2020 (2) TMI 367 - HC - Income Tax

Penalty u/s 271(1)(c) - CIT (Appeals) found some fault in the exercise of jurisdiction by AO and remanded the matter back - AO disallowed the mining land restoration charges in an amount of ₹ 1,40,00,000/- and added back this amount to the return income - HELD THAT - Commissioner (Appeals) basically directed the AO to revisit the issue of disallowance but did not specifically interfere with or set aside the endorsement relating to the issuance of notice under Section 271 (1) (c) of the IT Act. From the tenor of the Order dated 16.11.2000, it is clear that the Commissioner (Appeals) did not wish to interfere with the endorsement at the stage of disposal of the appeal as the endorsement would undoubtedly lose its efficacy, in case, upon remand, the AO were to revoke the disallowance to the extent of ₹ 1,40,00,000/- thereby reducing the returned income to that which was originally declared by the appellant at the time of filing of the initial returns for the Assessment Year 1997-1998. The Order dated 16.11.2000, upon contextual reading and understanding also suggests that in case, upon remand, the AO were to maintain his original position of disallowing the amount of ₹ 1,40,00,000/-, thereby maintaining the return income at ₹ 54,49,180/-, then, obviously, there could be no jurisdictional bar to the continuance of the penalty proceedings, initiated by the endorsement which is to be found in the AO's Order dated 8.2.2000. If the Order dated 16.11.2000 is read and interpreted in this fashion, then, it is difficult to agree with Mr. Kulkarni's submissions or to take a view at variance with that taken by ITAT in the impugned Order dated 28.8.2013. In this case the AO not only maintained the earlier income as determined in his Order dated 8.2.2000 but even the appeal instituted by the appellant against the same was withdrawn by the appellant. In such circumstances, we are unable to agree with the contentions of Mr. Kulkarni that at the stage of making order giving effect to the Order of the Commissioner (Appeals), there was necessity of making a fresh Order or there was a necessity of issuing a fresh notice for initiating the penalty proceedings. Such a contention appears to emphasise entirely on form than on substance, even, though it is the case of the appellant that it is the substance which must prevail over the form, when it comes to the interpretation of the Order dated 16.11.2000. We answer the substantial questions of law against the appellant in favour of the Revenue. The appeal is therefore dismissed and the parties are directed to appear before the Commissioner (Appeals) on 9th March, 2020 at 11.00 a.m., in order to enable the Commissioner (Appeals) to decide on merits whether penalty of ₹ 40,00,000/- was correctly levied upon the appellant.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) to levy penalty.
2. Effect of the Commissioner of Income Tax (Appeals) [CIT(A)]'s remand order on the initiation of penalty proceedings.

Issue-wise Detailed Analysis:

1. Jurisdiction of the AO to Levy Penalty:
The core issue was whether the AO had jurisdiction to levy the impugned penalty based on the initial order dated 8.2.2000, which included an endorsement to initiate penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961. The appellant argued that the CIT(A)'s order dated 16.11.2000, which remanded the matter back to the AO, effectively set aside the entire initial order, including the penalty endorsement. The ITAT, however, held that the AO retained jurisdiction to levy the penalty, as the remand order did not explicitly quash the penalty proceedings. The High Court agreed with the ITAT, emphasizing that the substance of the CIT(A)'s order did not interfere with the penalty endorsement, thereby allowing the penalty proceedings to continue if the AO maintained his original assessment upon remand.

2. Effect of CIT(A)'s Remand Order on Penalty Proceedings:
The appellant contended that the remand order by the CIT(A) impliedly set aside the entire initial assessment, including the penalty proceedings. The High Court examined the substance of the CIT(A)'s order and concluded that it directed the AO to reconsider the disallowance of ?1,40,00,000/- but did not specifically address the penalty endorsement. The Court noted that if the AO maintained the disallowance upon remand, the penalty proceedings could continue without the need for a fresh initiation. The Court found that the CIT(A)'s remand order did not obliterate the penalty endorsement, thus upholding the jurisdiction of the AO to levy the penalty.

Conclusion:
The High Court upheld the ITAT's decision, affirming the AO's jurisdiction to levy the penalty based on the initial order's endorsement. The Court directed the parties to appear before the CIT(A) to decide on the merits of the penalty levied. The appeal was dismissed, and all contentions on the merits of the penalty order were left open for determination by the CIT(A).