2022 (4) TMI 623 - HC - Income Tax

Penalty proceedings initiated u/s 221(1) - reopening of assessment u/s 147 - petitioner also filed application under Section 220(6) of the Act to seek for a stay - HELD THAT - Mere filing of an appeal before the Appellate Authority against the order passed under Section 147 of the Act would not preclude the Assessing Authority to make a demand and also to initiate penalty proceedings. In this case, during the pendency of the appeal, the petitioner also has filed an application for stay u/s 220(6) and the said application having been considered was, in fact, rejected for grant of blanket stay only. AO has stated that, as a condition precedent if the petitioner comes forward to pay 20% of the demand, stay would be granted. The Assessing Officer would further be stated that, if at all the petitioner in order to get further ease in making payment of 20% of the demand by way of installment, that also would be considered, provided, if the assessee comes forward to make application to that effect. On seeing the said order dated 08.12.2021 passed under Section 220(6) of the Act, wherein the provision wrongly quoted as 226 of the Act, it is a reasoned order, where, the Assessing Officer, considering the facts and circumstances of the case, has used his discretion, of course, with condition which is a mandatory one that to be imposed by the Assessing Officer while exercising his discretion under Section 220(6) of the Act. On the factual matrix of the case as well as the reasonable disposal of the stay application by the Assessing Officer, this Court feels that, the judgment cited by the learned counsel appearing for the petitioner may not apply to the facts of the present case. Petitioner seems to have filed further application before the Principal Commissioner to seek for a stay and according to the learned counsel for the petitioner, it is still pending, therefore, he can very well pursue the said application. Insofar as initiating proceedings for penalty under Section 221(1) of the Act, it has made clear that, if there is any due of tax who is in default or deemed to be in default in arrears, the Assessing Officer may direct in case of a continuing default, such further amount or amounts as the Assessing Officer may, from time to time, direct by way of penalty, but only condition is that, the penalty does not exceed the amount of tax in arrears. The proviso to Section 221 (1) says that, before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard. Only in order to comply with the said proviso under Section 221(1) of the Act, now the present notice, which is impugned herein, has been issued by the respondents. Therefore, the said notice in the legal scrutiny cannot be construed as a notice issued without jurisdiction or in violation of the principles of natural justice, hence, this Court has no hesitation to hold that, the impugned notice does not require any interference from this Court at this stage.

Summary

Issues involved:
Challenge to penalty proceedings under Section 221(1) of the Income Tax Act, 1961 for assessment year 2013/14.

Analysis:
1. The petitioner sought a Writ of Certiorari to quash penalty proceedings initiated under Section 221(1) of the Income Tax Act, 1961. The petitioner had already appealed against the assessment order under Section 147, and a stay petition was pending before the CIT (Appeal).

2. The Assessing Authority rejected the petitioner's application for stay under Section 220(6) of the Act. The petitioner then filed another application before the Principal Commissioner seeking a stay, which was still pending. Subsequently, a notice under Section 221(1) was issued by the respondent, initiating penalty proceedings, which the petitioner challenged in the writ petition.

3. The petitioner argued that penalty proceedings should not be initiated while the appeal against the assessment order was pending and the stay petition was undecided. The petitioner contended that the rejection of the stay application was against the principles of natural justice and without jurisdiction.

4. The respondent argued that filing an appeal does not prevent the Assessing Authority from making a demand or initiating penalty proceedings. The respondent highlighted that the petitioner had not responded to the option given in the rejection order of the stay application to pay 20% of the demand for a stay.

5. The court observed that the Assessing Officer had used discretion in the rejection order of the stay application under Section 220(6) of the Act. The court found the rejection order to be reasoned and imposed mandatory conditions for granting stay.

6. The court noted that the petitioner had filed a further application before the Principal Commissioner for a stay, which was still pending. The court emphasized the provision under Section 221(1) allowing the Assessing Officer to levy penalty after giving the assessee a reasonable opportunity to be heard.

7. Concluding, the court held that the impugned notice for penalty proceedings did not violate jurisdiction or natural justice principles. The court dismissed the writ petition, allowing the petitioner to pursue the pending application for a stay. No costs were awarded, and connected miscellaneous petitions were also dismissed.