2016 (7) TMI 757 - AT - Income Tax

Appeal Allowed: Penalty Order for A.Y. 2008-09 Deemed Unjustified

The Tribunal allowed the Assessee's appeal against the penalty order imposed under section 271(1)(c) for A.Y. 2008-09. It held that the penalty was ... Penalty u/s 271(1)(c) - allowability of claim of bad debts - eligiblility to carry forward loss - Held that:- The levy of penalty and its confirmation has far reaching serious implications upon an assessee, since it may also invite prosecution of the assessee. Thus, matters with regard to ‘levy’ of penalty cannot be taken lightly or casually as it may cause unintended and avoidable hardship to the tax payers. Further, it is well settled law that levy of penalty is not automatic upon the making of disallowance itself by the AO in the assessment order. Any disallowance/addition in the assessment order would not necessarily lead to levy of penalty ‘ipso facto’ as a natural consequence. In our country’s legal and constitutional frame work, the role assigned to the income tax department is to act like a ‘watch dog’ to ensure that tax evasion is checked and legitimate tax collection is augmented, but not to act like a ‘scare crow’. In the facts of the case before us nothing has been brought by the authorities to show that the claim of the assessee was bogus. Nothing has been shown to establish whether there was concealment of income or furnishing of inaccurate particulars of income and how. It has been merely mentioned by the AO in the last para of the penalty order that in case return of the assessee was not selected for scrutiny, then it would have resulted in excess carry forward of the losses to be adjusted against the income of future years. But, here also, Ld. AO went factually wrong, since return of the assessee was filed beyond time limit prescribed u/s 139(1) and therefore, the assessee was not eligible to carry forward loss claimed in the return. Thus, whole premise of the AO was built under misconception of facts and incorrect understanding of law. Above all, Ld. CIT(A) also miserably failed in his duty, by passing a casual order and collapsing the ‘check and balance’ mechanism envisaged by the statute. The levy of penalty was highly unjustified and the same is directed to be deleted. - Decided in favour of assessee. Issues:Appeal against penalty order u/s 271(1)(c) for A.Y. 2008-09.Analysis:The appeal was filed against the penalty order u/s 271(1)(c) for the assessment year 2008-09. The Assessee claimed bad debt of share application money disallowed by the AO under section 36(1)(iii). The AO levied the penalty on the grounds of disallowance without demonstrating concealment of income or inaccurate particulars. The CIT(A) confirmed the penalty in a non-speaking order. The Appellate Tribunal noted that the AO did not establish a case for penalty and failed to consider alternative provisions like business loss u/s 37(1). The genuineness of the payment was not in question, and the penalty was deemed unjustified. The Tribunal emphasized that the levy of penalty should be independent of assessment proceedings and must meet the conditions under section 271(1)(c) mandatorily.The Tribunal highlighted that the Revenue's approach should not be punitive but fair to encourage voluntary tax compliance. Referring to landmark judgments, the Tribunal emphasized that penalty cannot be imposed automatically upon a disallowance and must meet strict conditions. The Tribunal cited the Supreme Court's stance that incorrect claims do not necessarily constitute concealment of income or furnishing inaccurate particulars. In this case, the AO's premise for penalty was based on misconceptions and incorrect understanding of law, leading to unjustified penalty imposition. The Tribunal concluded that the penalty was unwarranted and directed its deletion, allowing the Assessee's appeal against the penalty order.In conclusion, the Tribunal set aside the penalty imposed by the AO and confirmed by the CIT(A), emphasizing the importance of a fair and independent assessment for penalty imposition. The Tribunal's decision highlighted the need for strict adherence to legal provisions before levying penalties, ensuring that tax enforcement measures are applied judiciously and in accordance with the law.