2025 (3) TMI 464 - AT - Income Tax

Appeal Successful: Penalty Under Section 271(1)(c) Overturned Due to Inconsistent Basis for Imposition.

The Court allowed the Assessee's appeal against the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961. It held that the penalty was ... Penalty u/s 271(1)(c) - addition on account of unaccounted investments on account of unexplained cash credits on account of unaccounted income - HELD THAT:- AO levied penalty holding that ‘the assessee has committed default u/s 271(1)(c) of the Act by way of furnishing inaccurate particulars of income and committed default within the meaning of Section 271(1)(c) of the Income-tax Act, 1961’. On this issue, we straight away find that the AO vide penalty order u/s 271(1)(c) imposed penalty on additions made alleging ‘furnishing of inaccurate particulars of income’. Apparently, the basis and foundation for imposition of penalty has been altered by the AO. It is thus ostensible that findings recorded by the Assessing Officer show that penalty has been levied on a different premise and the original satisfaction for imposition of penalty has been altered or modified. Where the original basis of imposition of penalty has been altered in a significant way by the Assessing Officer, the very basis for sustaining the penalty is rendered non-existent. Needless to say, the imposition of penalty is solely dependent upon the ‘satisfaction’ of the Assessing Officer and non-else. The ground for action by Assessing Officer was allegation of ‘concealment’ initially but finally ended up in levy of penalty for ‘furnishing inaccurate particulars of income’. Thus, in the absence of continuity in the findings of the Assessing Officer, the order of the penalty passed by the Assessing Officer is liable to be struct down on this ground alone Reliance is being placed to the decision of New Sorathia Engineering Company [2006 (1) TMI 71 - GUJARAT HIGH COURT] and Manu Engineering Works[1978 (9) TMI 18 - GUJARAT HIGH COURT]. Similar view has been taken in Gian Chand Batia [1996 (11) TMI 97 - ITAT ALLAHABAD-B]. Therefore, where Assessing Authority itself is not sure about nature of default, the penal action u/s 271(1)(c) of the Act is not sustainable in law. Appeal of the assessee is allowed. The appeal in this case was filed by the Assessee against the order passed by the Ld. Commissioner of Income-tax (Appeals)-11, Ahmedabad, confirming the initiation of penalty proceedings under Section 271(1)(c) of the Income-tax Act, 1961 for Assessment Year 2006-07. The key issues presented and considered in the judgment are as follows:1. Whether the penalty proceedings initiated for 'concealment of particulars of income' can be upheld when the penalty was ultimately levied for 'furnishing inaccurate particulars of income' by the Assessing Officer.2. Whether the change in the basis for imposing the penalty by the Assessing Officer renders the penalty unsustainable in law.The detailed analysis of the issues is as follows:The Assessing Officer made an addition of Rs. 70,07,500 on the basis of alleged unaccounted money not recorded in the books, which was reduced to Rs. 35,67,018 by the Ld. Commissioner of Income-tax (Appeals). Subsequently, the Assessing Officer levied a penalty under Section 271(1)(c) of the Act on the reduced addition. The Assessee contended that the penalty was initiated for 'concealment of particulars of income' but was ultimately levied for 'furnishing inaccurate particulars of income'. The Assessee relied on precedents to argue that such a change in the basis for penalty imposition renders the penalty unsustainable.The Court analyzed the assessment order, penalty order, and the order of the Ld. Commissioner of Income-tax (Appeals). It noted that the Assessing Officer initially initiated penalty proceedings for 'concealment of particulars of income' but ultimately levied the penalty for 'furnishing inaccurate particulars of income'. The Court found that the basis for the penalty imposition had been altered significantly by the Assessing Officer. Citing relevant case law, the Court held that when the original basis for penalty imposition is altered in a significant way, the penalty becomes unsustainable. The Court emphasized that the imposition of penalty is solely dependent on the satisfaction of the Assessing Officer, and in this case, the original basis for penalty imposition had been modified.The Court referred to the decision of the Hon'ble Gujarat High Court and other Tribunal decisions to support its conclusion that when the Assessing Authority is unsure about the nature of the default, the penalty under Section 271(1)(c) of the Act is not sustainable in law. Therefore, the Court allowed the appeal of the Assessee, holding that the penalty imposed by the Assessing Officer was not sustainable due to the change in the basis for penalty imposition.In conclusion, the Court held that the penalty imposed under Section 271(1)(c) of the Income-tax Act was liable to be deleted due to the significant alteration in the basis for penalty imposition by the Assessing Officer. The Court's decision was based on the principle that the penalty must be imposed based on the original satisfaction of the Assessing Officer, and any significant change in this basis renders the penalty unsustainable in law.