Tribunals
Summary and Review of Case Laws Decided by Income Tax Appellate Tribunals
Friday, 14 August 2015 13:17

Section 271(1)(c) - Penalty cannot be imposed merely because it is lawful to do so specially when full disclosure made. Disallowances cannot be sole basis and should be excercised judicially.

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Gist

1. Penalty u/s 271(1)(c) can not be levied when full disclosure has been made
2. penalty cannot ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation
3. Penalty cannot also be imposed merely because it is lawful to do so
4. Section 271(1)(c) is to be exercised judicially and on a consideration of all the relevant circumstances
5. Disallowance of the claim in the assessment proceedings could not be the sole basis for levying of penalty under Section 271(1)(c)

Facts

1. Assessee is a partnership firm having four partners
2. These four partners are shareholders of 85.79% shares in Preet Remedies P. Ltd.
3. Preet Remedies had advanced a loan of Rs. 13 lacs to the assessee
4. A.O. treated same as deemed income u/s 2(22)(e) and made addition of Rs. 13 lacs
5. Assessee went ot CIT(A) who confirmed the addition
6. Penalty proceedings initiated u/s 271(1)(c)
7. Assessee argued that there was no concealment of income
8. A.O. rejected the explanation and levied penalty u/s 271(1)(c)
9. Assessee filed appeal before the CIT(A) who deleted the penalty u/s 271(1)(c)
10. Revenue moved to the Tribunal
11. Tribunal confirmed the views of the CIT(A) and deleted/cancelled the penalty u/s 271(1)(c)

Adjudication

The Apex Court in Hindustan Steel vs. State of Orissa in 83 ITR 26 has held that : “An order imposing penalty for failure to carry out a statutory obligation is the result of a quasicriminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute.” Moreover, Hon’ble Supreme court in CIT Vs. Reliance Petroproducts Pvt. Ltd. (SLP(C) No. 27161 of 2008) has held that disallowance of the claim in the assessment proceedings could not be the sole basis for levying of penalty under Section 271(1)(c) of the Act. We therefore concur with the view of the CIT(A) and are satisfied that no penalty is exigible in the present case under section 271(1)(c) of the Act. The findings given shall have no bearing on quantum addition. In result we uphold the cancellation of penalty of Rs.4,61,465/ by the CIT(A). Accordingly the Department appeal is dismissed.

Cases referred to

ACIT vs V. Bhaumik Colour (P) ltd 313 ITR 146 (Mum)(SB)
CIT Vs. Ankitech P. Ltd. 340 ITR 14
CIT Vs. Hotel Hilltop, 313 ITR 116
Hindustan Steel vs. State of Orissa in 83 ITR 26

Additional Info

Read 16298 times Last modified on Saturday, 13 February 2016 16:33
Deepak Kumar

A Post Graduate and Chartered Accountant Deepak Sinha is a member of Taxpundit's core team. An analytical, result oriented professional with more than 10 years of combined experience in industry and consultancy.

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1 comment

  • Comment Link Super User Friday, 14 August 2015 14:31 posted by Super User

    Penalty simply cannot be levied just because there is an addition in the assessment order unless proved that the assessee has deliberately concealed and in defiance of law. The penalty provisions need to be excercised judicially as pointed out by Honb. Supreme Court.

    The tax officers have a tendency of imposing penalty on every single addition made in the assessment order. They should start realising that the penalty provisions are to be applied keeping in mind various judicial pronouncements which are binding in nature.

    The court has rightly pointed out that whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances.

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