2010 (11) TMI 806 - HC - Income Tax

Penalty u/s 271(1)(c) deleted by ITAT - Held that - As the assessee had the bona fide belief as to the taxability of enhanced compensation and interest thereon disregarding the fact that breach of a civil obligation attracts levy of penalty whether the contraventions was made by the defaulter with any guilty intention or not as willful concealment is not an essential ingredient for attracting civil liability as in the matter of prosecution u/s 276C as held in the case of Union of India and others vs Dharmendra Textile Processors and others 2008 (9) TMI 52 - SUPREME COURT - As revenue fairly states that the matter is covered against the revenue by order of this Co urt in CIT v. Fateh Sigh (HUF) 2010 (7) TMI 849 - PUNJAB & HARYANA HIGH COURT - appeal is dismissed.

Summary

Issues:
1. Appeal by revenue under Section 260-A of the Income Tax Act, 1961 against ITAT order for assessment year 1998-99.
2. Deletion of penalty under section 271(1)(c) of the Income Tax Act, 1961 by CIT(A) and ITAT.

Analysis:

Issue 1:
The appeal before the Punjab and Haryana High Court was filed by the revenue under Section 260-A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal (ITAT) for the assessment year 1998-99. The substantial questions of law raised in the appeal pertained to the correctness of upholding the order of the Commissioner of Income Tax (Appeals) [CIT(A)] in deleting a penalty of Rs.16,00,000 levied by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961. The primary concern was whether the ITAT was justified in law in sustaining the deletion of the penalty despite the additions being confirmed by both the CIT(A) and the ITAT themselves.

Issue 2:
The second substantial question of law raised in the appeal was regarding the reasoning behind upholding the order of the CIT(A) in deleting the penalty of Rs.16,00,000. The Assessing Officer had imposed the penalty under section 271(1)(c) of the Income Tax Act, 1961, based on the belief that the assessee had a bona fide belief regarding the taxability of enhanced compensation and interest. The question arose as to whether the breach of a civil obligation, leading to the penalty, necessitated willful concealment or guilty intention, especially in light of a Supreme Court ruling. The Supreme Court precedent cited emphasized that willful concealment was not a mandatory element for imposing civil liability, as seen in matters of prosecution under section 276C, as highlighted in the case of Union of India and others vs Dharmendra Textile Processors and others reported in 306 ITR 277 (SC).

In the final judgment, the learned counsel for the revenue acknowledged that a prior decision of the Court in CIT v. Fateh Singh (HUF) had ruled against the revenue on a similar matter. Consequently, the High Court dismissed the appeal, indicating that the matter was already settled against the revenue based on the previous ruling.