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2025 (7) TMI 512 - AT - Income TaxPenalty u/s. 271(1)(c) - Assessment of trust - assessee is a society registered under the Karnataka Societies Registration Act 1960 which is mainly engaged in undertaking civil contract work and projects of the Karnataka Government implemented through various departments - AO was of the view that assessee is carrying on activity of construction work accordingly the same was treated as business and trading income - HELD THAT - Lower authorities have wrongly held that when the addition is confirmed penalty is also automatic and required to be confirmed. We find that there is a specific distinction between the assessment proceedings and penalty proceedings. There is no provision in the Income-tax Act which provides that if the quantum addition is confirmed in the hands of the assessee the penalty u/s 271(1) (c) is leviable automatically. If the conduct of the ld. Lower authorities is found to be correct then we do not find any reason that there should be a separate penalty proceedings required in the Act other than the assessment proceedings. Penalty is discretionary which would always be the discretion of the adjudicating authority to satisfy himself that whether the assessee has committed a particular default or not. Honourable Supreme court in Dilip N Shroff 2007 (5) TMI 198 - SUPREME COURT and T Ashok Pai 2007 (5) TMI 199 - SUPREME COURT has approved that a finding in assessment proceedings cannot be automatically adopted for penalty proceedings. Since burden of proof varies in assessment proceedings and penalty proceedings therefore the authorities must look at penalty proceedings from a different angle. No doubt the findings in assessment proceedings is a good evidence but may not be sufficient to fasten the assessee with penalty. In the present case we do not find any such finding with reasons that assessee has concealed the particulars of income is recorded in penalty orders. In the absence of such finding we do not find any reason to uphold the order of the ld. AO. CIT(A) who has to apply his own mind that whether the assessee has concealed particulars of income or not and then to decide the appeal of the assessee. The ld. CIT(A) in this case has given the only reason that the order of confirmation of penalty is merely consequential as quantum appeal of the assessee on merits is already dismissed. This appellate order cannot also be sustained. Thus the orders of the ld. lower authorities are reversed and penalty levied u/s. 271(1)(c) of the Act for all these years are directed to be deleted and all the 5 appeals of the assessee are allowed. Penalty u/s 271B - assessee not getting the accounts audited in terms of provisions of section 44AB - assessee was held to be carrying on business activity and turnover of the assessee from business was determined as per assessment order at Rs. 7.5 crores but reply of the assessee to SCN is not considerable and the penalty is imposed - HELD THAT - Both the authorities have rejected the explanation of the assessee first and thereafter levied penalty u/s. 271B of the Act as a consequential penal provision when the quantum additions are confirmed. We do not subscribe to this view. Had it been so the penalty would have proceeded to be levied in the assessment order itself. Both the proceedings are separate and independent of each other. Assessee has also shown the reasonable cause that it is registered u/s. 12A of the Act and benefit of section 11 12 were denied to it and the income of the trust is assessed as business income. Therefore we find that the orders of the ld. lower authorities are not sustainable and even otherwise there is reasonable cause for not getting the accounts audited u/s. 44AB and therefore penalty u/s. 271B deserves to be deleted. AO is directed to delete the same. Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
- Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 can be levied automatically merely because the quantum addition in assessment proceedings is confirmed by the appellate authorities. - Whether the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] correctly applied the legal principles in confirming penalty under section 271(1)(c) for concealment of income when no specific finding of concealment was recorded. - Whether penalty under section 271B of the Act for failure to get accounts audited under section 44AB can be levied automatically when the income is assessed as business income, turnover exceeds prescribed limits, and the assessee claims exemption under sections 11 & 12 but fails to obtain audit report. - Whether the assessee's explanation of reasonable cause for non-compliance with section 44AB, based on its registration under section 12A and denial of exemption under sections 11 & 12, was rightly rejected by the AO and CIT(A) in penalty proceedings under section 271B. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Automatic levy of penalty under section 271(1)(c) upon confirmation of quantum addition Relevant legal framework and precedents: Section 271(1)(c) penalizes concealment of income or furnishing inaccurate particulars thereof. The Supreme Court decisions in Dilip N Shroff v. CIT and T. Ashok Pai v. CIT have established that findings in assessment proceedings cannot be automatically adopted for penalty proceedings, as the burden of proof and standard of satisfaction differ. Penalty proceedings require independent satisfaction of concealment or furnishing inaccurate particulars. Court's interpretation and reasoning: The Tribunal observed that the AO and CIT(A) confirmed penalty solely on the basis that the quantum additions in assessment proceedings were upheld. No independent or specific finding was recorded by the AO or CIT(A) regarding concealment of income or furnishing inaccurate particulars. The penalty orders merely relied on the confirmation of additions without addressing the assessee's submissions or explaining how concealment was established. Key evidence and findings: The assessee is a charitable trust registered under section 12A, engaged in civil contract works. The income was assessed as business income by denying exemption under sections 11 & 12. The penalty order did not specify how the income was concealed or particulars were inaccurate. The CIT(A) confirmed penalty on a consequential basis, referencing dismissal of quantum appeals. Application of law to facts: The Tribunal emphasized the distinction between assessment and penalty proceedings. Confirmation of additions does not ipso facto establish concealment or warrant penalty. The AO must independently record satisfaction with reasons. The CIT(A) must also apply independent mind in penalty appeals rather than mechanically confirming penalty based on quantum order. Treatment of competing arguments: The assessee argued that penalty cannot be automatic and requires independent satisfaction. The Department contended that confirmation of additions justifies penalty. The Tribunal rejected the Department's position, relying on Supreme Court precedents and principles of natural justice. Conclusions: The Tribunal held that penalty under section 271(1)(c) was wrongly levied and confirmed. The penalty orders and appellate orders confirming penalty were set aside and deleted for all relevant assessment years. Issue 2: Levy of penalty under section 271B for failure to get accounts audited under section 44AB Relevant legal framework: Section 44AB mandates audit of accounts for persons carrying on business if turnover exceeds prescribed limits. Failure to comply without reasonable cause attracts penalty under section 271B, up to Rs. 1,50,000. Section 273B allows waiver of penalty if reasonable cause is shown. Court's interpretation and reasoning: The Tribunal noted that the assessee, a registered society under section 12A, claimed exemption under sections 11 & 12, but the AO denied exemption and assessed income as business income. The turnover exceeded Rs. 7.5 crores. The AO and CIT(A) levied and confirmed penalty under section 271B on the ground that audit was not conducted and quantum additions were confirmed. Key evidence and findings: The assessee submitted that it had reasonable cause for non-compliance, as it claimed exemption under sections 11 & 12 and was registered under section 12A. The AO and CIT(A) rejected this explanation, treating penalty as consequential to quantum confirmation. Application of law to facts: The Tribunal held that penalty under section 271B is not automatic upon confirmation of income as business income. The assessee's reasonable cause, based on its registration and exemption claim, must be considered. The AO and CIT(A) failed to apply independent mind and did not properly consider reasonable cause. Penalty proceedings are separate and distinct from assessment proceedings. Treatment of competing arguments: The assessee argued for reasonable cause and separate consideration in penalty proceedings. The Department relied on turnover exceeding limits and confirmation of business income. The Tribunal accepted the assessee's argument and rejected the Department's automatic penalty approach. Conclusions: Penalty under section 271B was wrongly imposed and confirmed. The Tribunal deleted the penalty for all relevant assessment years. 3. SIGNIFICANT HOLDINGS - "There is no provision in the Income-tax Act which provides that if the quantum addition is confirmed in the hands of the assessee, the penalty u/s 271(1)(c) is leviable automatically." - "Penalty is discretionary, which would always be the discretion of the adjudicating authority to satisfy himself that whether the assessee has committed a particular default or not." - "A finding in assessment proceedings cannot be automatically adopted for penalty proceedings. Further since burden of proof varies in assessment proceedings and penalty proceedings, therefore, the authorities must look at penalty proceedings from a different angle." - "In the absence of such finding [of concealment], we do not find any reason to uphold the order of the ld. AO." - "The appellate order confirming the penalty merely because the quantum addition was confirmed is not sustainable." - "Penalty u/s. 271B is not automatic just because the income is assessed as business income and turnover exceeds prescribed limits. Reasonable cause shown by the assessee must be considered." - "The orders of the ld. lower authorities are not sustainable and even otherwise there is reasonable cause for not getting the accounts audited u/s. 44AB of the Act and therefore penalty u/s. 271B of the Act deserves to be deleted." - Final determinations: Penalties under sections 271(1)(c) and 271B for all relevant assessment years were deleted and appeals allowed.
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