The case ITA 907/DEL/2019 involves an appeal filed by Ms. Sheetal Mehra, New Delhi, against the Income Tax Officer, Ward-40(1), New Delhi. The assessment year in question is 2010-11, and the appeal was filed on February 6, 2019. The final order was pronounced on July 17, 2023.
During the assessment proceedings for the year 2010-11, the Assessing Officer initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961, due to alleged unexplained cash deposits in Ms. Mehra’s accounts. The penalty was originally based on the ‘concealment of particulars of income’ but was later characterized by the AO during the penalty imposition as ‘furnishing inaccurate particulars of income’.
The Commissioner of Income Tax Appeals (CIT(A)) confirmed the penalty, but on the basis of concealment, not on the inaccuracy of particulars as later defined by the AO. This inconsistency between the initiation and confirmation of the penalty grounds formed a significant part of the tribunal’s review.
The tribunal noted that the foundation for the imposition of the penalty had been significantly altered first by the Assessing Officer and then by the CIT(A). It highlighted that such fundamental changes in the rationale for the penalty undermined the legal basis for its imposition.
The tribunal referenced decisions from higher judicial authorities that penalties under Section 271(1)(c) must be based on clear, unambiguous ‘satisfaction’ of the AO during the assessment proceedings about the nature of the default. The alteration of this foundation across different stages of proceedings rendered the penalty unsustainable.
Given the discrepancies in the basis for imposing the penalty, the tribunal ruled that the penalty could not stand and was thus cancelled. This decision underlined the necessity for continuity and consistency in the application of tax laws and penalties.
The case was allowed in favor of Sheetal Mehra, providing significant relief and setting a precedent on the importance of procedural adherence in tax penalty cases.
This case underscores the critical need for accuracy and consistency in the imposition of penalties under the Income Tax Act. It illustrates the potential for successful appeals when discrepancies exist in the tax authority’s rationale, demonstrating the judiciary’s role in ensuring fairness and legality in tax proceedings.
The final judgment delivered by Sh. Kul Bharat, Judicial Member, and Sh. Pradip Kumar Kedia, Accountant Member, emphasized the importance of clear and coherent reasoning in tax assessments and penal actions.
Order pronounced in the open court on 17/07/2023.
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