ITAT Mumbai deletes penalty under section 271(1)(c) after quantum addition removed by CIT(A) in assessment order

ITAT Mumbai allowed the assessee's appeal against penalty under section 271(1)(c). The tribunal found that since CIT(A) had deleted the quantum addition made by AO under section 147 read with section 144B in the assessment order, the penalty levied by AO and sustained by CIT(A) could not survive. ITAT set aside CIT(A)'s order and directed AO to delete the penalty, ruling in favor of the assessee.

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Issues:
1. Levy of penalty under section 271(1)(c) by the Assessing Officer.
2. Dismissal of the appeal by the CIT(A) against the penalty order.
3. Consideration of quantum addition appeal pending during penalty proceedings.

Analysis:

Issue 1: Levy of penalty under section 271(1)(c) by the Assessing Officer
The case involved an individual assessee who had not filed the income tax return for the assessment year 2013-14. The Assessing Officer (AO) initiated proceedings under section 147 and made additions to the income based on various transactions, including purchase of property, cash deposits, and salary payments. The AO assessed the total income and levied a penalty of Rs. 2,03,332 under section 271(1)(c) of the Income Tax Act.

Issue 2: Dismissal of the appeal by the CIT(A) against the penalty order
The assessee appealed against the penalty order before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) considered the grounds of appeal, submissions, and findings of the AO but upheld the penalty. The assessee contended that the AO had made additions based on incorrect facts and had not considered the genuine request to keep the penalty proceedings in abeyance. However, the CIT(A) confirmed the penalty, leading to the appeal before the Tribunal.

Issue 3: Consideration of quantum addition appeal pending during penalty proceedings
During the Tribunal hearing, the assessee's representative argued that the CIT(A) erred in confirming the penalty despite an appeal against the quantum addition being pending. The representative highlighted that the CIT(A) had deleted the addition made by the AO in the quantum appeal, rendering the penalty unsustainable. The Tribunal examined the appellate order deleting the addition and concluded that since the addition was deleted, the penalty levied by the AO was not justified. Consequently, the Tribunal set aside the CIT(A) order and directed the AO to delete the penalty, allowing the appeal in favor of the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, holding that the penalty under section 271(1)(c) was not sustainable due to the deletion of the quantum addition in the appellate order. The Tribunal directed the Assessing Officer to delete the penalty, overturning the decision of the CIT(A) and providing relief to the assessee.

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