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Smartspace Infrastructure Pvt. Ltd. vs ITO, New Delhi - (Income Tax Appellate Tribunal) (02 Aug 2021)

Quantification of penalty is dependent upon the additions made to the income of the assessee


Direct Taxation

Assessee is a company stated to be engaged in the business of carrying on infrastructure activities. Assessee filed its return of income for Assessment Year (A.Y. 2011-12) declaring loss of Rs.69,547. The case was selected for scrutiny and thereafter assessment was framed under Section 143(3) of the Act vide order and the total income was determined at Rs.56,05,450 by making addition of Rs.56,75,000 under Section 68 of the Income Tax Act, 1961 (IT Act) being unexplained cash credit. On the aforesaid addition, AO vide order passed under Section 271(1)(c) of the IT Act levied penalty of Rs.17,53,575. Aggrieved by the order of AO, assessee carried the matter before the CIT(A) who vide order dismissed the appeal of the assessee. Aggrieved by the order of CIT(A), assessee is now in appeal.

The issue in the present ground is with respect to levy of penalty under Section 271(1)(c) of the IT Act on the additions made under Section 68 of the IT Act by the AO. The Co- ordinate Bench of Tribunal vide order has remanded the matter pertaining to the addition made under Section 68 of the IT Act to the file of AO for fresh adjudication as per the directions contained therein. Thus, the addition is yet to be finalized. Sub Clause (iii) of Section 271(1)(c) of IT Act provides mechanism for quantification of penalty. It contemplates that, assessee would be directed to pay a sum in addition to taxes, if any, payable by him, which shall not exceed three times the amount sought to be evaded by reason of concealment of income or furnishing of inaccurate particulars of income.

Quantification of penalty is dependent upon the additions made to the income of the assessee. Thus, until the issue regarding the determination of income is finalized, penalty under Section 271(1)(c) of the IT Act cannot be imposed upon the assessee. In the present case, the addition to the income is yet to attain finality. There cannot be any question of levying of the penalty under Section 271(1)(c) of the IT Act. In such circumstances, the impugned penalty does not survive. The penalty levied by AO is set aside. Appeal of the assessee is allowed.


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