2019 (2) TMI 811 - AT - Income Tax

Penalty u/s. 271(1)(c) - penalty was levied became subject matter of action u/s.263 - Held that - We find that the CIT(A) has not decided the appeal on the ground that section 263 order has been passed in this case and the matter is under challenge before the ITAT. We do not find any reason as to why in such circumstances, CIT(A) shall refrain from deciding the merits of the appeal before him which relates to sec.143(3) order passed. It cannot be said that this appeal has lost its relevance if an order u/s. 263 is passed by the CIT on the original assessment order. The appeal against the order u/s. 263 will take its natural course before the appellate forums. It by no means obviates appellate proceedings before the present CIT(A). The assessee is aggrieved by this action of the CIT(A). Accordingly, we remit this issue to the file of the CIT(A). The ld. CIT(A) shall consider the issue afresh and pass a speaking order on this issue, after giving the assessee proper opportunity of being heard. Appeal by the assessee is allowed for statistical purpose.

Summary

Issues:
1. Rejection of penalty appeal based on existence of order under section 263
2. Consideration of penalty appeal relevance in light of section 263 order

Analysis:
1. The appeal before the ITAT Mumbai concerned the rejection of a penalty appeal by the assessee against the order of the ld. CIT(A) for the assessment year 2011-12. The penalty appeal was rejected based on the high quantum of penalty levied on the assessed income, and the existence of an order under section 263 against the appellant. The appellant contended that the penalty appeal was forced to be withdrawn due to the order under section 263, which was considered by the ld. CIT(A) as making the appeal infructuous.

2. The ld. CIT(A) noted that the penalty proceedings were initiated under section 271(1)(c) of the Income Tax Act, 1961, and a penalty was levied by the Assessing Officer. The quantum appeal related to the penalty was also under action under section 263, with the order pending for decision. The ld. CIT(A) held that in such circumstances, the appeal before him lost relevance as the Assessing Officer was required to pass a fresh order in light of the section 263 order. The appellant's representative proposed to withdraw the appeal, and the ld. CIT(A) dismissed the appeal as infructuous for statistical purposes.

3. The ITAT Mumbai, in its judgment, disagreed with the approach of the ld. CIT(A) in dismissing the appeal without considering the merits. The ITAT observed that the existence of an order under section 263 did not negate the need for the ld. CIT(A) to decide the appeal on its merits, especially since it related to the original assessment order under section 143(3). The ITAT found no reason for the ld. CIT(A) to refrain from deciding the appeal based on the section 263 order, as the appeal against the section 263 order would proceed separately. The ITAT remitted the issue back to the ld. CIT(A) to consider afresh and pass a speaking order after providing the assessee with a proper opportunity to be heard.

4. Ultimately, the ITAT allowed the appeal by the assessee for statistical purposes, highlighting the importance of due process and consideration of the appeal on its merits. The decision emphasized the need for separate consideration of appeals related to penalty and section 263 orders, ensuring that each aspect is given due attention and proper adjudication.

Judgment: The ITAT Mumbai allowed the appeal by the assessee, remitting the issue back to the ld. CIT(A) for fresh consideration and a speaking order, emphasizing the importance of deciding the appeal on its merits despite the existence of an order under section 263.