2014 (10) TMI 751 - HC - Income Tax

Cancellation of penalty u/s 271(1)(c) - Refund of amount - Assessee contended that since he succeeded before the Tribunal against the order of assessment, by virtue of provisions of section 275(1A) of the Act, the revenue were required to delete the penalty and refund the amount of penalty Held that - The order of penalty was made against the assessee on the basis of the assessment of income done by the AO - since the addition of the amount in the income of the assessee for the purpose of assessment was removed by the order of the Tribunal, the penalty imposed upon the assessee u/s 271 (1)(c) of the Act was required to be cancelled by making necessary order u/s 275(1A) of the Act and the amount of penalty recovered from the assessee by adjustment was required to be refunded to the assessee - since the concerned authorities who were under obligation to pass necessary order for cancellation of penalty by giving effect to the order made in favour of the assessee since failed in passing necessary order for cancelling of penalty and for refund of the penalty amount, the assessee is justified in invoking the powers of the Court under Article 226 of the Constitution of India seeking direction to refund the amount of penalty. Claim of interest on amount to be refunded Held that - Section 244 of the Act provides for interest on refund where no claim is needed - Section 244 shall not apply in respect of any assessment for the AY commencing on 1st May, 1989 or any subsequent assessment orders - Section 244A of the Act would apply for interest on refunds relying upon Sandvik Asia Ltd. Vs. Commissioner of Income Tax I, Pune and others 2006 (1) TMI 55 - SUPREME Court - a person should only be taxed in accordance with law and hence where excess amounts of tax are collected from an assessee or any amounts are wrongfully withheld from an assessee without authority of law the revenue must compensate the assessee revenue are directed to refund the penalty amount of ₹ 1,13,32,499.00 to the assessee within a period of two months from the date of receipt of this order with interest on such amount of penalty as per the provisions of section 244(A)(1)(b) of the Act Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the revision application under Section 264 of the Income Tax Act, 1961.
2. Legality of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
3. Entitlement to refund of the penalty amount with interest under Section 244A of the Income Tax Act, 1961.

Detailed Analysis:

1. Condonation of Delay in Filing the Revision Application:
The petitioner filed a revision application under Section 264 of the Income Tax Act, 1961, seeking cancellation of the penalty imposed under Section 271(1)(c). The Commissioner of Income Tax-I rejected the revision application on the ground that it was filed after the prescribed time limit, and the petitioner had not made out a sufficient cause for condonation of delay. The petitioner contended that the delay was due to the non-service of the penalty order, which the respondent denied, stating that the petitioner was duly served.

2. Legality of the Penalty Imposed under Section 271(1)(c):
The petitioner declared a loss in the return of income for the Assessment Year 2005-06, but the Assessing Officer made additions for suppression of sales and unproved sales return, leading to a penalty under Section 271(1)(c) for concealing particulars of income. The petitioner challenged the assessment order before the Tribunal, which allowed the appeal, effectively quashing the additions made by the Assessing Officer. Despite this, the penalty amount was recovered by adjusting it against the refund due for the tax paid in the Financial Year 2003-2004. The High Court dismissed the respondents' appeal against the Tribunal's order, entitling the petitioner to a refund of the penalty amount.

3. Entitlement to Refund of the Penalty Amount with Interest:
The petitioner argued that under Section 275(1A) of the Act, the respondents were obligated to cancel the penalty and refund the amount upon the Tribunal's favorable order. The respondents contended that the petitioner did not act within the six-month period prescribed under Section 275(1A) for seeking cancellation of the penalty. The Court observed that the failure of the assessing officer to pass the necessary order under Section 275(1A) does not negate the assessee's right to a refund upon succeeding in the appeal. The Court held that the word "MAY" in Section 275(1A) should be construed as creating an obligation on the authority to pass a consequential order upon the conclusion of litigation.

The Court further noted that Section 244A of the Act provides for interest on refunds, and the petitioner is entitled to interest on the penalty amount to be refunded. The Court cited precedents, including the Supreme Court's judgments in Sandvik Asia Ltd. and Tata Chemicals Limited, which established that interest on refunds is a statutory obligation and serves as compensation for the unauthorized retention of money by the Department.

Conclusion:
The High Court allowed the petition, directing the respondents to refund the penalty amount of Rs. 1,13,32,499.00 to the petitioner within two months, along with interest as per Section 244A(1)(b) of the Act. The Court emphasized that the concerned authorities were under an obligation to cancel the penalty and refund the amount following the Tribunal's order, and the petitioner was justified in invoking Article 226 of the Constitution to seek this relief.