2021 (8) TMI 454 - AT - Income Tax

Premature penalty under Income Tax Act section 271(1)(c) overturned on unexplained cash credit additions

Smartspace Infrastructure Pvt. Ltd. Versus ITO, Ward-9 (1) New Delhi

The penalty under section 271(1)(c) of the Income Tax Act imposed on unexplained cash credit additions was set aside as premature by the Tribunal. The ... Penalty u/s 271(1)(c) - addition u/s 68 - HELD THAT:- We find that the Coordinate Bench of Tribunal [2018 (5) TMI 2079 - ITAT DELHI]has remanded the matter pertaining to the addition made u/s. 68 of the Act to the file of AO for fresh adjudication as per the directions contained therein. Thus the addition is yet to be finalized. Sub Clause (iii) of Section 271(1)(c) provides mechanism for quantification of penalty. Assessee would be directed to pay a sum in addition to taxes, if any, payable by him, which shall not exceed three times the amount sought to be evaded by reason of concealment of income or furnishing of inaccurate particulars of income. In other words, quantification of penalty is dependent upon the additions made to the income of the assessee. Thus until the issue regarding the determination of income is finalized, penalty u/s. 271(1)(c) of the Act cannot be imposed upon the assessee. In the present case, the addition to the income is yet to attain finality. In such a situation, there cannot be any question of levying of the penalty u/s. 271(1)(c) - Appeal of the assessee is allowed. Issues:Levy of penalty under section 271(1)(c) of the Income Tax Act on unexplained cash credit addition made by the Assessing Officer.Analysis:The appeal was filed against the order passed by the Commissioner of Income Tax (Appeals) relating to the Assessment Year 2011-12. The assessee, a company engaged in infrastructure activities, declared a loss in its income tax return. The case underwent scrutiny, resulting in the assessment order under section 143(3) of the Act, where an addition of unexplained cash credit under section 68 was made, leading to the imposition of a penalty under section 271(1)(c) by the Assessing Officer. The CIT(A) dismissed the appeal, prompting the assessee to appeal further.During the proceedings, the Learned AR argued that as the matter had been remanded back to the Assessing Officer by the Tribunal for fresh consideration, the penalty on the additions should be deleted. The Tribunal's order dated 30.05.2018 was cited in support of this argument. On the other hand, the Learned DR did not contest this submission but supported the lower authorities' decision.Upon evaluating the submissions and the available records, it was observed that the issue revolved around the penalty imposed under section 271(1)(c) on the additions made under section 68 of the Act. The Tribunal had remanded the matter back to the Assessing Officer for reconsideration, indicating that the addition was yet to be finalized. Section 271(1)(c) specifies the mechanism for quantifying penalties, which is contingent on the additions made to the assessee's income. Since the determination of income was still pending, the imposition of the penalty was deemed premature. Consequently, the penalty under section 271(1)(c) could not be upheld until the finalization of the addition to the income. Therefore, the penalty levied by the Assessing Officer was set aside, and the assessee's appeal was allowed.In conclusion, the appeal of the assessee was allowed, and the penalty under section 271(1)(c) was deemed not sustainable due to the pending finalization of the addition to the income.