ACIT vs Parag Dalmia

Kuldip Singh, J

Appellant, ACIT, Central Circle 26, New Delhi (hereinafter referred to as the 'Revenue') by filing the present appeal sought to set aside the impugned order dated 21.03.2016 passed by the Commissioner of Income-tax (Appeals) - XXVI, New Delhi deleting the penalty levied u/s 271(1)(c) of the Income-tax Act, 1961 (for short 'the Act') qua the assessment year 2012-13 on the grounds inter alia that :-

"1. That on the facts and in the circumstances of the case the Ld. CIT (A) has erred in deleting the penalty of Rs.2,23,851/- on the concealed income of Rs.7,24,438/- which was imposed by the AD on account of undisclosed interest income in HSBC Geneva.

That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in disregarding the fact that the assessee has deliberately concealed interest income of Rs.7,24,438/- in HSBC Geneva.

That the grounds of appeal are without prejudice to each other."

Briefly stated the facts necessary for adjudication of the controversy at hand are : On the basis of assessment framed under section 153A read with seciton143(3) of the Act at the total income of Rs.85,24,236/- against the returned income of Rs.26,55572/- entailing addition of Rs.7,24,438/- on account of undisclosed interest income from foreign bank account u/s 69 of the Act, penalty proceedings were initiated by way of issuance of notice u/s 271(1)(c) of the Act. Declining the contentions raised by the assessee, AO proceeded to levy the penalty of Rs.2,23,851/- @ 100% of the tax sought to be evaded for concealing his income to the tune of Rs.7,24,438/- being the interest income earned from undisclosed foreign bank account.

Assessee carried the matter by way of an appeal before the ld. CIT (A) who has deleted the penalty by allowing the appeal on the ground that the addition made in this case has since been deleted. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal.

We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.

At the very outset, it is brought to our notice by the ld. AR for the assessee that addition made in this case has since been deleted and as such, penalty levied is not sustainable.

Undisputedly, additions on the basis of which penalty has been levied, has since been deleted by the ld. CIT (A) by returning findings as under :-

"c. In respect of imputed interest;

I have considered. the facts of the case, the basis of addition made by the AO and the arguments of the AR during assessment as well as appellate proceedings. It is seen that the AO has presumed that assessee would have earned interest on the credit balance in its bank account as on February, 2007. It is a fact that no such information is evident from the documents received by the AO from French Government under information exchange mechanism of DTAC. The perusal of said documents only shows that month end balances have been written in respect of the bank account operated by the appellant and there is no mention of any interest earned on the said credit balances. Perusal of information available in respect of the said bank account does not show payment of any interest credited with regard to the deposits. The presumption of the AO is apparently based on experience with the Indian Banking System wherein the saving bank accounts generally earns an interest of 4% or so. The AO therefore applied the same standards in respect of the credit balances held by the assessee in its foreign bank account as well. It is also a matter of common knowledge that the rate of interest on time deposit/FDRs in developed countries banking system are generally from low and nowhere in comparison to the Indian banking system. In fact, the rate of interest in the current/saving bank account could sometimes be negative in terms of operational cost of maintaining such an account. This only highlights the absence of certainty in AO's presumption based upon Indian banking system. It clearly shows that there is no documentary evidence to support such a presumption. In view of these facts the earning of interest cannot be taken for granted so as to be made the basis of addition of having earned income. In the circumstances the addition made by the AO on presumptive basis is directed to be deleted."

We are of the considered view that when addition on the basis of which penalty proceedings were initiated and penalty has been levied is no more in existence having been deleted, the ld. CIT (A) has rightly deleted the penalty.

Hon'ble Apex Court in case cited as K.C. Builders & Anr vs. ACIT - 265 ITR 562 (SC) has laid down the principle on this issue by returning following findings :-

"when the addition made in the assessment order on the basis of which penalty for concealment is levied have been deleted there remains no basis at all for levying the penalty for concealment and in such case, no penalty can survive and the penalty is liable to be cancelled."

So, in view of what has been discussed above, we find no illegality or perversity in the impugned order passed by the ld. CIT (A), hence present appeal filed by the Revenue is hereby dismissed.