Facts of the Case

The assessee filed an appeal against the order of the CIT(A) confirming penalty imposed under Section 271(1)(c) for Assessment Year 2009-10. The penalty arose from additions made during assessment under Section 143(3), including disallowance under Section 40A(3), unexplained cash deposits in a bank account, and estimated household expenses.

Issues Involved

  1. Whether penalty under Section 271(1)(c) can be sustained when the quantum additions are not final.
  2. Whether the CIT(A) erred in deciding the appeal ex parte without adequate opportunity.
  3. Whether penalty proceedings should follow the outcome of quantum proceedings.

Petitioner’s (Assessee’s) Arguments

  • The Tribunal in quantum proceedings had already set aside the additions to the file of the CIT(A) for fresh adjudication.
  • Since the basis of penalty (additions) was no longer final, the penalty could not stand.
  • The matter should be remanded and decided in accordance with the outcome of the quantum appeal.

Respondent’s (Revenue’s) Arguments

  • The penalty was levied based on additions made in assessment.
  • The quantum appeal concerning those additions had already been set aside by the Tribunal for fresh adjudication.
  • When the underlying additions do not attain finality, penalty proceedings cannot be conclusively decided.

Important Clarification

  • Penalty under Section 271(1)(c) is dependent on the final determination of income in quantum proceedings.
  • If the additions forming the basis of penalty are set aside or remanded, penalty cannot survive independently.
  • Appellate authorities must decide appeals on merits and provide adequate opportunity of hearing.

Link to download the order - https://itat.gov.in/public/files/upload/1642659464-39ITA%20PDF.pdf

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