2010 (7) TMI 644 - HC - Income Tax

Correctness and sustainability of Ext.P2 notice - There is no case for the petitioner that, the petitioner has challenged fixation of tax liability, after the disposal of the statutory appeal on 21-12-2006, by resorting any procedure known to law and this being the position, the challenge raised against Ext.P2 does not stand the test of law - More so, when the respondent has asserted in the statement, that the amount sought to be recovered from the petitioner is not penalty but the tax element - With regard to the amount demanded in respect of the assessment year 2005-06, it is only a sum of Rs. 3,855 - With regard to this extent as well, there is no such challenge raised in the Writ Petition - Accordingly, the Writ Petition is dismissed.

Summary

Issues:
1. Challenge to the correctness and sustainability of notice demanding tax amounts for two assessment years.
2. Interpretation of cancellation of penalty versus tax liability.
3. Applicability of appellate authority's order on tax liability.
4. Failure to challenge tax liability post-appellate order.

Analysis:
1. The petitioner contested the demand notice for tax amounts for two assessment years, citing the cancellation of penalty in Ext.P3 order by the Commissioner of Income-tax. The petitioner argued that demanding the amount despite penalty cancellation was unjustified.

2. The standing counsel clarified that Ext.P3 cancellation pertained only to the penalty under section 271(1)(c) of the Income-tax Act, not the tax liability. The tax amount in Ext.P2 was for the petitioner's tax dues for the mentioned assessment years. The petitioner's revision petition and subsequent appeal against the original assessment order were also highlighted.

3. The appellate authority's order significantly reduced the original tax liability from Rs. 9,35,624 to 1/3 of Rs. 3,51,794. The petitioner did not further appeal to the Tribunal, making the appellate order final. The counsel argued that the petitioner cannot merge distinct causes of action to evade tax payment obligations.

4. The Court acknowledged the respondent's assertion that the amount in Ext.P2 was for tax, not penalty, and noted the absence of a challenge to the tax liability post the appellate order. As the petitioner failed to challenge the tax liability through proper legal procedures, the Court dismissed the Writ Petition, emphasizing that the challenge against Ext.P2 lacked legal merit. The Court declined interference in the matter, including the demand for the assessment year 2005-06.