Facts of the Case

The assessee, engaged in the business of liquor trading, was subjected to assessment proceedings wherein certain additions were made to the declared income by the Assessing Officer.

Consequently, penalty proceedings under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars were initiated and penalty was imposed.

Subsequently, in appellate proceedings relating to the quantum assessment, the additions forming the basis of the penalty were deleted or substantially reduced.

Issues Involved

Whether penalty under Section 271(1)(c) can be sustained when the quantum additions on which the penalty is based have been deleted.

Petitioner’s (Assessee’s) Arguments

  • The penalty was entirely based on additions that no longer survived after appellate relief.
  • Once the foundation of the penalty is removed, the penalty itself becomes unsustainable.
  • There was neither concealment of income nor furnishing of inaccurate particulars.
  • Penalty provisions should not be invoked merely because an addition was originally made.

Respondent’s (Revenue’s) Arguments

  • The assessee had failed to disclose correct income during assessment.
  • Penalty proceedings are separate from assessment proceedings.
  • The Assessing Officer was justified in imposing penalty based on findings during assessment.

Court Order / Findings (ITAT Decision)

  • Penalty under Section 271(1)(c) is dependent upon the existence of sustainable additions in the assessment order.
  • When the quantum addition forming the basis of penalty has been deleted, the penalty cannot survive.
  • There remained no material to establish concealment or furnishing of inaccurate particulars.

Important Clarification

  • Penalty proceedings, though separate, cannot stand independently where the underlying addition has been nullified.
  • Penalty is not automatic and requires clear evidence of concealment or inaccurate particulars.
  • Relief in quantum proceedings directly impacts the validity of penalty orders.

Link to download the order - https://itat.gov.in/public/files/upload/1611219274-378%20MS%20Sharda%20Wines.pdf

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