Penalty under section 271(1)(c) fails where seized material shows on-money related to an earlier year, not the relevant assessment year.

Penalty under section 271(1)(c) was held unsustainable where the seized document relied on for the addition showed the alleged on-money was received in an earlier year, not in assessment year 2010-11. The Tribunal held that penalty proceedings are distinct from assessment proceedings, so the assessee could contest the year of taxability in penalty proceedings. As the seized material bore an earlier date and did not show payment in the relevant previous year, the basis for penalty in that assessment year failed and the penalty was deleted.

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Issues: Whether the penalty under section 271(1)(c) of the Income-tax Act, 1961 was sustainable for assessment year 2010-11 when the seized document forming the basis of the addition indicated receipt/payment of the on-money in an earlier year, and whether the assessee could contest the year of taxability in penalty proceedings.

Analysis: The Tribunal held that penalty proceedings are distinct from assessment proceedings, and therefore the assessee was not barred from disputing the correctness of the year in which the alleged on-money was taxable. On the seized material, the Tribunal found that the document itself bore an earlier date and disclosed receipt of the on-money by the vendor on or before that date, not during the relevant previous year for assessment year 2010-11. In the absence of seized material showing payment of the amount in the relevant year, the basis for levying penalty in that assessment year did not survive.

Conclusion: The penalty under section 271(1)(c) was not sustainable and was directed to be deleted, in favour of the assessee.

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