Re: Fate of Penalty Proceedings on acceptance of VSV in respect of Appeal filed with ITAT merely challenging levy of Interest

Return under sec.153A filed withdrawing LTCG claimed u/s.10(38). Search Assessment Order passed u/s.153A r.w.s. 143(3) in November, 2017 assessing the entire sale proceeds of listed shares u/s.68 thereby, in effect, making an addition of the purchase price to the returned income. Penalty u/s.271(1)(c) initiated separately. Assessee filed appeal against the addition of purchase price only and charging of interest u/s.234A etc. due to delay in filing of return for the reason of belated supply of seized material. Penalty Proceedings u/s.271(1)(c) kept in abeyance by A.O. Appeal of the assessee partly allowed in respect of purchase price by CIT(A) in July, 2018 but interest was held to be mandatorily chargeable. Assessee filed an appeal before the ITAT in respect of interest only. In term of VSV, the assessee wants to avail of the DTVsV. What would be the fate of penalty proceedings u/s.271(1)(c) after DTVsV [though no appeal had been filed against penalty element on LTCG declared in return u/s.153A and the addition on account of purchase price deleted by CIT(A)]??

As we understand from your query, penalty proceedings are in abeyance with the Ld. AO and quantum stands accepted. Only the purchase price of the shares was disputed by the assessee, which was allowed by CIT(A). Settlement of interest under VSVA will have no implications on the penalty proceedings. 

Since no appeal was filed by department against purchase price of shares, hence the question of penalty does not arise.

As far as penalty on LTCG for shares is concerned, there is no immunity even if you go and file for VSV for the appeal pending before ITAT. Section 6 of the VSVA reads as under 

“6. Subject to the provisions of section 5, the designated authority shall not institute any proceeding in respect of an offence; or impose or levy any penalty; or charge any interest under the Income-tax Act in respect of tax arrear.”

 

Section 2(1)(o) of the VSVA defines “tax arrear” as under; 

(o) “tax arrear” means,—

(i) the aggregate amount of disputed tax, interest chargeable or charged on such disputed tax, and penalty leviable or levied on such disputed tax; or

(ii) disputed interest; or

(iii) disputed penalty; or

(iv) disputed fee,

as determined under the provisions of the Income-tax Act.

Reading this sections together, it is clear that immunity is restricted to settlement of disputed issues only.   There are case laws when the returned income is accepted there cannot be penalty. We presume that the department may not initiate the penalty proceedings . In case penalty is levied it will be reasonable good case for appeal . 

---