2009 (12) TMI 45 - HC - Income Tax

Penalty u/s 271(1)(c) - The assessee is a shipping agent. For the assessment year 1996-97, the assessee had claimed deduction under Section 80-O of the Income Tax Act on the ground that the assessee rendered service to foreign shipping company and also do certain technical services like booking of cargos and gathering and supplying the details of Market condition to foreign shipping companies. The Assessing Officer found that there was no actual receipt of foreign exchange by the assessee and thus levied penalty under Section 271(1)(c) in a sum of Rs.30,30,430/-. Held that - The quantum tax case appeal has been decided by this Court in the case of Commissioner of Income Tax vs. Chakiat Agencies Pvt. Limited reported in 2009 -TMI - 33216 - MADRAS HIGH COURT , wherein the order of the Tribunal granting the relief in favour of the assessee has been uuheld - In view of the fact that the quantum appeal has been decided in favour of the assessee, virtually the basis for imposition and levy of penalty under Section 271(1)(c) is not available

Issues:
1. Correctness of the order of the Tribunal regarding penalty under Section 271(1)(c) of the Income Tax Act for the assessment year 1996-97.
2. Whether the Tribunal was right in canceling the penalty when the claim of deduction under Section 80-O had been allowed.

Analysis:
1. The judgment concerns the correctness of the Tribunal's order dated 30th November 2005 in relation to the penalty imposed under Section 271(1)(c) of the Income Tax Act for the assessment year 1996-97. The Tribunal directed the deletion of the penalty, which was initially levied by the assessing officer and upheld by the Commissioner of Income Tax (Appeals). The Tribunal based its decision on the allowance of the assessee's claim of deduction under Section 80-O in a previous order dated 30.04.2003. The key question before the court was whether the Tribunal's action in canceling the penalty was justified given the circumstances of the case.

2. The facts of the case reveal that the assessee, a shipping agent, had claimed deduction under Section 80-O for the assessment year 1996-97, citing services provided to foreign shipping companies. The assessing officer imposed a penalty under Section 271(1)(c) due to the absence of actual foreign exchange receipts by the assessee. Despite the Commissioner of Income Tax (Appeals) upholding the penalty, the Income Tax Appellate Tribunal ruled in favor of the assessee, emphasizing that the allowance of the deduction under Section 80-O in a prior order invalidated the basis for the penalty imposition. The central issue raised was whether the Tribunal's decision to cancel the penalty was appropriate in light of the lack of evidence supporting the services falling within Section 80-O.

3. The revenue contended that it did not accept the Tribunal's order granting relief under Section 80-O, leading to a tax case appeal. However, during the pendency of the tax case appeal before the court, the present appeal regarding the penalty was filed. Notably, the court had previously ruled in a related case, Commissioner of Income Tax vs. Chakiat Agencies Pvt. Limited, upholding the Tribunal's decision to grant relief to the assessee. Given the favorable outcome of the quantum appeal for the assessee, the court concluded that the basis for imposing the penalty under Section 271(1)(c) was no longer valid, rendering the penalty imposition unlawful.

4. Ultimately, the court found that since the quantum appeal had been decided in favor of the assessee, the grounds for imposing the penalty under Section 271(1)(c) were no longer tenable. Consequently, the court answered the question of law in the affirmative and in favor of the assessee, leading to the dismissal of the appeal. The judgment underscores the importance of aligning penalty imposition with the legal framework and factual circumstances, particularly in cases where the basis for the penalty is invalidated by subsequent legal determinations.

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