2015 (2) TMI 409 - HC - Income Tax

Reduction of penalty levied under section 140A(3) - Tribunal restored the assessee's exigibility to penalty, but while doing so, has reduced the quantum of penalty to ₹ 10 lacs for each financial year - Held that - Tribunal reduced the quantum of penalty to ₹ 10 lacs for each financial year without assigning any reason other than holding that the ends of justice and a liberal interpretation require that the penalty be reduced. The mere use of the words the ends of justice and a liberal interpretation while reducing penalty from ₹ 66 lacs to ₹ 10 lacs each, particularly when the Tribunal had accepted that the assessee has not discharged onus to explain its default, are insufficient to infer a legal exercise of discretion to determine the quantum of penalty. The impugned order, therefore, does not meet the parameters of a judicial, much less a quasi judicial determination. The appeals are, therefore, partly allowed, the assessee's exigibility to penalty is affirmed but the quantum of penalty determined by the Tribunal is set aside and the appeals are restored to the Tribunal for adjudication afresh and in accordance with law so as to determine the quantum of penalty to be imposed upon the appellants.

Summary

Issues:
Determining quantum of penalty without relevant factors and reasons, Perversity and arbitrariness of determined penalty, Factors to be considered in determining penalty under section 221 of the Income Tax Act.

Analysis:
The High Court addressed the issues arising from the appeal filed by both the assessee and the revenue against the order of the Income Tax Appellate Tribunal. The Tribunal had reduced the penalty imposed on the assessee from Rs. 66 lacs to Rs. 10 lacs for each assessment year without providing adequate reasons. The Court noted that the Tribunal's decision lacked a proper legal exercise of discretion in determining the penalty amount, as it did not consider relevant facts or factors. The Court emphasized that while exercising the power to determine the penalty amount, a judicial process involving reference to relevant facts and reasoning is essential for a fair and just conclusion.

The Court highlighted that factors such as the period of default, reasons for default, recurring nature of default, conduct of the assessee, and any extenuating circumstances should be considered when determining the quantum of penalty under section 221 of the Income Tax Act. The Tribunal's failure to take into account these relevant factors and instead relying on legal phrases like "ends of justice" and "liberal interpretation" led to an arbitrary reduction of the penalty amount to Rs. 10 lacs. The Court concluded that the Tribunal's decision did not meet the standards of a judicial or quasi-judicial determination, necessitating a reconsideration of the penalty amount.

In response to the questions raised by the parties, the Court held in favor of the revenue, affirming the assessee's liability to penalty but setting aside the quantum of penalty determined by the Tribunal. The Court allowed the appeals in part and directed the matter to be restored to the Tribunal for a fresh adjudication in accordance with the law to determine the appropriate quantum of penalty to be imposed on the appellants. The parties were instructed to appear before the Income Tax Appellate Tribunal for further proceedings on the specified date.