2018 (5) TMI 1389 - HC - Income Tax

Penalty u/s 271(1)(c) - discretion to impose penalty ranges between equivalent to amount of tax sought to be evaded to three times that much - Held that - We may record our disapproval of the approach adopted by the Tribunal while reducing the penalty. In plain terms, statutory provisions contained in section 27 envisage penalty which would be 100% of the tax sought to be evaded and which may go up to 300% thereof. The Tribunal, however, found a way to bypass this minimum limit by suggesting that the profit element embedded in the cash deposits could be subjected to penalty. When the proceedings of assessment in which the additions in the hands of the assessee were made, the Tribunal could not have ignored such final conclusions by simply adopting the different mode or yardstick to judge the amount of tax sought to be evaded by the assessee.

Summary

Issues:
Challenge to reduction of penalty by the Tribunal under section 271(1)(c) of the Income Tax Act, 1961. Exceeding jurisdiction by the Tribunal in imposing penalty. Filing of writ petition by Revenue based on CBDT circular and monetary limits for appeals.

Analysis:
The High Court of Gujarat heard a case where the Principal Commissioner of Income Tax challenged a judgment by the Income Tax Appellate Tribunal reducing a penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The Tribunal had reduced the penalty from ?13,00,990 to ?4,37,265, based on the assessee's claim of running a small business with low profit margins. The Tribunal considered 10% of the total deposits as the assessee's profit and reduced the penalty accordingly. The Revenue filed a petition on two grounds: first, that the Tribunal exceeded its jurisdiction by imposing a penalty of 10% of the tax sought to be evaded, which was impermissible under the law; and second, based on a CBDT circular stating no appeal would be filed if the tax effect is less than ?20 lakhs.

The High Court noted that while the CBDT circular sets monetary limits for filing appeals, those limits may not apply to a writ petition filed by the Revenue. However, considering the circular's aim to reduce litigation, the Court was cautious in allowing the petition, emphasizing that a writ petition by the Revenue should only be entertained in rare and exceptional cases with long-term or severe consequences. In this case, the Court declined to entertain the petition.

The Court expressed disapproval of the Tribunal's approach in reducing the penalty, stating that the statutory provisions require penalties ranging from 100% to 300% of the tax sought to be evaded. The Tribunal's method of considering the profit element in cash deposits for penalty calculation was criticized, as it bypassed the minimum penalty limits set by law. The Court emphasized that the Tribunal should not have ignored the assessment conclusions while determining the penalty amount.

In conclusion, the High Court disposed of the petition with observations on the Tribunal's penalty reduction approach and the Revenue's filing based on the CBDT circular.