2014 (1) TMI 1715 - AT - Income Tax

Penalty u/s 271(1)(c) - revenue contended that instead of cancelling the penalty, the ld. CIT(A) should have confirmed the penalty as the assessee made wrong claim of carry forward loss from HUF owned family business - Held that - It is pertinent to note that in the impugned order the ld. CIT(A) didn t cancelled the penalty but directed the Assessing Officer to first give appeal effect to the order dated 13.07.2011 of ld. CIT(A) and thereafter if any addition/disallowance sought to be sustained then only the Assessing Officer should levy a penalty by passing a fresh order on that particular amount of addition/disallowance so sustained, if considered necessary. In our considered opinion, this direction of ld. CIT(A) is factually and legally correct; therefore, we decline to interfere. - Decide against revenue

Summary

Issues:
1. Appeal against cancellation of penalty under section 271(1)(c) for Assessment Years 2004-05 and 2005-06.
2. Interpretation of directions by CIT(A) regarding appeal effect and penalty imposition.
3. Consideration of consolidated returns and carry forward losses in penalty assessment.

Analysis:
1. The appeals by the Revenue challenged the cancellation of penalties amounting to Rs. 9,74,938 for the year 2004-05 and Rs. 9,98,219 for the year 2005-06 by the ld. CIT(A). The ld. CIT(A) directed that the Assessing Officer should give appeal effect to the earlier order before imposing any penalty.

2. The ld. CIT(A) based the cancellation of penalties on the grounds that the Assessing Officer had overlooked the directions of the ITAT and failed to consider the consolidated returns filed by the appellant. The CIT(A) emphasized that the penalty imposition was premature without giving effect to the earlier order and verifying the consolidated returns.

3. During the hearing, the Revenue contended that the penalties should not have been cancelled as the appellant had made incorrect claims of carry forward losses. However, the ITAT upheld the CIT(A)'s decision, stating that the direction to give appeal effect before imposing penalties was legally and factually correct, hence dismissing the Revenue's appeals.

4. The ITAT's decision emphasized the importance of following proper procedures and giving effect to earlier orders before imposing penalties, highlighting the significance of considering consolidated returns and carry forward losses in penalty assessments. The judgment reaffirmed the principle that penalties should be imposed only after due consideration of all relevant factors and in compliance with legal directives.

5. Ultimately, the ITAT dismissed the Revenue's appeals, affirming the CIT(A)'s decision to cancel the penalties and emphasizing the necessity of adhering to proper procedures and legal requirements in penalty assessments. The judgment underscored the importance of following legal directives and considering all relevant aspects before imposing penalties under section 271(1)(c) of the Income-tax Act, 1961.