2018 (2) TMI 604 - HC - Income Tax

Penalty u/s 271(1)(c) - undisclosed income - two partners had admitted such undisclosed income by filing revised computation of their income, declaring therein their share of the aforesaid amount as their undisclosed income? Held that - It cannot be a universal rule that once an appeal from the order of the Tribunal has been admitted in the quantum proceedings, then, ipso facto the issue is a debatable issue warranting deletion of penalty by the Tribunal. There could be cases where the finding of the Tribunal in quantum proceedings deleting addition could be perverse, then, in such cases, the admission of appeal in quantum proceedings would indicate that an appeal against deletion of penalty on the above account will also warrant admission. In the penalty appeal, it would not be appropriate to widen the scope of controversy in the quantum appeal which after hearing the parties had not admitted it on this question as it was not insisted upon at the hearing of the appeal in the quantum proceedings. This appears to be so, as otherwise, we would have dealt with this question at that time as we are now dealing with it, as the Revenue insists on this question. Considerations for imposition of penalty are undoubtedly different from considerations which would come into play while deciding the appeal in quantum proceedings. In case, if the respondent assessee succeeds in the quantum proceedings, no occasion to impose penalty upon the assessee can arise. However, in case the Revenue succeeds in the quantum proceedings, then that by itself will not necessarily invite penalty. It would still be open to the respondent assessee to urge that in the facts and circumstances of the case, no penalty is imposable.

Summary

Issues:
1. Challenge to order deleting penalty under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2006-07.
2. Justification for deletion of penalty on undisclosed income and unaccounted cash receipts.
3. Contradiction in Tribunal's findings regarding undisclosed income.

Analysis:

Issue 1: Challenge to Penalty Deletion
The appellant challenged the order deleting the penalty under Section 271(1)(c) of the Income Tax Act, 1961. The Tribunal had deleted the penalty based on its order in quantum proceedings where additions were also deleted. The respondent argued that since an appeal on quantum proceedings was admitted, indicating a debatable issue, no penalty should be imposed. The Court referred to a previous case where it was held that no penalty should be imposed if a debatable issue arises. However, it clarified that each penalty deletion/imposition case should be considered based on individual facts and quantum proceedings. The Court emphasized that admission of an appeal in quantum proceedings does not automatically warrant deletion of penalty.

Issue 2: Justification for Penalty Deletion
The Tribunal's decision to delete the penalty was based on the deletion of additions in quantum proceedings. The Court admitted an appeal on substantial questions of law related to the quantum appeal. It noted that the deletion of penalty's justification would depend on the outcome of the quantum appeal. The Court admitted the appeal on substantial questions of law regarding the penalty.

Issue 3: Contradiction in Tribunal's Findings
Regarding the contradiction in the Tribunal's findings on undisclosed income, the Court dismissed the question raised by the Revenue as it was not entertained during the quantum proceedings. The Court emphasized that considerations for imposing a penalty differ from those in quantum proceedings. Success in quantum proceedings may prevent penalty imposition, but the imposition of a penalty is not automatic even if the Revenue succeeds in the quantum proceedings.

The Court directed the Registry to inform the Tribunal of the order and to keep the relevant papers for future reference. The case was scheduled to be heard along with Income Tax Appeal No.536 of 2015, which raised similar substantial questions of law.