2023 (9) TMI 508 - AT - Income Tax

Tax Tribunal Overturns Penalties & Additions, Emphasizes Protective Additions Unjustified

Pinky Manishkumar Jariwala Versus The ITO, Ward – 2 (2) (3), Surat

The Tribunal allowed all three appeals filed by the assessee, leading to the deletion of penalties and additions imposed under Sections 271(1)(c) and ... Assessment completed u/s. 144 - protective addition on account of fictitious sale - bogus transactions and inflation of purchases by the main group - HELD THAT:- As substantive addition in the hands of M/s Fortune Creation Pvt. Ltd[main group] has already been made by the assessing officer, which was confirmed by ld CIT(A) also. Since the substantive addition has been sustained hence there is no loss to the Revenue. As main group has accepted the impugned transaction as their income, therefore, protective addition in the hands of the assessee needs to be deleted. Based on this factual position, delete the protective addition in the hands of the assessee. Penalty u/s 271(1)(c) imposed on the fictitious sale - HELD THAT:- As AO deleted the entire addition made by the Assessing Officer, therefore the penalty imposed by the Assessing Officer, on the quantum addition needs to be deleted. Also Penalty under section 271(1)(c) of the Act, should not be imposed on protective addition. See case of Bhailal Manilal Patel [2014 (10) TMI 621 - GUJARAT HIGH COURT]. Penalty u/s 271(1)(b) - Once the foundation fails, the superstructure also fails i.e. the addition also is to be deleted. In this regard, I rely on the legal maxim “Sublato fundamento cadit opus” (meaning thereby that foundation being removed, structure /work falls). Hence the initial action of the Revenue itself is not in consonance with law, then all the subsequent and consequential proceedings would fall through for the reason that illegality strikes at the root of the order. Therefore delete the penalty imposed by the Assessing Officer under section 271(1)(b) - Assessee appeal allowed. Issues Involved:1. Re-opening of assessment under Section 147 and issuance of notice under Section 148 of the Income Tax Act.2. Addition of Rs. 38,12,933/- on account of alleged bogus sales on a protective basis.3. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act.4. Levying of penalty under Section 271(1)(b) of the Income Tax Act.Summary:Issue 1: Re-opening of Assessment under Section 147 and Issuance of Notice under Section 148Ground no.1 raised by the assessee regarding the re-opening of the assessment under Section 147 and the issuance of notice under Section 148 was not argued by the counsel for the assessee and was therefore dismissed as not argued/pressed.Issue 2: Addition of Rs. 38,12,933/- on Account of Alleged Bogus Sales on a Protective BasisThe assessee did not file a return of income for AY 2009-10. Information received from the ITO indicated that the assessee had made bogus transactions. The assessing officer concluded that the assessee made fictitious sales amounting to Rs. 38,12,933/- to Fortune Creations Pvt. Ltd. and added this amount on a protective basis. The CIT(A) upheld this addition, noting the transactions were bogus and involved close family members. However, the Tribunal found that a substantive addition had already been made in the hands of Fortune Creations Pvt. Ltd., confirmed by the CIT(A). Thus, the protective addition in the hands of the assessee was deleted.Issue 3: Initiation of Penalty Proceedings under Section 271(1)(c)The penalty under Section 271(1)(c) was imposed on the fictitious sale. The Tribunal, having deleted the quantum addition in ITA No.280/SRT/2022, also deleted the penalty. The Tribunal relied on the Gujarat High Court judgment in Bhailal Manilal Patel vs. CIT, which held that there cannot be a protective penalty. Consequently, the penalty of Rs. 12,50,901/- was deleted.Issue 4: Levying of Penalty under Section 271(1)(b)The penalty of Rs. 10,000/- under Section 271(1)(b) was imposed due to the assessee's failure to respond to notices. The Tribunal noted that since the quantum addition and the penalty under Section 271(1)(c) were deleted, the penalty under Section 271(1)(b) also lacked a basis and was deleted. The Tribunal reasoned that the initial action of the Revenue was not in consonance with the law, leading to the failure of all subsequent proceedings.Conclusion:All three appeals filed by the assessee were allowed, and the respective penalties and additions were deleted. The order was pronounced on 28/08/2023 in the open court.