Case Note & Summary
The Revenue filed an appeal under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal (ITAT) which had dismissed the Revenue's appeal and deleted the penalty imposed under Section 271(1)(c) of the Act. The assessee, M/s. Ankita Electronics Pvt. Ltd., was engaged in the business of computer consumables. For the assessment year 2001-2002, the Assessing Officer passed an order under Section 143(3) disallowing certain deductions claimed by the assessee, including salary paid to two lady directors and another person, a sum of Rs.26,00,000 under Section 68, and interest on loans, totaling Rs.33,90,940. The disallowance was confirmed by the Commissioner of Income Tax (Appeals) and subsequently by the ITAT. The assessee then filed an appeal before the High Court, which was admitted on 04.06.2012 in ITA No.282/2011 on substantial questions of law. Meanwhile, the Assessing Officer had also initiated penalty proceedings under Section 271(1)(c) and imposed a penalty. The Commissioner of Income Tax (Appeals) confirmed the penalty, but the ITAT deleted it, holding that since the assessment order was under challenge and the appeal had been admitted on substantial questions of law, the issue was debatable and penalty could not be imposed. The Revenue challenged this order before the High Court. The High Court dismissed the Revenue's appeal, holding that when the assessment order is under challenge and the appeal has been admitted on substantial questions of law, the issue is debatable, and therefore, penalty under Section 271(1)(c) cannot be imposed. The court relied on the principle that penalty proceedings are distinct from assessment proceedings, but if the very basis of the penalty is in doubt due to a pending appeal on merits, penalty cannot be sustained.
Headnote
A) Income Tax - Penalty under Section 271(1)(c) - Debatable Issue - When the assessment order is under challenge and the appeal against it has been admitted by the High Court on substantial questions of law, the issue is debatable and penalty under Section 271(1)(c) of the Income Tax Act, 1961 cannot be imposed - Held that the Tribunal rightly deleted the penalty as the assessee's appeal on merits was pending (Paras 1-6).
Issue of Consideration
Whether penalty under Section 271(1)(c) of the Income Tax Act can be imposed when the assessment order is under challenge and the appeal against it has been admitted by the High Court on substantial questions of law
Final Decision
Appeal dismissed. The order of the ITAT deleting the penalty under Section 271(1)(c) is upheld.
Law Points
- Penalty under Section 271(1)(c) of the Income Tax Act
- 1961 cannot be imposed when the assessment order is under challenge and the appeal has been admitted on substantial questions of law
- as the issue is debatable
