The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) dismissed the imposition of penalty under section 271(1)(c) of the Income Tax Act 1961,citing the Assessing Officer’s rejection of fair market value supported by a valuation report.
When the matter was scheduled for a hearing, there was no representation for the assessee. The records indicated that the assessee had consistently sought adjournments, which were generously granted by the Tribunal. However, the assessee had submitted another adjournment letter dated 15.11.2023, requesting a further delay. Due to the repeated and routine nature of adjournment requests, the Tribunal declined the adjournment, and the hearing scheduled for 15.11.2023 was re-fixed for that day in the interest of justice. Despite this, there was no representation for the assessee, leading to the matter being proceeded with ex parte.
The penalty order under section 271(1)(c)of the Income Tax Act 1961 reveals a dispute over the ‘fair market value’ of share premium. The Assessing Officer challenged it under section 56(2)(viib) of the Income Tax Act 1961 ,while the assessee argued valuation under Rule 11UA with supporting documents. Dissatisfied, the Assessing Officer alleged an excessive premium, leading to a ‘concealment of income’ charge and a penalty under section 271(1)(c) of the Income Tax Act 1961 . Interestingly, the AO imposed the penalty for ‘furnishing inaccurate particulars of income.’ The CIT(A) upheld this decision in the initial appeal.
The single bench of the tribunal comprising Pradeep Kumar Kediya ( Account member ) observed that the penalty imposition appears unwarranted for several reasons. Firstly, the Assessing Officer disregarded the fair market value, backed by a valuation report. While additions under section 56(2)(viib) of the Income Tax Act 1961 might be justifiable, it doesn’t automatically imply concealment, as asserted in the assessment order.
The difference in perception between the valuer and the Assessing Officer makes the issue debatable without inherent malice. Secondly, the alleged ‘concealment of particulars of income’ contradicts the facts on record, as the assessee presented a valuation report during the assessment, making any concealment hard to fathom. The AO’s satisfaction under section 271(1B) of the Income Tax Act 1961 seems unfounded.
The bench observed that the Assessing Officer (AO) altered the grounds for imposing the penalty, moving from the initial accusation of concealing income to asserting “furnishing inaccurate particulars of income” during the penalty proceedings. This change raised legal questions. Similarly, the CIT(A) was not authorized by law to independently uphold the AO’s action without considering the satisfaction derived during the assessment. Consequently, the imposition of the penalty lacked validity on this basis.
The bench concluded that thus seen from any angle, the imposition of penalty under section 271(1)(c) of the Income Tax Act 1961 in the present set of circumstances was unsustainable in law. set aside the first appellate order and direct the AO to reverse and cancel the penalty. In the result, appeal of assessee was allowed
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