of the tax sought to be evaded. The CIT(A) canceled the penalty, citing a difference of opinion on the characterization of the gains. The Tribunal upheld the CIT(A)'s decision based on a previous Tribunal order and case law supporting the deletion of the addition that led to the penalty. The appeal by the department was dismissed, emphasizing that when the addition leading to the penalty has been deleted, the penalty cannot be sustained.In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the penalty u/s 271(1)(c) for the assessment year 2005-06, as the addition that triggered the penalty had been previously deleted in the quantum appeal. The department's appeal was dismissed, and the order was pronounced on 18th July 2013 after hearing the representatives of the parties in open court.