Facts of the Case

The assessee, Shri Ravindra Nath Patel, is engaged in the business of wholesale grain trading and rice manufacturing. For Assessment Year 2008-09, the assessment was completed under Section 143(3) of the Income Tax Act determining total income at ₹15,39,490 as against the returned income of ₹1,49,140. The Assessing Officer initiated penalty proceedings and imposed penalty under Section 271(1)(c) vide order dated 19.03.2015.

The assessee filed appeals against both the quantum assessment and the penalty order. The quantum appeal was earlier remanded by the ITAT Circuit Bench, Varanasi, vide order dated 17.07.2018 to the Commissioner of Income Tax (Appeals) for fresh adjudication. However, the CIT(A) proceeded to dismiss the penalty appeal and confirmed the levy of penalty.

Aggrieved by the confirmation of penalty, the assessee filed the present appeal before the Income Tax Appellate Tribunal. The appeal was delayed by 60 days, for which condonation was sought and granted.

 Issues Involved

  1. Whether penalty under Section 271(1)(c) can be sustained when the quantum appeal is pending adjudication.
  2. Whether the CIT(A) was justified in confirming the penalty without deciding the quantum appeal first.
  3. Whether confirmation of penalty without proper adjudication violates principles of natural justice.

 Petitioner’s (Assessee’s) Arguments

The assessee submitted that the quantum appeal had already been remanded by the ITAT and was still pending adjudication before the CIT(A). It was contended that penalty proceedings are dependent upon the outcome of the quantum proceedings and, therefore, confirmation of penalty prior to finalization of the quantum appeal was premature and unsustainable in law.

It was further submitted that the CIT(A) dismissed the penalty appeal ex-parte without deciding the matter on merits.

 Respondent’s (Revenue’s) Arguments

The learned Departmental Representative raised no objection to restoration of the penalty matter and agreed that the penalty issue may be reconsidered after disposal of the quantum appeal.

 Court Order / Findings

The ITAT observed that the quantum appeal arising from the same assessment was pending adjudication before the CIT(A) pursuant to the remand order dated 17.07.2018 passed by the ITAT. Since the existence and extent of penalty under Section 271(1)(c) depends upon the final outcome of the quantum proceedings, the Tribunal held that confirmation of penalty at this stage was not justified.

Accordingly, the ITAT set aside the order confirming penalty and restored the matter relating to penalty under Section 271(1)(c) to the file of the CIT(A), with a direction to pass a de novo order in accordance with law after deciding the quantum appeal and after providing reasonable opportunity of hearing to both parties.

The appeal was partly allowed for statistical purposes.

 Important Clarification / Legal Principle

Penalty proceedings under Section 271(1)(c) are consequential in nature and cannot be finalized independently when the corresponding quantum additions are pending adjudication. Confirmation of penalty before disposal of quantum appeal is premature and violates principles of natural justice.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770872310_RAVINDRANATHPATELMAHARAJGANJVS.INCOMETAXOFFICERGORKHPURGORKHPUR.pdf

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