2012 (1) TMI 39 - HC - Income Tax

Penalty u/s 271(1)(c) two views were possible regarding taxability in the hands of the members of the A.O.P or in the hands of A.O.P. - matter referred to Special Bench decided in favor of Revenue - Held that - There were two views possible inasmuch as the Tribunal itself was in doubt as to which of the two views were to be preferred. And for this very reason, Tribunal required the matter to be considered by a Special Bench. It cannot be said that prior to that date, the assessee could not have had such a doubt in its mind when it had indeed filed its return. It is a settled principal of law that where two views are possible a penalty cannot be imposed on the assessee Decided in favor of assessee.

Summary

Issues:
Penalty proceedings under Section 271(1)(c) of the Income Tax Act 1961 for assessment years 2003-04 and 2004-05.

Analysis:
1. The appeals before the Delhi High Court arose from a common order passed by the Income Tax Appellate Tribunal concerning penalty proceedings under Section 271(1)(c) of the Income Tax Act 1961 for the assessment years 2003-04 and 2004-05. The appellant, an association of persons, had filed a return of income at nil and claimed a refund on tax deducted at source. The dispute centered around the application of Section 167(B)(2) of the Act to assess the income of the association of persons (A.O.P) instead of individual members. The Assessing Officer and Commissioner of Income Tax (Appeal) had ruled in favor of taxing the entire income in the hands of the A.O.P, rejecting the appellant's contentions based on CBDT circulars.

2. The appellant argued that Sections 86 and 167 (B) of the Act were not applicable as individual members were assessed prior to the A.O.P. The appellant cited a CBDT circular to support the position that the A.O.P should not be taxed for income already disclosed by its members. However, the Commissioner of Income Tax (Appeals) disagreed with the appellant's interpretation. The matter escalated to the Special Bench of the Tribunal to decide the conflicting views on the applicability of circulars and judicial interpretations. The Special Bench ultimately ruled in favor of the revenue, leading to an appeal before the Delhi High Court under section 260A of the Act.

3. The penalty proceedings under Section 271(1)(c) of the Act were initiated based on the appellant filing nil returns for the assessment years in question. The revenue contended that the Supreme Court precedent established that the assessment should have been made in the hands of the A.O.P, not individual members, and the appellant's actions indicated an attempt to evade taxes. The Tribunal had deleted the penalty, citing the existence of two possible views when the returns were filed. The revenue argued that the referral order to the Special Bench came after the return filing date, but the Court held that the doubt over interpretations existed before the referral order, justifying the Tribunal's decision to delete the penalty.

4. The Delhi High Court upheld the Tribunal's decision, emphasizing that where two views are possible, a penalty cannot be imposed on the assessee. The Court found no substantial question of law warranting further consideration and dismissed the appeals, affirming the Tribunal's order to delete the penalty imposed on the appellant in the penalty proceedings under Section 271(1)(c) for the assessment years 2003-04 and 2004-05.