2014 (5) TMI 513 - HC - Income Tax

Penalty u/s 271(1)(c) of the Act STCG not offered in original return but in revised return Held that - The issue has been taken up by the Assessee for the first time before the tribunal as an additional ground - The order of the Court confirming the amalgamation has also been produced before us for the first time - tribunal was not prevented in any manner and in law from considering a purely legal issue for the first time, moreso, if the legal issue goes to the root of the matter - an impact and legal effect of an order of amalgamation and winding up of the Assessee thereto on the penalty proceedings have been initiated and were continuing has to be seen - only two documents which required to be looked into were the scheme of amalgamation and the order passed in pursuance thereof by the Court. If that was the admitted factual position and based on which the legal issue was raised, then, the tribunal was obliged to answer the legal question - Its omission to answer is vitiated in law - The tribunal is a last fact finding Court and equally if it could have been approached by the Assessee Court on law and fact, then, in the given circumstances, the tribunal should have answered this issue and its failure to do so can safely be termed as not performing its duty in law - The direction to remit and to remand it to the Assessing Officer is not justified and in the peculiar facts thus, the order is set aside and the matter is remitted back to the Tribunal for adjduciation Decided in favour of Assessee.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding penalty under Section 271(1)(c) of the Income Tax Act for short term capital gains not initially offered in the return but later in a revised return. Legal argument raised on dissolution of company due to merger under Section 391 to 394 of the Indian Companies Act, 1956, rendering penalty proceedings null and void. Tribunal's decision to remand the matter back to the Assessing Officer for fresh consideration based on additional evidence admitted.

Analysis:

1. The appeal challenged the Income Tax Appellate Tribunal's order on penalty under Section 271(1)(c) of the Income Tax Act for short term capital gains. The Appellant-Assessee contended that the company had been dissolved due to a merger under Sections 391 to 394 of the Indian Companies Act, 1956, making the penalty proceedings invalid. The tribunal remanded the matter to the Assessing Officer for fresh consideration based on additional evidence presented.

2. The Appellant's counsel argued that the tribunal failed to address the legal issue raised regarding the impact of the merger on penalty proceedings. They contended that the tribunal should have resolved the legal question itself, especially since it admitted the additional grounds and evidence. The failure to address this legal issue was deemed a violation of the tribunal's duty to decide matters of law.

3. The Respondent's counsel defended the tribunal's decision to remand the matter, stating that it required a detailed consideration of the documents and evidence presented. They argued that the tribunal's order did not raise any substantial legal questions and, therefore, supported the dismissal of the appeal.

4. Upon review, the High Court found that the tribunal should have addressed the legal issue raised by the Appellant regarding the merger's effect on the penalty proceedings. The Court concluded that the tribunal's failure to address this crucial legal question was a violation of its duty. As a result, the High Court quashed the tribunal's orders and remanded the matter back to the tribunal for a decision on the legal issue.

5. The High Court directed the tribunal to allow both parties to present arguments on the legal issue. Depending on the outcome of this issue, the tribunal was instructed to either dispose of the appeal or remand it back to the Assessing Officer with appropriate directions. The High Court's decision aimed to ensure a proper consideration of the legal implications of the merger on the penalty proceedings.

6. In conclusion, the High Court set aside the tribunal's orders and restored the appeal for a decision on the legal issue raised by the Appellant. The Court emphasized the tribunal's duty to address legal questions and directed a reconsideration of the matter in light of the merger's impact on the penalty proceedings.