2015 (2) TMI 770 - HC - Income Tax

Penalty u/s 221(1) - ITAT restricting the quantum of penalty as done by CIT(A) to 5% of the unpaid self assessment tax instead of @ 20% levied by the assessing officer - Held that - One cannot omit the fact that the taxes emanating from the search by the group had been paid and Settlement Commission was also approached. The self assessment tax of ₹ 97.81 lacs alongwith the interest was also paid in part by 31-12-2011. The CIT(A) has after considering all relevant facts proceeded to exercise bonafide discretion to reduce penalty. The decision so recorded is neither perverse nor arbitrary. The affirmation of this aforesaid order by the Tribunal cannot be said to be perverse or arbitrary much less does it give rise to any substantial question of law. - Decided against the revenue

Summary

Issues:
Challenge to order reducing penalty from 20% to 5% by the Income Tax Appellate Tribunal (ITAT) - Substantial question of law regarding the quantum of penalty under section 221(1) - Discretion exercised by the Commissioner of Income Tax (Appeals) (CIT(A)) in reducing penalty - Justification for reducing penalty - Appeal by revenue against the order of the ITAT.

Analysis:
The High Court was presented with a challenge by the revenue against an order passed by the ITAT, where the Tribunal affirmed the decision of the CIT(A) to reduce the penalty from 20% to 5%. The revenue contended that the CIT(A) was not justified in reducing the penalty due to the assessee's failure to appear before the assessing officer, failure to deposit tax on time, and providing a false explanation. The revenue argued that since the assessing officer had already taken a lenient view by imposing a 20% penalty, reducing it to 5% was not justified.

Upon reviewing the orders passed by the Tribunal and the CIT(A), the High Court found that the CIT(A) had exercised discretion in reducing the penalty to 5% without any error of jurisdiction. The High Court quoted a relevant extract from the CIT(A)'s order, emphasizing that despite the delay and the assessee being deemed in default, the taxes were paid, and the Settlement Commission was approached. The CIT(A) considered these factors and directed the assessing officer to levy a penalty of 5% instead of 20%, deeming the higher penalty as harsh.

The High Court noted that the CIT(A) had taken into account all relevant facts and circumstances before reducing the penalty, indicating a bonafide exercise of discretion. The High Court concluded that the decision to reduce the penalty was neither arbitrary nor perverse. Therefore, the High Court upheld the decision of the ITAT affirming the CIT(A)'s order and dismissed the revenue's appeal, answering the substantial question of law against the revenue.