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2011 (8) TMI 1341 - AT - Income TaxPenalty u/s 271(1)(c) - Excess stock of gold ornaments and silver ornaments was found in business premises of Assessee - AO imposed penalty u/s 271(1)(c) on the amount comprising disallowance of remuneration to partners on account of treatment of the amount disclosed on account of excess stock u/s 69B of the Act and the amount added u/s 68. HELD THAT:- In the assessee's own case, CHOKSHI HIRALAL MAGANLAL VERSUS DY. CIT [2011 (1) TMI 125 - ITAT, AHMEDABAD], tribunal have accepted the claim of the assessee that excess stock has to be treated as business income, entitled to deduction of a higher amount of remuneration to partners in terms of provisions of section 40(b) of the Act. As regards the amount added u/s 68, the matter has been restored to the file of the AO for fresh decision in accordance with law. Hon'ble Supreme Court in the case of, KC BUILDERS AND ANOTHER VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX [2004 (1) TMI 7 - SUPREME COURT], held that ordinarily, penalty cannot stand if the assessment itself is set aside. Where an order of assessment or reassessment on the basis of which penalty has been levied on the assessee, has itself been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot stand by itself and the same is liable to be cancelled. Hon'ble Delhi HC, in the case of R DALMIA AND OTHERS (A. OP) VERSUS COMMISSIONER OF INCOME-TAX [1991 (10) TMI 35 - DELHI HIGH COURT], held that no penalty survives after deletion of additions, forming the basis for the levy of penalty. Since the very basis upon which the penalty has been imposed on the amount relating to excess stock added u/s 69B and consequently, denial of deduction on account of remuneration to partners in terms of provisions of section 40(b) of the Act, does not exist in view of the aforesaid order, we are of the opinion that penalty levied in relation to the said amount has to be cancelled. As regards penalty levied in relation to amount added u/s 68, since matter is restored to the file of the AO, penalty does not survive at this stage. However, the AO is free to initiate the penalty proceedings in accordance with law while completing the assessment in pursuance to the aforesaid directions of the ITAT in quantum appeal - Matter restored back.
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