Case Note & Summary
The Revenue appealed against the order of the Income Tax Appellate Tribunal which had deleted a penalty of Rs.42,90,000/- imposed under Section 158BFA(2) of the Income Tax Act, 1961. The assessee, Smt. Anju R. Innani, had filed a return for the block period from 1st April 1988 to 22nd December 1998 declaring an undisclosed income of Rs.65 lakhs. The assessment was completed under Section 158BC accepting the returned income. However, the assessee had filed an appeal before the CIT(A) against the assessment order, challenging the rate of tax on capital gains included in the undisclosed income, contending that it should be taxed at 20% instead of 60%. The CIT(A) dismissed the appeal on 17th October 2001, holding that the rate of tax for undisclosed income in block assessment is 60%. The assessee did not file any further appeal before the ITAT. The Assessing Officer initiated penalty proceedings under Section 158BFA(2) and imposed a penalty of Rs.42.90 lakhs, holding that the assessee had not complied with the conditions of the first proviso to Section 158BFA(2) because she had filed an appeal against the assessment order. The Tribunal deleted the penalty, holding that sub-clause (iv) of the proviso was applicable. The High Court framed two questions of law: (A) whether the Tribunal was correct in deleting the penalty, and (B) whether the Tribunal was correct in applying sub-clause (iv) of the proviso despite the assessee having filed an appeal against the assessment order. The High Court held that the Tribunal erred in deleting the penalty. The proviso to Section 158BFA(2) provides that no penalty shall be imposed if the assessee satisfies certain conditions, including that the assessee has not filed an appeal against the assessment order. Since the assessee had filed an appeal against the assessment order, the condition was not satisfied. The fact that the appeal was dismissed and no further appeal was filed did not cure the defect. The High Court allowed the appeal, set aside the Tribunal's order, and restored the penalty order.
Headnote
A) Income Tax - Block Assessment - Penalty under Section 158BFA(2) - Proviso - Condition for immunity - The assessee declared undisclosed income of Rs.65 lakhs and the assessment was completed under Section 158BC accepting the returned income. However, the assessee had filed an appeal against the assessment order challenging the rate of tax on capital gains. The Assessing Officer imposed penalty under Section 158BFA(2) for non-compliance with the proviso. The Tribunal deleted the penalty holding that sub-clause (iv) of the proviso was satisfied. The High Court held that since the assessee had filed an appeal against the assessment order, the condition in sub-clause (iv) of the proviso was not satisfied, and the penalty was rightly imposed. (Paras 2-6)
Issue of Consideration
Whether the Tribunal was correct in deleting the penalty under Section 158BFA(2) on the ground of applicability of sub-clause (iv) of the proviso, even though the assessee had filed an appeal against the assessment order which was dismissed by the CIT(A) and no further appeal was filed.
Final Decision
Appeal allowed. Order of Income Tax Appellate Tribunal dated 7th May 2008 set aside. Penalty order of Assessing Officer restored.
Law Points
- Interpretation of proviso to Section 158BFA(2)
- Condition for immunity from penalty
- Filing of appeal against assessment order precludes applicability of proviso
