2025 (5) TMI 605 - AT - Income Tax

Penalty u/s 271(1)(c) - quantum appeal related to the same income has been restored for de novo adjudication - HELD THAT - As quantum appeal has been restored to the file of the Ld. CIT(Appeals)/NFAC for denovo adjudication therefore the present appeal on penalty should also meet the same fate for the sake of completeness regarding adjudication on issues. See Mohd. Mohatram Farooqui 2010 (2) TMI 1122 - SUPREME COURT wherein it has been held that if addition is restored to the A.O then penalty should also be restored. Also in the case of Sanjay Gupta 2014 (5) TMI 860 - DELHI HIGH COURT has also held that where the quantum has been remanded to the A.O the question of penalty on account of the said amount being treated as undisclosed income should also be remanded to the AO. In the present case the concerned authority shall be Ld. CIT(Appeals)/NFAC since the quantum has been remanded back to its file for denovo adjudication. Appeal raised by the assessee are allowed for statistical purposes.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment are:

(a) Whether the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 2013-14, can be sustained when the quantum appeal related to the same income has been restored for de novo adjudication?

(b) Whether the penalty appeal should be remanded along with the quantum appeal to the appellate authority for fresh adjudication in light of the facts and submissions made by the assessee regarding the source of cash deposits?

(c) Whether the assessee's claim of agricultural income as the sole source of cash deposits, and denial of share transactions through SEBI-registered brokers, requires further fact-finding and verification before confirming penalty?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Restoration of penalty appeal along with quantum appeal

Relevant legal framework and precedents: Section 271(1)(c) of the Income-tax Act empowers the Assessing Officer (A.O.) to impose penalty for concealment of income or furnishing inaccurate particulars of income. The penalty is consequential to the quantum of income determined as undisclosed. The Supreme Court in Mohd. Mohatram Farooqui vs. CIT held that if the quantum addition is restored to the A.O. for fresh adjudication, the penalty proceedings must also be restored to the same authority to ensure consistency and completeness of adjudication. Similarly, the Delhi High Court in Sanjay Gupta vs. CIT emphasized that when the quantum appeal is remanded for reassessment, the penalty related to the same amount must also be remanded.

Court's interpretation and reasoning: The Tribunal observed that since the quantum appeal was restored to the Ld. CIT(Appeals)/NFAC for de novo adjudication, it would be inconsistent and incomplete to decide the penalty appeal independently. The penalty is inherently linked to the determination of undisclosed income. Therefore, for the sake of comprehensive adjudication and to avoid conflicting outcomes, the penalty appeal must be remanded along with the quantum appeal.

Application of law to facts: The quantum appeal was remanded because the source of cash deposits was disputed and required fresh verification. Since penalty under section 271(1)(c) is predicated on the concealment or inaccurate particulars of income, which is directly connected to the quantum of income, the penalty proceedings cannot be finalized without resolving the quantum issue first.

Treatment of competing arguments: The Revenue did not oppose the restoration of the penalty appeal, conceding to the assessee's contention. This concession aligned with the legal position established by the Supreme Court and the Delhi High Court.

Conclusion: The penalty appeal was rightly restored to the Ld. CIT(Appeals)/NFAC for fresh adjudication along with the quantum appeal.

Issue (c): Verification of source of cash deposits and assessee's claim of agricultural income

Relevant legal framework: Under the Income-tax Act, agricultural income is exempt from tax. However, if cash deposits are alleged to be from undisclosed income or share transactions, the burden lies on the assessee to prove the source. The authorities have the right to investigate and verify the source of income before imposing penalty.

Court's interpretation and reasoning: The Tribunal noted that initially, the A.O. had doubts about the source of cash deposits, suspecting share transactions through a SEBI-registered broker. However, the assessee filed a sworn affidavit denying any share transactions and asserting that the deposits were from agricultural income. The Revenue failed to produce evidence refuting this claim. The Tribunal emphasized the need for a proper factual inquiry and verification of the source of income at the appellate stage before confirming penalty.

Key evidence and findings: The assessee's sworn affidavit and submissions before the appellate authorities were critical. The absence of contrary evidence from the Revenue strengthened the assessee's claim. Further, the deposits totaling Rs. 26,03,750/- were shown to be accumulated from smaller regular transactions rather than a single lump sum, which was relevant for assessing the genuineness of the source.

Application of law to facts: Given the assessee's claim of agricultural income and lack of evidence of share transactions, the Tribunal found it just to remand the matter for fresh verification by the Ld. CIT(Appeals)/NFAC, including calling for a remand report from the A.O. This would ensure that the factual matrix is properly examined before penalty is adjudicated.

Treatment of competing arguments: The Revenue's concession that it had no evidence to contradict the assessee's affidavit was significant. The Tribunal rejected the earlier incorrect submission made by the previous counsel regarding share transactions, recognizing the assessee's current sworn statement as authoritative.

Conclusion: The factual issue regarding the source of cash deposits requires fresh adjudication with proper verification, and penalty proceedings must await the outcome of this inquiry.

3. SIGNIFICANT HOLDINGS

"In my considered view, since the quantum appeal has been restored to the file of the Ld. CIT(Appeals)/NFAC for denovo adjudication, therefore, the present appeal on penalty should also meet the same fate for the sake of completeness regarding adjudication on issues."

"The Hon'ble Supreme Court in the case of Mohd. Mohatram Farooqui vs. CIT has held that if addition is restored to the A.O, then penalty should also be restored."

"The Ld. CIT(Appeals)/NFAC shall dispose of the matter within 30 days from receipt of this order."

Core principles established:

The penalty under section 271(1)(c) is intrinsically linked to the quantum of income determined as undisclosed and cannot be adjudicated independently when the quantum appeal is remanded.
Where there is a dispute regarding the source of cash deposits and the assessee claims agricultural income, proper verification and fact-finding are essential before confirming penalty.
The appellate authority must ensure compliance with principles of natural justice and provide the assessee a final opportunity to represent facts and produce evidence.
Remand of penalty proceedings along with quantum appeals promotes consistency, fairness, and comprehensive adjudication.

Final determinations:

The impugned penalty order under section 271(1)(c) was set aside and restored to the file of the Ld. CIT(Appeals)/NFAC for de novo adjudication after verification of the source of income. The assessee's appeal against penalty was allowed for statistical purposes, pending fresh adjudication. The Ld. CIT(Appeals)/NFAC was directed to dispose of the matter within 30 days, ensuring adherence to natural justice and proper examination of facts.

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