Penalty under Section 271(1)(c) deleted by ITAT as assessment and penalty proceedings are independent.

Case Name:

Santosh Kumar Basak Vs. Income-tax Officer.(ITAT Kolkata)

Case Synopsis:

- The ITAT held that assessment and penalty proceedings are independent of each other. - The mere fact that an addition was made in the assessment order and not challenged by the assessee does not automatically lead to the imposition of penalty. - The AO must be satisfied that the assessee has concealed particulars of income to attract the provisions of Section 271(1)(c). **Issue:** Whether the penalty under Section 271(1)(c) of the Income Tax Act, 1961, was rightly imposed on the assessee for concealment of income. **Facts:** - The AO made additions to the assessee's income on account of undisclosed gross profit and bogus gifts during the assessment proceedings for the Assessment Year 2003-04. - The assessee did not challenge the quantum additions made by the AO. - Subsequently, the AO initiated penalty proceedings under Section 271(1)(c) and imposed a penalty, reasoning that the assessee had accepted the additions by not appealing against the assessment order. - The CIT(A) upheld the levy of penalty. **Arguments:** - The assessee argued that the mere non-challenge of the quantum additions does not automatically lead to the imposition of penalty under Section 271(1)(c). - The Revenue contended that the assessee had accepted the additions by not appealing against the assessment order, and therefore, the penalty was rightly imposed. **Key Legal Precedents:** - The ITAT relied on the Supreme Court's decision in **CIT vs. Anwar Ali (1970) 76 ITR 696 (SC)**, which held that while assessment proceedings may constitute good evidence in penalty proceedings, they are not conclusive. The statutory authority dealing with penalty proceedings must be satisfied that the assessee has concealed particulars of income to attract the provisions of Section 271(1)(c). **Judgement:** The ITAT allowed the assessee's appeal and deleted the penalty imposed under Section 271(1)(c). The ITAT held that the AO's entire premise for levying the penalty was that the assessee had not challenged the quantum additions. However, the assessment and penalty proceedings are independent of each other, and the imposition of penalty does not automatically follow if an addition has been made on the quantum side and not appealed. **FAQs:** **Q1: What is the significance of the ITAT's decision?** A1: The ITAT's decision reinforces the principle that assessment and penalty proceedings are independent of each other. The mere fact that an addition was made in the assessment order and not challenged by the assessee does not automatically lead to the imposition of penalty under Section 271(1)(c). **Q2: What is the legal requirement for imposing a penalty under Section 271(1)(c)?** A2: To impose a penalty under Section 271(1)(c), the AO must be satisfied that the assessee has concealed particulars of income. The assessment proceedings may constitute good evidence, but they are not conclusive for the purpose of penalty proceedings. **Q3: Can the Revenue challenge the ITAT's decision?** A3: Yes, the Revenue can challenge the ITAT's decision by filing an appeal before the High Court or the Supreme Court, subject to the applicable provisions and grounds for appeal.

This appeal by assessee is arising out of order of CIT(A), Siliguri vide Appeal No. 19/CIT(A)/Slg/2011-12 dated 17.01.2013. Assessment was framed by ITO, Ward- 2(3), Siliguri u/s. 254/143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2003-04 vide his order dated 22.12.2010. Penalty under dispute was also imposed by ITO, Ward-2(3), Siliguri u/s. 271(1)(c) of the Act vide his order dated 30.06.2011.

2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the levy of penalty by AO u/s. 271(1)(c) of the Act.

3. Briefly stated facts are that the original assessment was framed by the AO u/s. 143(3) on 31.01.2006, which was set aside by ITAT vide its order being ITA No. 1861/Kol/2008 dated 20.03.2009 and set aside both the issues i.e. addition of gross profit and of bogus gifts. The AO while giving appeal effect to the order of the ITAT passed u/s. 254 r.w.s. 143(3) of the Act and after rejecting books of accounts repeated the same addition as assessed in original assessment assessing the gross profit over and above what has been declared by the assessee at Rs.2,20,302/-. Similarly, the AO after examining all the donors numbering into six viz. Smt. Buli Basak, Shri Surja Kanta Basak, Smt. Rinki Basak, Sri Ratan Sarkar, Sri Nani Gopal Mondal and Sri Sona Bhadra has not believed the creditworthiness of these parties and added these gifts amounting to Rs. 4 lacs as undisclosed income being introduced in the guise of gifts u/s. 68 of the Act. This assessment was accepted by the assessee and no further appeal Santosh Kumar Basak AY 2003-04 was preferred. The AO in the meantime, started penalty proceedings u/s. 271(1)(c) of the Act and levied penalty by observing as under:

"On a perusal of the case laws cited by the assessee it appears that none of these case laws have any direct relatable reference to this case. Hence no cognizance of the same could be taken. Regarding the assessee's contention "there is no concealment of income in the hand of the donee and he has also not furnished any inaccurate particular of his income, making liable himself to be penalized u/s.271(1)(c)", it is stated that as the assessee has not preferred any further appeal against the order u/s.143(3) dt.22.12.2010, it can be well implied that the assessee has accepted the additions made in the said order u/s.143(3) and thereby has also accepted the penal proceedings initiated u/s. 271(1)(c). Therefore his above claim, being contradictory in itself, is rejected. Cognizance is also taken of the Hon'ble Supreme Court of India's decision in Kale Khan Hanif vs CIT (1963) 50 ITR 1 (SC) and Govidarajalu Mudaliar vs CIT (1958) 34 ITR 807 (SC) wherein the Apex Court has held that the onus of proving the genuineness of the gift is on the assessee himself. Hence it is ruled that mere identification of the donors does not exonerate the assessee from the fact that there is no concealment in the donee's hand.

In view of the above, I am of the opinion that this is fit case for imposition of penalty u/s. 271(1)(c) on account of the assessee having failed to discharge the onus of reconciling the undisclosed Gross Profit of Rs. 2,20,302/- and the Bogus Gifts of Rs.4,00,000/-. I therefore impose a penalty of Rs.l,86,090/- u/s. 271(l)(c) of the Income Tax Act,1961 which is 100 % of the tax sought to have avoided on the aggregate of the undisclosed gross profit and bogus gifts amounting to Rs.6,20,302/-." Aggrieved against levy of penalty by the AO, assessee preferred appeal before CIT(A), who also confirmed the action of AO on identical reasoning. Aggrieved, now assessee is in second appeal before us.

4. We have heard rival submissions and gone through facts and circumstances of the case. We find that in the present case before us the AO has simply levied the penalty because the assessee has not appealed against the quantum. Here the AO has taken the findings of the assessment order as conclusive for levy of penalty. In our opinion, he cannot do so because Hon'ble Supreme Court in the case of CIT Vs. Anwar Ali (1970) 76 ITR 696 (SC) has concluded that while assessment proceedings may constitute good evidence in penalty proceedings but they are not conclusive. It has been held that the statutory authority deal with the penalty proceedings must be satisfied that the assessee has concealed the particulars of income which attracts the provisions of section 271(1)© of the Act. It is settled position of law that the assessment and penalty proceedings are independent of each other and the imposition of the penalty does not automatically follow as a matter of course if an addition has been made on the quantum side and which has not been appealed. In the present case also the AO's entire premise for levy Santosh Kumar Basak AY 2003-04 of penalty is that the assessee has not challenged the quantum addition. Accordingly, we delete the penalty allow the appeal of assessee.

5. In the result, appeal of assessee is allowed.

6. Order is pronounced in the open court on 20.01.2016.

Sd/- Sd/-

(Waseem Ahmed) (Mahavir Singh)

Accountant Member Judicial Member