2024 (12) TMI 1433 - HC - Income Tax

Initiation of penalty proceedings during the pendency of an appeal against an assessment order - Whether provisions contained in Section 275(1)(a), per se, operates as bar to initiation of penalty proceedings once an appeal is filed? - HELD THAT - Provision creates a bar based on limitation. It does not create a complete embargo on initiation of penalty proceedings on mere filing of appeal. The bar is that if the proceedings are not initiated within the period of limitation, prescribed therein, it will be barred by limitation. Therefore, the bar is based on failure to initiate proceedings and not on mere filing of appeal. That is what flows on literal reading of the provision. There is no warrant for us to add something more into it and to create a new bar on initiation or continuance of penalty proceedings upon mere filing of appeal. Therefore, the submission of learned counsel for the petitioner in this regard must fail. Remedy u/s 220 (6) - We are of the view that at this stage, the writ remedy need not be invoked because the petitioner does have a remedy under the law. Whether or not in a given case, stay of demand has to be ordered, would essentially be in the exercise of the discretion by the Assessing Officer, as provided u/s 220 (6) of the Act of 1961. We leave it open for the petitioner to approach the appropriate authority at an appropriate stage when the demand notices are issued to him.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the initiation of penalty proceedings can continue during the pendency of an appeal against an assessment order.
Whether the provisions of Section 275(1)(a) of the Income Tax Act, 1961, create an absolute bar on the initiation of penalty proceedings once an appeal is filed.
Whether the petitioner has any remedy available under Section 220(6) of the Income Tax Act, 1961, against the penalty proceedings or demand notices.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Continuation of Penalty Proceedings During Appeal

Relevant legal framework and precedents: The discussion revolves around Section 275(1)(a) of the Income Tax Act, 1961, which addresses the timing and conditions under which penalty proceedings can be initiated.
Court's interpretation and reasoning: The court interprets Section 275(1)(a) as creating a limitation period for initiating penalty proceedings but not an absolute bar based on the filing of an appeal. The court emphasizes that the limitation is related to the timing of initiation and not the mere existence of an appeal.
Key evidence and findings: The court finds that there is no statutory provision that halts penalty proceedings solely due to the filing of an appeal. The provision is intended to ensure proceedings are initiated within a prescribed period.
Application of law to facts: The court applies a literal reading of Section 275(1)(a) and concludes that the petitioner's argument for an automatic stay of penalty proceedings lacks merit.
Treatment of competing arguments: The petitioner's argument that the appeal should automatically stay penalty proceedings is rejected. The respondent's view that the limitation is temporal is upheld.
Conclusions: The court concludes that penalty proceedings can continue unless barred by the limitation period specified in Section 275(1)(a).

Issue 2: Remedy Under Section 220(6)

Relevant legal framework and precedents: Section 220(6) of the Income Tax Act, 1961, provides a mechanism for an assessee to seek a stay of demand pending an appeal.
Court's interpretation and reasoning: The court holds that the remedy under Section 220(6) becomes available as soon as a demand notice is issued, allowing the assessee to apply for a stay.
Key evidence and findings: The court finds that the petitioner has not yet utilized the remedy available under Section 220(6) and that this remedy should be pursued before seeking a writ.
Application of law to facts: The court indicates that the petitioner should approach the Assessing Officer for a stay of demand under Section 220(6) once a demand notice is issued.
Treatment of competing arguments: The petitioner's claim of no available remedy is countered by the respondent's argument that Section 220(6) provides a clear path for addressing such grievances.
Conclusions: The court concludes that the petitioner should utilize the statutory remedy under Section 220(6) before seeking judicial intervention.

3. SIGNIFICANT HOLDINGS

The court holds that Section 275(1)(a) "does not create a complete embargo on initiation of penalty proceedings on mere filing of appeal." This provision is interpreted as a limitation period rather than an automatic stay mechanism.
The court emphasizes that "the remedy under Section 220(6) of the Act of 1961 would be available as soon as any demand is issued against the petitioner." This underscores the availability of statutory remedies before seeking a writ.
Final determinations on each issue include the dismissal of the writ petition and the direction for the petitioner to pursue remedies under Section 220(6) if demand notices are issued.

The judgment concludes with the dismissal of the writ petition, reinforcing the principle that statutory remedies should be exhausted before invoking writ jurisdiction. The court leaves open the possibility for the petitioner to approach the appropriate authority if and when demand notices are issued.

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