AO cannot just levy penalty merely on ground that additions were made during quantum proceedings: ITAT

Ranjit D. Rathod Vs. ITO

(Order pronounced in the Court on 8th June, 2022)

The assessee is an individual and engaged in the trading business of fish. The AO during the assessment proceedings found that the assessee had under reported sales amounting to Rs. 1,30,168, which was added to the total income of the assessee in the assessment framed under section 143(3) of the Act. The AO levied a penalty under Explanation 1 to section 271(1)(c) of the Act amounting to Rs.13,410.00 being hundred percent of the amount of tax sought to be evaded, on account of furnishing inaccurate particulars of income.

Appeal before CIT(A): Aggrieved assessee preferred an appeal to the learned CIT-(A) who confirmed the order of the AO.

Appeal before ITAT: Being aggrieved by the order of the learned CIT-A, the assessee filed appeal before the tribunal which held that it is the settled law that the penalty proceedings are distinct from the assessment proceedings. Therefore, the addition made during the assessment proceedings does not authorize the AO ipso facto to levy the penalty under section 271(1)(c) of the Act. The AO was under the obligation to carry out the necessary verification before reaching the conclusion that the assessee has furnished any inaccurate particular of income or concealed the particulars of income. In the instant case, the penalty was initiated on account of the addition made for underreporting of the sales. The AO without verifying the debtors during the penalty proceedings has levied the penalty merely on the ground that such income was added to the total income of the assessee during the quantum proceedings. The Hon’ble Gujarat High Court in the case of National Textiles Vs. CIT held that the penalty proceedings being distinct and separate from the assessment proceedings, the AO is under the obligation to carry out the fresh verification as held by. The tribunal held that the AO cannot just levy the penalty merely on the ground that the additions were made during the quantum proceedings. It was held that no penalty can be levied under section 271(1)(c) of the Act for the reasons stated above. Hence, the appeal of the assessee was allowed.

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