When Quantum Addition deleted, Consequent Penalty can’t Survive: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that when the quantum addition is deleted by the appellate authorities, the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 for the said quantum addition cannot be survived.

The Assessing Officer made an addition of Rs.  3,75,13,010/- under Percentage Completion Method , by applying Accounting Standard – 7 which was later confirmed by the first appellate authority. Thereafter, the Assessing Officer also levied a penalty under section 271(1)(c) of the Income Tax Act, 1961. The penalty was, however, deleted by the first appellate authority by considering the fact that the appellant is consistently following the principles AS-9, there cannot be a standalone year where principles AS-7 could be applied.

Subsequently, the Tribunal deleted the addition. The assessee approached the Tribunal for deletion of the penalty.

The Tribunal was of the view that the “penalty U/s 271(1)(c) I.T. Act of Rs. 1,27,50,670/- levied by AO, and already deleted by the Ld. CIT(A); has no legs to stand when the corresponding additions made by the AO have already been deleted by ITAT vide its aforesaid order dated 27.09.2016. When the quantum addition does not survive, the penalty levied U/s 271(1)(c) of I.T. Act on the corresponding quantum addition also cannot survive. We take support from judicial precedent in the case of K.C. Builders vs. ACIT 135 Taxman 461 (SC), in which the Hon’ble Apex Court held that where the additions made in the Assessment Order, on the basis of which penalty for concealment was levied, are deleted, there remains no basis at all for levying the penalty for concealment, and therefore, in such a case, no such penalty can survive and the same is liable to be cancelled. In view of the foregoing, appeal filed by Revenue is hereby dismissed.”