2020 (3) TMI 283 - AT - Income Tax

Penalties under sections 271(1)(c) and 271AAA deemed mutually exclusive by Tribunal

T. Saimatha, T. Satyanarayana Versus Asst. Commissioner of Income Tax Circle-1 (1) Visakhapatnam

The Tribunal held that initiating penalty under section 271(1)(c) and subsequently proceeding with penalty under section 271AAA was incorrect. They ... Penalty u/s 271AAA or 271(1)(c) - Levying penalty u/s 271AAA while initiating the penalty u/s 271(1)(c) at the time of conclusion of the assessment proceedings - HELD THAT:- For a query from the bench both the parties have replied that the AO has not dropped the penalty proceedings u/s 271(1)(c) before issue of show cause letter calling for explanation of assessee for levy of penalty u/s 271AAA. Therefore, we are of the considered opinion that the AO has applied his mind and initiated penalty u/s 271(1)(c) and conducted the proceedings u/s 271AAA. Having conducted the search and assessed the undisclosed income, the AO ought to have initiated the penalty proceedings u/s 271AAA instead of initiating the penalty u/s 271(1)(c). Hence, we are of the view that initiating the penalty u/s 271(1)(c) and conducting the proceedings u/s 271AAA is bad in law. The penalties u/s 271(1)(c) and 271AAA are attracted in different situations and both are mutually exclusive. Having initiated the penalty u/s 271(1)(c), levy of penalty u/s 271AAA is not permissible. See DM Corporation Pvt. Ltd., Vs. ACIT [2018 (9) TMI 1947 - ITAT PUNE] and ITAT Ahmedabad in the case of Dr. Naman A. Shastri [2015 (11) TMI 109 - ITAT AHMEDABAD] therefore, we set aside the orders of the lower authorities and cancel the penalty levied u/s 271AAA and allow the appeal of the assessee. Issues:Appeals against orders of CIT(A) for Assessment Year 2008-09 - Initiation of penalty u/s 271AAA after penalty u/s 271(1)(c) - Admission of additional ground - Validity of penalty u/s 271AAA - Whether levy of penalty u/s 271AAA is permissible after initiation of penalty u/s 271(1)(c) - Interpretation of provisions of law.Analysis:1. The appeals were filed against the orders of CIT(A) for the Assessment Year 2008-09, where the assessees challenged the initiation of penalty under section 271AAA after the penalty under section 271(1)(c) was already initiated. The issue was whether the penalty under section 271AAA could be levied after the initiation of penalty under section 271(1)(c).2. The assessees raised an additional ground during the appeal hearing, questioning the validity of the penalty under section 271AAA after the initiation of penalty under section 271(1)(c). The Additional Commissioner admitted the additional ground as it was a legal issue and all relevant information was available before the lower authorities.3. The appellant argued that since the penalty under section 271(1)(c) was already initiated, the Assessing Officer (AO) was not permitted to impose penalty under section 271AAA. They contended that the AO should have initiated penalty proceedings under section 271AAA instead of section 271(1)(c) after assessing undisclosed profits.4. The Departmental Representative argued that the AO had the right to levy penalty under section 271AAA as the penalty under section 271(1)(c) was not imposed. They contended that there was no time limit for initiating penalty under section 271AAA and supported the actions of the lower authorities.5. The Tribunal observed that the AO had initiated penalty under section 271(1)(c) and subsequently issued a show cause notice for penalty under section 271AAA without dropping the penalty proceedings under section 271(1)(c). The Tribunal held that initiating penalty under section 271(1)(c) and then conducting proceedings under section 271AAA was incorrect and bad in law.6. The Tribunal referred to similar decisions by other benches and concluded that penalties under sections 271(1)(c) and 271AAA are mutually exclusive. They held that once penalty proceedings are initiated under section 271(1)(c), levy of penalty under section 271AAA is not permissible. The Tribunal set aside the orders of the lower authorities and canceled the penalty levied under section 271AAA, allowing the appeals of the assessees.7. The Tribunal applied the same reasoning to another case with identical facts and set aside the penalty levied under section 271AAA, following the decision taken in the previous case.8. In conclusion, the Tribunal allowed the appeals of the assessees, holding that the initiation of penalty under section 271AAA after penalty under section 271(1)(c) was not permissible and canceled the penalties imposed under section 271AAA.