2010 (9) TMI 97 - HC - Income Tax

Levy of penalty - period of limitation - section 275(1) - penalty on the basis of ITAT order in rectification application dated 28.2.2005 - Held that - The order dated 28.2.2005 was related to correction in the certificate dated 28.7.1999 in respect of interest only under the Scheme. It was irrelevant for considering the limitation to levy of penalty. This limitation had to be calculated on the basis of the order of the Tribunal dated 24.9.2004 dismissing the appeal in reassessment proceeding

Summary

Issues:
1. Assessment under Section 143(1)(a) of the Income Tax Act
2. Reassessment under Section 148 of the Act
3. Appeal before the Income Tax Appellate Tribunal
4. Kar Vivad Samadhan Scheme application
5. Penalty proceedings and imposition
6. Appeal against penalty order based on limitation

Analysis:

1. The respondent initially disclosed an income of Rs.20,81,880/-, which was processed under Section 143(1)(a) of the Income Tax Act.

2. Following a search at the respondent's premises, a notice for reassessment under Section 148 of the Act was issued, resulting in an assessment of Rs.2,28,18,870/-. The respondent's appeals against this assessment were dismissed, leading to a second appeal before the Income Tax Appellate Tribunal, which was also dismissed.

3. During the appeal process, the Kar Vivad Samadhan Scheme was introduced, prompting the respondent to apply for settlement of interest arrears. The application was accepted, and a certificate was issued on 28.7.1999.

4. Subsequently, the appellant filed for rectification of the certificate under the Scheme, which was allowed. The respondent then appealed this decision, and the Tribunal allowed the appeal on 28.2.2005.

5. Penalty proceedings were initiated on 27.12.1996, with the penalty being imposed on 27.11.2005. However, the Tribunal set aside the penalty order on 4.8.2006, citing it as barred by time under Section 275(1)(a) of the Act, leading to the Department's present appeal.

6. The appellant argued that the penalty was not time-barred, contending that the limitation should have been calculated from the order dated 28.2.2005. However, the Tribunal held that the limitation should be based on the order dated 24.9.2004, dismissing the appeal in the reassessment proceedings.

7. After hearing arguments from both parties, the Court found that the order dated 28.2.2005 was specific to correcting the certificate related to interest under the Scheme and was irrelevant for determining the limitation for imposing the penalty. The Court upheld the Tribunal's decision to calculate the limitation from the order dated 24.9.2004, dismissing the appeal in the reassessment proceedings.

8. Consequently, the Court found no illegality in the Tribunal's order and dismissed the appeal by the Department, stating that it lacked merit.