2021 (9) TMI 355 - AT - Income Tax

Tribunal clarifies CBDT Circular on penalties under section 271(1)(c)

The Tribunal dismissed the revenue's application, emphasizing the need for explicit provisions regarding penalties in the circular and the distinction ... Maintainability of appeal - low tax effect - exception carved out in Para 10(e) of the CBDT Circular No. 3/2018, dated 11.07.2018 - as argued issue involved in the appeal in question pertains to a penalty that was imposed u/s. 271(1)(c) of the Act in respect of addition of bogus purchases that was made on the basis of information received from the Sales Tax Authorities i.e. an external agency, therefore, pursuant to the exception carved out in Para 10 of the CBDT Circular No. 3/2018, dated 11.07.2018 the appeal was maintainable - HELD THAT:- Quantum proceedings and penalty proceedings are independent and distinct proceedings and confirmation of an addition cannot on a standalone basis justify imposition/upholding of a penalty u/s. 271(1)(c) of the Act. Adopting the same logic, we are of the considered view that unless a specific exception is provided in the circular w.r.t penalty also, it could by no means be construed that penalty was to be treated at par with the quantum addition. As is discernible from Para 10(e) of the aforesaid CBDT Circular No. 3/2018 (as amended on 20.08.2018), the same applies only to additions which were based on information received from external sources. Since the levy of penalty by no means could be construed as an addition within the meaning of Para 10(e) of the aforesaid circular, therefore, we do not find any merit in the claim raised by the revenue that the aforementioned exception carved out in the CBDT Circular No. 3/2018 (supra) would also take within its sweep penalty imposed by the A.O. under Sec. 271(1)(c) of the Act in respect of an addition of bogus purchases on the basis of an information received from Sales Tax Authorities i.e. an external agency. Accordingly, not finding any merit in the present miscellaneous application filed by the revenue, we dismiss the same. Issues:1. Recall of order due to low tax effect.2. Exception under CBDT Circular No. 3/2018 for maintaining appeal.3. Interpretation of Para 10(e) of the CBDT Circular No. 3/2018.4. Distinction between quantum proceedings and penalty proceedings.Issue 1: Recall of order due to low tax effectThe applicant revenue sought to recall an order where their appeal was dismissed due to low tax effect. The revenue argued that despite the tax effect being below the specified limit, an exception under CBDT Circular No. 3/2018 made the appeal maintainable.Issue 2: Exception under CBDT Circular No. 3/2018 for maintaining appealThe assessing officer contended that the appeal involved a penalty under section 271(1)(c) of the Act related to bogus purchases based on information from Sales Tax Authorities. It was argued that the exception in Para 10 of CBDT Circular No. 3/2018 made the appeal maintainable, contrary to the dismissal based on low tax effect.Issue 3: Interpretation of Para 10(e) of the CBDT Circular No. 3/2018The Tribunal examined the exception in Para 10(e) of CBDT Circular No. 3/2018, which allowed contesting adverse judgments regardless of tax effect for cases based on information from external sources like law enforcement agencies. The Tribunal emphasized the independence of quantum and penalty proceedings, stating that the exception did not automatically apply to penalty proceedings unless explicitly mentioned.Issue 4: Distinction between quantum proceedings and penalty proceedingsThe Tribunal highlighted the distinction between quantum proceedings and penalty proceedings, asserting that the confirmation of an addition did not automatically justify imposing or upholding a penalty. It was clarified that the exception in the circular applied only to additions based on external sources, not penalties. Therefore, the Tribunal dismissed the revenue's application, stating that the exception did not encompass penalties imposed under section 271(1)(c) for additions based on information from Sales Tax Authorities.In conclusion, the Tribunal dismissed the revenue's miscellaneous application, emphasizing the need for explicit provisions regarding penalties in the circular and the distinction between quantum and penalty proceedings.