2023 (7) TMI 1210 - AT - Income Tax

Tribunal upholds deletion of penalty under IT Act for undisclosed foreign bank accounts

Dy. Commissioner of Income Tax Central Circle–1 (2), Mumbai Versus Shri Milan Kavinchandra Parikh

The Tribunal upheld the deletion of penalty under section 271(1)(c) of the Income Tax Act for the assessment year 1997-98. The case involved undisclosed ... Penalty u/s 271(1)(c) - Reopening of assessment initiated u/s 147 - Information u/A 28 of the India-France DTAA was received regarding the four undisclosed foreign bank accounts held with HSBC Bank, Geneva, Switzerland - HELD THAT:- Appeal by the Revenue against the order passed by the learned CIT(A) in quantum appeal, the coordinate bench of the Tribunal 2023 (3) TMI 1105 - ITAT MUMBAI] allowed the petition filed by the assessee under Rule 27 of ITAT Rules and held that the AO had no jurisdiction to make the addition under section 147 of the Act. Accordingly, the appeal filed by the Revenue in quantum proceedings was rendered academic and therefore, was dismissed. Since the addition made by the AO while completing the assessment under section 147 of the Act was held to be beyond the jurisdiction by the coordinate bench of the Tribunal vide aforesaid order, we find no basis in the penalty levied under section 271(1)(c) of the Act based on the very same addition. Grounds raised by the Revenue are dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271(1)(c) can be sustained when the impugned income addition, on which the penalty is founded, is subsequently held to be beyond the Assessing Officer's jurisdiction under section 147. 2. Whether deletion of penalty by the appellate authority is vitiated by the assessee's alleged failure to furnish explanations or waive secrecy in respect of foreign bank accounts, when the quantum addition on the same facts is held to be without jurisdiction. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainment of penalty under section 271(1)(c) where underlying addition is held beyond jurisdiction Legal framework: Section 271(1)(c) penalises failure to furnish information or concealment of income resulting in escapement of income; the validity of penalty is linked to the legitimacy of the assessing action/addition which establishes escapement. Precedent Treatment: The Tribunal relied on a coordinate-bench decision holding that the Assessing Officer had no jurisdiction to make the addition under section 147; that decision was applied to the present proceedings. Interpretation and reasoning: The Court observed that the penalty was levied solely on the basis of the addition made by the Assessing Officer under section 143(3) read with section 147. When a coordinate-bench of the Tribunal subsequently held that the AO lacked jurisdiction to make that addition, the foundational basis for concluding escapement of income ceased to exist. The Court reasoned that a penalty grounded on an addition which has been held to be beyond jurisdiction cannot be sustained, because the statutory premise for imposing the penalty - existence of escaped income attributable to concealment or failure to disclose - is removed. Ratio vs. Obiter: Ratio - Penalty under section 271(1)(c) is not sustainable where the addition forming its basis is held to be beyond the AO's jurisdiction; such a jurisdictional nullification of the addition defeats the statutory predicate for penalty. (This is the dispositive holding.) Conclusion: The penalty levied under section 271(1)(c) was unsustainable and was correctly deleted by the appellate authority; the Revenue's challenge in this respect fails. Issue 2: Relevance of assessee's alleged non-cooperation (failure to disclose/explain or to furnish waiver) when underlying addition is jurisdictionally invalid Legal framework: Imposition of penalty under section 271(1)(c) presupposes concealment or failure to furnish material particulars; departmental proof of concealment or falsity of explanation is ordinarily relevant to sustain penalty. Precedent Treatment: The Court noted that the CIT(A) deleted the addition in quantum appeal (and followed a coordinate bench decision in other assessment years); subsequently a coordinate bench found the addition to be beyond the AO's jurisdiction, rendering the quantum appeal academic. The decision of the Tribunal on jurisdiction was treated as determinative for penalty proceedings. Interpretation and reasoning: The Tribunal accepted that even if there were allegations of inadequate explanation or refusal to furnish waiver forms, those circumstances cannot supply a valid statutory basis for penalty once the primary act of assessment (addition under section 147) is set aside for want of jurisdiction. The Court reasoned that the penalty hinges on a valid assessment/addition establishing escapement; non-cooperation cannot cure or substitute for the absence of jurisdiction to assess and thus cannot sustain a penalty predicated on that invalid assessment. Ratio vs. Obiter: Ratio - Alleged non-disclosure or failure to provide waiver does not sustain a penalty once the foundational addition is held beyond jurisdiction; such factual contentions are immaterial where the jurisdictional basis for addition is lacking. (This forms part of the operative holding.) Conclusion: The Revenue's contention that penalty should survive due to the assessee's failure to discharge onus was rejected because the addition underpinning the penalty was beyond jurisdiction; the appellate deletion of penalty was proper. Cross-reference The dispositional answer to Issue 1 controls Issue 2: the Tribunal's determination that the addition was without jurisdiction renders collateral arguments about explanation/waiver irrelevant to sustaining penalty under section 271(1)(c). Result Since the addition on which the penalty was based has been held to be beyond the Assessing Officer's jurisdiction, the penalty under section 271(1)(c) is not sustainable and the deletion of the penalty by the appellate authority is upheld; Revenue's grounds are dismissed.