2022 (2) TMI 816 - AT - Income Tax

Power of AO to levy penalty when the matter was considered by the settlement commission - Proceedings with by Hon ble ITSC u/s.245D(1) and 245D(2C) - Rectification order u/s 154 levying penalty u/s 271AAC - assessee had filed a petition before the ITSC on 05.12.2019 which stood admitted and allowed to be proceeded with u/s 245D(1) by the ITSC - HELD THAT - Wherein an application made u/s 245C has been allowed to be proceeded with u/s 245D then the ITSC shall until and unless an order is passed under sub-section (4) of section 245D subject to the provisions of section 245D(3) the exclusive jurisdiction to exercise powers and perform the functions of an income-tax authority under this Act lies with ITSC. This proposition has been reiterated by the Hon ble Delhi High Court in the case of M/s. Omaxe Limited 2014 (5) TMI 147 - DELHI HIGH COURT Once that is so then AO did not had any jurisdiction to initiate or levy penalty u/s 271AAC. CIT (A) should have held that the penalty order itself is without jurisdiction and infructuous but instead held that the CIT (A) does not have any jurisdiction. Since AO did not have any jurisdiction to pass any order or levy any penalty on the same matter which is sub-judice before the ITSC then impugned order dated 27.01.2020 levying penalty is quashed as infructuous. On this ground alone the appeal of the assessee is allowed and the penalty is deleted.

Summary

Issues:
Jurisdiction of CIT (A) to decide the case vesting with Settlement Commission.
Validity of penalty order u/s 154 levying penalty u/s 271AAC.
Jurisdiction of AO to pass penalty order u/s 271AAC.
Applicability of Sec. 292B in penalty proceedings.
Exclusive jurisdiction of ITSC when the case is sub-judice before it.

Analysis:
The appeal was filed against the order levying penalty u/s 271AAC for the assessment year 2017-18. The assessee contended that CIT (A) erred in dismissing the appeal as infructuous, claiming that the jurisdiction to decide the case vested with the Settlement Commission. The AO initiated penalty u/s 270A but later levied penalty u/s 271AAC without issuing a mandatory show-cause notice. The assessee argued that the penalty proceedings were illegal and unsustainable under Sec. 154. The AO justified the penalty under Sec. 271AAC as a rectifiable mistake under Sec. 154 and a curable defect under Sec. 292B.

The assessee had filed a petition before the Income Tax Settlement Commission (ITSC) against the assessment order, which was admitted and allowed to proceed. The AO, however, levied penalty u/s 271AAC despite the case being sub-judice before the ITSC. The CIT (A) dismissed the appeal, stating she lacked jurisdiction to challenge the ITSC's jurisdiction. The ITAT noted that the ITSC had exclusive jurisdiction until a final order was passed under Sec. 245D(4), as per Sec. 245F(2) of the Income Tax Act and the Delhi High Court's decision in M/s. Omaxe Limited case (364 ITR 423). Consequently, the AO had no authority to levy the penalty u/s 271AAC, rendering the penalty order infructuous.

In conclusion, the ITAT held that the AO lacked jurisdiction to pass the penalty order u/s 271AAC while the case was pending before the ITSC, as per the exclusive jurisdiction granted to the ITSC. Therefore, the penalty order was quashed as infructuous, and the appeal of the assessee was allowed, leading to the deletion of the penalty. The judgment was pronounced on February 14, 2022.