Case Law Details
Krupal Vikrambhai Patel Vs ITO (ITAT Ahmedabad)
ITAT Ahmedabad directs AO to re-examine penalty u/s 271(1)(c) against Krupal Patel after setting aside the original ex parte assessment order. Tax Tribunal Orders Fresh Look at Penalty Following Assessment Reversal; Ahmedabad ITAT Links Penalty Validity to Outcome of New Assessment Proceedings.
Ahmedabad: The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench, has set aside a penalty order issued under Section 271(1)(c) of the Income Tax Act, 1961, directing the Assessing Officer (AO) to re-examine the penalty issue after completing a fresh assessment. The tribunal’s decision came in the case of Krupal Vikrambhai Patel, where the original assessment had been completed ex parte and subsequently set aside by the ITAT itself in an earlier proceeding.
The case relates to the assessment year 2011-12. The initial assessment for this year was finalised by the AO on December 7, 2018, under the provisions of Section 144 read with Section 147 of the Income Tax Act. This was an ex parte assessment, meaning it was completed without the participation or compliance of the assessee, Mr. Krupal Vikrambhai Patel, following a reopening of the assessment under Section 147.
In the course of this ex parte assessment, the AO made a total addition of Rs. 35,65,526 to the assessee’s income. These additions were primarily attributed to unexplained investments and unexplained cash deposits identified by the tax authorities. Based on this enhanced income figure of Rs. 38,29,010 (which included the original declared income plus the additions), the AO initiated penalty proceedings against the assessee under Section 271(1)(c) of the Act. This section deals with penalties for concealment of income or furnishing inaccurate particulars of income.
Subsequently, the AO passed a penalty order on June 28, 2019, imposing a penalty of Rs. 10,22,126. This penalty amount was calculated at 100% of the tax sought to be evaded on the income that the AO deemed had been concealed or for which inaccurate particulars were furnished (the added amount).
Aggrieved by the imposition of this penalty, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], operating under the National Faceless Appeal Centre (NFAC) framework. The CIT(A) considered the assessee’s appeal against the penalty order. However, the CIT(A), in the impugned order dated June 26, 2024, confirmed the penalty that had been levied by the AO.
Dissatisfied with the decision of the CIT(A), the assessee, Mr. Krupal Vikrambhai Patel, filed a second appeal before the ITAT Ahmedabad. The primary ground of appeal before the tribunal challenged the CIT(A)’s action in confirming the penalty of Rs. 10,22,126, arguing that it was levied by the AO for the alleged charge of concealment of income and that the confirmation by the CIT(A) was erroneous in law and on facts.
During the hearing before the ITAT, the learned Authorized Representative (AR) appearing for the assessee brought to the tribunal’s attention a crucial development. The AR submitted that the assessee had also filed a separate appeal before the ITAT against the original ex parte assessment order itself. The Co-ordinate Bench of the ITAT had already decided this assessment appeal (ITA No. 1507/Ahd/2024) on November 13, 2024. In that order, the ITAT had set aside the assessment order and remanded the matter back to the file of the AO. The direction given by the tribunal in the assessment appeal was for the AO to provide another opportunity to the assessee and pass the assessment order de novo, meaning a fresh assessment from the beginning.
Based on this development, the assessee’s AR argued that since the original assessment order, which formed the very basis for initiating and imposing the penalty under Section 271(1)(c), had been set aside by the ITAT, the penalty order stemming from that assessment should also be cancelled. The argument was that a penalty for concealment or inaccurate particulars cannot stand if the underlying income addition is no longer valid or is subject to redetermination in a fresh assessment.
In response, the learned Senior Departmental Representative (DR) representing the Revenue acknowledged the fact that the assessment order had been set aside by the Co-ordinate Bench of the ITAT. The DR conceded that given this situation, the penalty order, which is consequential to the assessment order, also needed to be addressed. However, the DR’s submission was that the penalty order should not be cancelled outright but should also be set aside and restored to the file of the AO, similar to the fate of the assessment order.
The ITAT considered the rival submissions and the fact that the original assessment order had been set aside to the file of the AO for a de novo assessment. The tribunal agreed that the penalty proceedings were intrinsically linked to the assessment findings, particularly the additions made to the income. Since the assessment itself was to be redone, the basis for the penalty needed to be re-evaluated based on the outcome of the fresh assessment.
The tribunal, however, did not accept the assessee’s contention that the penalty order should be cancelled outright. The ITAT reasoned that the Co-ordinate Bench had not cancelled the assessment order but had merely set it aside with a direction for a fresh assessment. By setting aside the matter to the AO, the assessment proceedings were kept in abeyance, requiring a re-framing of the assessment after giving the assessee an opportunity. In such a scenario, the penalty proceedings, being dependent on the final outcome of the assessment, should also follow a similar course.
Therefore, the ITAT deemed it appropriate to set aside the penalty matter as well to the file of the AO. The tribunal directed the AO to re-visit the issue of penalty under Section 271(1)(c) after the completion of the de novo assessment proceedings. This implies that the AO will first finalise the fresh assessment based on the ITAT’s earlier directions, considering the assessee’s submissions and evidence. Only after the revised income and additions, if any, are determined in the fresh assessment can the AO then consider whether a penalty under Section 271(1)(c) is warranted based on the findings of the new assessment order.
The ITAT’s decision aligns with the principle that a penalty for concealment or furnishing inaccurate particulars is generally consequential to the finding of concealed income or inaccurate particulars in the assessment order. If the assessment order itself is set aside or modified, the basis for the penalty is affected, requiring a fresh examination of the penalty issue in light of the revised assessment findings. This principle has been upheld in numerous judicial pronouncements, emphasizing that the validity of a penalty under Section 271(1)(c) is directly linked to the finality and correctness of the assessment on which it is based.
As a result, the appeal filed by the assessee was allowed by the ITAT for “statistical purposes.” This term is used when the tribunal remands the case to a lower authority for re-adjudication rather than deciding the substantive issue itself. The final outcome regarding the penalty will now depend on the findings of the fresh assessment and the subsequent penalty proceedings to be conducted by the AO as directed by the ITAT.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi, (in short ‘the CIT(A)’), dated 26.06.2024 for the Assessment Year 2011-12 in the matter of penalty under Section 271(1)(c) of the Income Tax Act, 1961 (in short ‘the Act’).
2. The brief facts of the case are that in the course of assessment proceeding, no compliance was made by the assessee and the assessment order was passed ex parte u/s.144 r.w.s. 147 of the Act on 07.12.2018 at total income of Rs.38,29,010/-. In the course of assessment, an addition of Rs.35,65,526/- was made in respect of unexplained investment as well as unexplained cash deposits. The AO had also initiated penalty proceeding u/s.271(1)(c) of the Act in respect of this addition. Subsequently, penalty order u/s. 271(1)(c) of the Act was passed on 28.06.2019 imposing a penalty of Rs.10,22,126/- @ 100% of tax sought to be evaded.
3. Aggrieved with the penalty order, the assessee had filed an appeal before the Ld. CIT(A), which was decided vide the impugned order and the penalty imposed by the AO was confirmed.
4. The assessee is in second appeal before us. The only ground taken by the assessee in this appeal is as under:
“1. The Ld. CIT-(A), NFAC, erred in law and on facts in confirming the penalty of Rs.10,22,126/- levied by the AO u/s 271(1)(c) of the Act for the alleged charge of concealment of income.”
5. Shri M. K. Patel, the Ld. AR appearing for the assessee submitted that the assessee had also filed an appeal against the assessment order, which was decided by the Co-ordinate Bench of this Tribunal in ITA No.1507/Ahd/2024 dated 13.11.2024 and the matter was set aside to the AO with a direction to allow another opportunity to the assessee and pass the assessment order de novo. The Ld. AR submitted that since the original assessment order is no longer in existence, the penalty imposed by the AO u/s. 271(1)(c) of the Act needs to be cancelled.
6. Per contra, Shri S K Agal, Ld. Sr. DR submitted that since the original assessment order was set aside to the file of the AO, the penalty order also needs to be set aside to the file of the AO.
7. We have considered the rival submissions. Since, the assessment order passed in this case has been set aside to the file of the AO with a direction to allow another opportunity to the assessee, we deem it proper to set aside the penalty proceeding as well, to the file of the AO. The contention of the assessee that the penalty order needs to be cancelled cannot be accepted considering the fact that the assessment order passed by the AO was not cancelled by the Coordinate Bench of this Tribunal. By setting aside the matter to the AO, the assessment proceeding has been kept in abeyance with a direction to reframe the assessment. Under the circumstances, we deem it proper to set aside the penalty matter also to the file of the AO with a direction re-visit the issue after completion of de novo assessment.
8. In the result, the appeal filed by the assessee is allowed for statistical purposes.
This Order pronounced on 23/01/2025
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