2013 (5) TMI 127 - HC - Income Tax

Revision u/s 263 - Penalty u/s 271(1)(c) - Calling records(file u/s 263) - Penalty u/s 271(1)(c) on claiming sales tax subsidy as Capital receipt - The AO has levied penalty u/s 271(1)(c) on assessee s claim that sales tax subsidy should be treated as capital receipt, After the said order was passed, the Commissioner Income Tax passed an order U/s 263 of the Income Tax Act, 1961 whereby the penalty was quantified -Held that - The Commissioner of Income Tax passed an order under Section 263 of the Income Tax Act, 1961 whereby the penalty was quantified for the reason that in the original order of the Assessing Officer, the same was omitted - Tribunal holding that once the penalty itself has been set aside by the Commissioner of Income Tax (Appeals), the provisions of Section 263 of the Act could not be invoked by the Revenue. We find that the Commissioner of Income Tax has exercised jurisdiction under Section 263 of the Act in utter violation of not only of judicial proprietary also against the provisions of law - Once the penalty proceedings have been set aside in appeal, the Commissioner of Income Tax could not impose penalty on the basis of an order, which has since been set aside by the Commissioner of Income Tax (Appeals) - In view of the said fact, we do not find that any question of law arises for consideration out of an order passed by the Tribunal - The appeal is dismissed in favour of Assessee.

Summary

Issues:
1. Appeal against the order under Section 260A of the Income Tax Act, 1961 relating to Assessment Year 2006-07.
2. Treatment of sales tax subsidy as capital or revenue receipt.
3. Validity of the order passed under Section 263 of the Income Tax Act, 1961 quantifying penalty.

Analysis:

Issue 1:
The Revenue appealed against the order under Section 260A of the Income Tax Act, 1961 related to the Assessment Year 2006-07. The substantial questions of law raised by the Revenue included the correctness of the Tribunal's decision in quashing the order under Section 263 of the Income Tax Act passed by the Commissioner of Income Tax-I, Ludhiana. The Revenue contended that the Tribunal erred in not challenging the decision of the Commissioner of Income Tax (Appeals) to delete the penalty under Section 271(1)(c) on merits, specifically regarding the issue of Sales Tax Subsidy. The Revenue argued that the Tribunal's decision was perverse.

Issue 2:
The core issue revolved around the treatment of sales tax subsidy received by the assessee during the assessment year. The assessee claimed the subsidy as a capital receipt due to pending litigation before the Supreme Court, despite a previous decision by the High Court treating it as a revenue receipt. The Assessing Officer disagreed with the assessee's contention and treated the subsidy as a revenue receipt, initiating penalty proceedings. The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision, emphasizing that the subsidy was correctly treated as a revenue receipt, considering the pending appeal before the Supreme Court.

Issue 3:
Subsequently, the Commissioner of Income Tax passed an order under Section 263 of the Income Tax Act, quantifying the penalty that was initially omitted in the Assessing Officer's order. However, the Tribunal set aside this order, stating that once the penalty had been set aside by the Commissioner of Income Tax (Appeals), invoking Section 263 of the Act for imposing the penalty was not permissible. The Tribunal found that the Commissioner of Income Tax had exceeded jurisdiction by attempting to impose a penalty based on an order that had already been set aside in appeal.

In conclusion, the High Court dismissed the appeal, emphasizing that no question of law arose from the Tribunal's decision. The Court found that the Commissioner of Income Tax had acted improperly by attempting to impose a penalty after the penalty proceedings had been set aside by the Commissioner of Income Tax (Appeals). This judgment highlights the importance of adhering to legal procedures and respecting the decisions made at different stages of the appellate process in tax matters.