Penalty cannot be levied merely for addition during Quantum Proceedings

Ranjit D. Rathod Vs ITO (ITAT Rajkot)

Introduction: The case of Ranjit D. Rathod Vs ITO (ITAT Rajkot) revolves around the distinct nature of penalty proceedings and assessment proceedings. It highlights the importance of proper verification before levying penalties under section 271(1)(c) of the Income Tax Act.

Detailed Analysis: The penalty was initiated due to the addition made during the assessment proceedings for underreporting of sales. However, it is emphasized that penalty proceedings are separate from assessments. The Assessing Officer (AO) cannot solely rely on additions made during quantum proceedings without carrying out fresh verifications.

The AO, in this case, did not verify debtors during penalty proceedings, leading to an erroneous penalty based solely on quantum additions. The article references the Hon’ble Gujarat High Court’s decision in National Textiles Vs. CIT, emphasizing the obligation to conduct fresh verifications in penalty proceedings.

The Income Tax Appellate Tribunal (ITAT) provided substantial relief to the assessee, reducing the quantum addition to a specific amount based on an ad hoc basis. The ITAT found discrepancies in the AO’s approach, noting different stands taken for different parties. This underscores the ad hoc nature of the addition, making it ineligible for penalty imposition.

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