2023 (5) TMI 632 - AT - Income Tax

Tribunal deletes penalties for 2010-11 and 2011-12 assessments

The Tribunal allowed the appeals, deleting the penalties imposed under section 271(1)(c) for the assessment years 2010-11 and 2011-12. The Tribunal found ... Penalty u/s. 271(1)(c) - addition on account of interest on the balance standing in the foreign bank account of the Assessee - AO was of the view that the interest income has to be assessed on accrual basis in the relevant assessment years, wherein, the interest income accrued, thus added the interest income on accrual basis in assessment year 1998-99 and assessment years 2004-05 to 2011-12. HELD THAT:- While deciding quantum appeals of the Assessee, contesting the addition of interest income on accrual basis, the Tribunal in assessment years 2006-07 to 2009-10 (2022 (8) TMI 950 - ITAT DEHRADUN] has deleted the additions made by the AO. In fact, Commissioner (Appeals) himself has deleted identical addition while deciding Assessee’s appeal for the assessment year 2009-10. As while deciding quantum appeals, the additions on account of interest income have been deleted, concluded that penalty imposed u/s. 271(1)(c) of the Act is unsustainable. Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under Section 271(1)(c) can be sustained where the additions leading to imposition of penalty relate to interest income from a foreign bank account that was subsequently disclosed and offered to tax in a later assessment year, and identical additions were deleted by the Tribunal in other assessment years. 2. Whether the appellate authority may decide penalty proceedings when quantum appeals (assessment of income) remain pending before the Commissioner (Appeals). 3. Whether findings and reliefs in earlier identical decisions of the Tribunal and the Commissioner (Appeals) are binding or determinative for the penalty appeals on identical facts. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustenance of penalty under Section 271(1)(c) when additions relate to interest on a foreign bank account disclosed and offered to tax in a later year Legal framework: Penalty under Section 271(1)(c) is attracted where the assessee is found to have concealed particulars of income or furnished inaccurate particulars. Search and seizure consequences under Section 132 and assessment proceedings under Section 153A are the statutory context for additions arising from undisclosed foreign bank accounts. The assessment of interest income may be on accrual basis in the year of accrual or on receipt/disclosure basis depending on facts and law applicable. Precedent Treatment: The Tribunal, in earlier orders concerning assessment years arising from the same foreign account, deleted identical additions made on account of interest income (assessment years 2006-07 to 2009-10 and others). The Commissioner (Appeals) himself had deleted the identical addition for an earlier year. Those deletions were followed by the Tribunal in subsequent penalty appeals. Interpretation and reasoning: The impugned penalties were founded upon additions made by the Assessing Officer treating interest as taxable on accrual in the relevant earlier years. It is an undisputed fact that the entire balance of the foreign account, including accumulated interest, was offered in the return for a later year (assessment year 2013-14). Given that identical additions for interest were deleted by the Tribunal on the merits in multiple assessment years and the Commissioner (Appeals) had accepted deletion in at least one year, the Tribunal concluded that the underlying additions are unsustainable. Where the foundational income-tax additions (which are the basis for alleging concealment or furnishing inaccurate particulars) are deleted, the groundwork for imposing penalty under Section 271(1)(c) collapses. The Tribunal therefore applied the principle that penalty cannot survive where the substantive tax addition is not sustainable on identical facts and law. Ratio vs. Obiter: Ratio - Penalty under Section 271(1)(c) is unsustainable and must be deleted where identical substantive additions (here, interest income from a foreign account) are deleted by the Tribunal/first appellate authority on the merits; the deletion of the substantive addition removes the basis for penalty. Obiter - Detailed commentary on the correct tax treatment of foreign interest (accrual vs. disclosure year) beyond what was necessary to conclude that the additions were already judicially rejected in identical cases. Conclusion: Penalty imposed under Section 271(1)(c) in the relevant assessment years must be deleted as they stand on identical footing with other years in which the Tribunal deleted the corresponding additions on merits. Issue 2 - Competence of the appellate authority to decide penalty while quantum appeals remained pending before Commissioner (Appeals) Legal framework: Appellate powers permit the disposal of appeals placed before the Commissioner (Appeals) and the Tribunal. Generally, penalty proceedings are contingent upon the establishment of concealment or furnishing inaccurate particulars in the assessment process. Precedent Treatment: The record shows that the Commissioner (Appeals) disposed of penalties while quantum disputes overlapped across multiple assessment years; the Tribunal has previously entertained and decided penalty appeals where the substantive additions were contested and, in some years, later deleted. Interpretation and reasoning: The assessees contended that penalty should not have been decided by the Commissioner (Appeals) while quantum appeals were pending. The Tribunal acknowledged the contention but proceeded to examine penalty appeals on their merits in light of the Tribunal's own prior decisions on identical additions. The Tribunal treated the pendency of quantum issues as immaterial where judicial pronouncements on identical facts had already set aside the substantive additions in other years. The decisive factor was whether the foundational addition survives; if it does not, penalty cannot be sustained irrespective of procedural sequencing. Ratio vs. Obiter: Obiter - The judgment does not lay down a binding rule that appellate authorities must defer penalty disposal until quantum is finally determined; rather, it proceeds on the practical premise that where identical additions have been judicially deleted, penalty appeals based on those additions are untenable. Ratio - Penalty determination depends on the sustainability of the underlying tax addition; procedural sequencing does not salvage a penalty where the substantive addition is invalidated on identical facts. Conclusion: The pendency of quantum proceedings before the Commissioner (Appeals) does not preclude deletion of penalty where prior identical decisions have nullified the substantive additions that formed the basis for penalty. Issue 3 - Effect of earlier identical Tribunal/first-appellate decisions on penalty appeals Legal framework: Principles of consistency and precedential value govern how identical factual and legal circumstances are treated in tax appellate adjudication. A Tribunal's prior decision on identical legal issues and facts is a strong precedent for subsequent identical appeals. Precedent Treatment: Multiple Tribunal orders and at least one Commissioner (Appeals) order had already deleted identical additions and corresponding penalties in other assessment years arising from the same foreign bank account. Interpretation and reasoning: The Tribunal treated those prior deletions as dispositive because the penalty was premised upon the same factual matrix (interest on the foreign bank account) and the same legal contention (taxability on accrual vs. disclosure). Where the Tribunal had already decided the quantum against the Assessing Officer and had deleted penalties in several years, the Tribunal found no distinguishing feature in the present years to justify sustaining penalty. The Tribunal followed its earlier decisions and applied them to the present appeals, emphasizing parity of reasoning and outcome where facts and legal questions are materially identical. Ratio vs. Obiter: Ratio - Earlier decisions deleting identical additions and penalties are binding in the sense that identical facts and legal issues should yield identical outcomes; the Tribunal therefore followed and applied those decisions. Obiter - Any incidental observations in the prior decisions not necessary to deletion of additions/penalties are not treated as binding precedent here. Conclusion: Penalties in the present assessment years are deleted in reliance on earlier Tribunal and first-appellate orders that deleted identical additions and penalties on the same factual/legal matrix; the present appeals stand on the same footing and warrant the same relief.