2009 (9) TMI 209 - HC - Income Tax

Whether, on the facts and circumstances of the case, the Tribunal was legally justified in directing the Assessing Officer to initiate penalty proceedings in fresh assessment when the limitation for completion of fresh assessment already expired as on date of Income-tax Appellate Tribunal order? Since concealment of income is not proved, penalty cannot be sustained The Tribunal while dismissing the Revenues appeal has held that as in the quantum proceedings, the issue relating to addition which was a subject-matter of the present proceedings under section 271(l)(c) has since been restored back to the file of the assessing authority for decision afresh, penalty imposed under section 271(1)(c) does not survive - Regarding penalty on basis of addition to income, addition is set aside and matter is remanded

Summary

Issues:
1. Legality of directing the Assessing Officer to initiate penalty proceedings in fresh assessment after the limitation period has expired.

Analysis:
The judgment pertains to an appeal filed under section 260A of the Income-tax Act, 1961 against a penalty imposed under section 271(1)(c) for the assessment year 1986-87. The primary issue raised was whether the Tribunal was legally justified in directing the Assessing Officer to initiate penalty proceedings in a fresh assessment when the limitation period for completion of the fresh assessment had already expired at the time of the Tribunal's order. The penalty was imposed on the ground that certain cash credits in the books of the assessee were not satisfactorily explained and were added to the income. However, the Commissioner of Income-tax (Appeals) allowed the appeal against the penalty order, which was upheld by the Tribunal. The Tribunal held that since the issue relating to the addition, which was the basis for the penalty, had been set aside in the quantum appeal and the matter was sent back to the Assessing Officer, the penalty under section 271(1)(c) could not be sustained until fresh adjudication took place.

The Court observed that the basis for imposing the penalty had been set aside by the Tribunal in the quantum appeal, and the matter was pending fresh adjudication by the Assessing Officer. Therefore, until the fresh assessment was completed, the penalty imposed under section 271(1)(c) could not be upheld. The Court emphasized that without a final adjudication on the issue of addition of income, concealment could not be deemed to have been established. Consequently, the Court dismissed the appeal, affirming the Tribunal's decision that the penalty could not be sustained based on the earlier addition until the fresh assessment was finalized.

In conclusion, the Court found that the Tribunal's direction to the Assessing Officer to initiate penalty proceedings in a fresh assessment after the limitation period had expired was not legally justified. The penalty imposed under section 271(1)(c) could not be sustained until the fresh adjudication took place, as the basis for the penalty had been set aside and the matter was pending before the Assessing Officer for reevaluation.