As assessment under section 158BC itself has been quashed, thus, the penalty levied in respect of the income assessed under said assessment order cannot survive. Accordingly, we set aside the order of the lower authorities and cancel the penalty levied under section 158BFA(2) of the Act.
FULL TEXT OF THE ITAT JUDGMENT
This appeal by the assessee is directed against order dated 05/03/2015 passed by the Ld. Commissioner of Income-tax (Appeals)-29, New Delhi, [in short ‘the Ld. CIT(A)’] for the block period from 01/04/1995 to 22/08/200 1 in relation to penalty imposed under section 158BFA of the Income-tax Act, 1961 (in short ‘the Act’), amounting to Rs.23,45,262/-. The grounds of appeal raised by the assessee are reproduced as under:
1. That the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in upholding the penalty imposed under section 158 BFA of the Income Tax Act amounting to Rs.23,45,262/- by holding that there was undisclosed income of Rs.38,32, 128/- which on the facts is highly unjust and uncalled for.
1.1 That the learned Commissioner of Income Tax (Appeals) has further failed to appreciate the fact that no satisfaction was recorded by the learned assessing officer during the course of assessment proceedings and as such, the penalty so initiated and imposed is without jurisdiction and is unsustainable in law.
1.2 That in doing so, the learned Commissioner of Income Tax (Appeals) has ignored the basic fact that penalty proceedings are separate, distinct and independent proceedings, thus, reliance placed by both the lower authorities solely on the order of assessment and appellate order of learned CIT (A) under quantum proceedings, is totally misconceived and misplaced in law and as such, the penalty order is liable to be quashed as such.
1.3 That the learned Commissioner of Income Tax (Appeals) further grossly erred in relying on incorrect provisions of the statute and the judgments which are wholly misplaced and are inapplicable to the facts of the case of the appellant company.
2. That the learned Commissioner of Income Tax (Appeals) has further failed to appreciate the basic fact that all the additions made under quantum proceedings amounting to Rs.38,32, 128/- were based on conjectures and surmises unsupported by any valid material and in any case said disallowance if at all is unwarranted and could not have been made in the hands of the assessee and is thus, contrary to material available on record, as was also explained to the learned CIT (A) during penalty proceedings, which submission of the assessee – appellant was arbitrarily brushed aside and as such the penalty imposed under section 158 BFA should be deleted.
3. That the learned Commissioner of Income Tax (Appeals) has further erred in law and on facts in sustaining the aforesaid penalty in the hands of assessee company, without giving any fair and proper opportunity of being heard to the appellant company, thereby, violating the principles of natural justice.
2. Briefly stated facts of the case are that consequent to search and seizure proceedings under section 132 of the Act on 22/08/200 1 at the premises of the assessee, assessment under section 158BC of the Act was completed on 31/07/2003 at undisclosed income of Rs.38,32, 128/- as against the return declaring nil undisclosed income. Penalty proceeding under section 158BFA(2) of the Act was also initiated. The assessee filed appeal before the Ld. CIT(A) against the quantum proceedings, which was dismissed. The further appeal filed by the assessee before the Tribunal was dismissed on account of non-prosecution by the assessee. In view of the facts, the Ld. Assessing Officer issued a show cause notice on 24/08/2007 to the assessee for levying penalty under section 158 BFA(2) of the Act. The assessee objected to the levy of the penalty on the ground of no proper satisfaction recorded, difference of opinion etc. The Assessing Officer rejected the submission of the assessee and levied penalty of Rs.23,45,262/-. On further appeal, the Ld. CIT(A) upheld the penalty levied. Aggrieved, the assessee is an appeal before the Tribunal, raising the grounds as reproduced above.
3. In the grounds of the appeal, the assessee is aggrieved with the levy of the penalty.
4. Before us, the learned counsel of the assessee submitted that in quantum proceedings, the ex parte order was recalled and the Tribunal in order dated 11.08.2017 in IT(SS)A No. 307/Del/2004 has held that in absence of search warrant against the assessee, it was beyond jurisdiction of the Assessing Officer to complete assessment under section 158BC of the Act and hence the assessment was held as void-ab-initio. He submitted that in view of no assessment, the penalty levied cannot survive.
5. The Ld. DR, on the other hand, could not controvert the factual position.
6. We have heard the rival submissions and perused the relevant material on record including the order of the Tribunal (supra). The Tribunal (supra) in para 4, has held as under:
“4. Thus, now the admitted fact of the present case is that search warrant against the assessee to initiate search proceedings was not issued, hence respectfully following the decision of Special Bench of the Tribunal in the case of Promain Ltd. Vs. DCIT (2005) 95 ITD 489 (Del.) (SB), we hold that in the absence of search warrant against the assessee, initiation of search was beyond jurisdiction of the Assessing Officer to complete the assessment under section 158BC of the Act. The assessment in question is accordingly held as void ab initio. Issue raised in ground Nos. 1, 1.1 to 1.5 of the appeal of the assessee, is thus decided in favour of the assessee. In result, these grounds are allowed. In view of this finding the remaining grounds of appeal have become infructuous as having been turned academic only.”
7. In view of the above finding of the Tribunal, we note that the assessment under section 158BC itself has been quashed, thus, the penalty levied in respect of the income assessed under said assessment order cannot survive. Accordingly, we set aside the order of the lower authorities and cancel the penalty levied under section 158BFA(2) of the Act. All the grounds of the appeal are accordingly allowed.
8. In the result, the appeal of the assessee is allowed.
Decision is pronounced in the open court on 4th July, 2018.