2002 (12) TMI 62 - HC - Income Tax

Whether, Tribunal was right in law in cancelling the penalty levied under section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1984-85? we reframe the question as under Whether, Tribunal was right in law in cancelling the penalty levied under section 271(1)(c) for the assessment year 1984-85 having remitted the issue relating to the disallowance of the assessee s claim under section 35(1)(iv) for fresh consideration by the Assessing Officer which led to imposition of the impugned penalty ? - Though we answer the question of law as reframed by us in the affirmative, technically still the question whether penalty is leviable or not would depend upon the final order of assessment that may be made by the Assessing Officer in accordance with law.

Summary

Issues:
1. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 1984-85.
2. Applicability of penalty in the case of a false claim for deduction under section 35(1)(iv) of the Act.
3. Jurisdiction of the Appellate Tribunal in remitting the matter to the Assessing Officer for reconsideration of the claim for deduction.

Analysis:
The High Court of Madras addressed the issue of penalty imposition under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 1984-85. The case involved a claim for deduction made by the assessee under section 35(1)(iv) of the Act, which was deemed false by the Assessing Officer, leading to the imposition of a penalty. The Commissioner of Income-tax (Appeals) upheld this decision. Upon appeal, the Appellate Tribunal set aside the order of the Assessing Officer and remitted the matter for reconsideration. The Tribunal held that since the matter was remitted for reassessment, the penalty imposed was not sustainable in law. However, the Tribunal went further to opine that the claim for deduction was merely a legal contention and not a false claim, a decision the High Court found improper as the Tribunal should not have delved into the merits of the claim while remitting the matter for reconsideration.

The High Court emphasized that the Tribunal's observation on the nature of the claim was unwarranted, especially when the matter was referred back to the Assessing Officer for a fresh review. The Court upheld the Tribunal's decision to cancel the penalty based on the remittal but disagreed with the Tribunal's characterization of the claim as not false. The Court reframed the question of law to focus on whether the Tribunal was correct in canceling the penalty after remitting the issue for fresh consideration by the Assessing Officer. The Court clarified that the final decision on penalty imposition would depend on the subsequent assessment made by the Assessing Officer in accordance with the law.

In conclusion, the High Court affirmed the cancellation of the penalty by the Appellate Tribunal due to the remittal of the matter for reassessment. However, the Court disagreed with the Tribunal's characterization of the claim as not false, emphasizing that such a determination should be made during the reconsideration process by the Assessing Officer. The judgment highlights the importance of procedural correctness and refrains from pre-empting the final decision on penalty imposition pending the Assessing Officer's review.