2013 (2) TMI 241 - HC - Income Tax

Notice of demand u/s 156 - rejecting an application for stay of demand pending disposal of the appeal - penalty u/s 271 (1)(c) - revised return filled by assessee - Held that - As appear from the record before the Court that together with the return of income as originally filed, the Petitioner annexed a copy of Form-3C in which there was a disclosure of the amount of Rs.5.86 crores which was treated as a reimbursement in respect of marketing services alleged to have been availed of from Deloitte. The transfer pricing analysis which was filed during the course of assessment proceedings similarly indicated the basis on which the deduction was claimed. When a revised return of income was filed, a disclosure was made to the effect that the return was revised with a view to add back the marketing expenses in the original return filed on 1 November 2004 with a view to avoid litigation in relation to the admissibility of the claim. The deduction under section 10A was stated to have been revised accordingly. That claim has been rejected by the assessing officer and in appeal as well as by the Tribunal. At the present stage, it is necessary for the Court to take note of the provisions of Section 220(6) under which the assessing officer is vested with the discretion, where an assessee has presented an appeal under section 246 or Section 246A and subject to such conditions as he may think fit to impose in the circumstances of the case to treat the assessee as not being default in respect of the amount in dispute in the appeal. When the statute confers a discretion on the assessing officer, that is a discretion which is wielded in the exercise of a quasi-judicial function. As in the present case, both the AO as well as the CIT have failed to exercise their jurisdiction in accordance with law. The CIT adverted to the fact that the quantum appeal had been rejected by the CIT (A) and the ITAT. That in itself would not amount to a valid justification for imposition of a penalty. Before a penalty is imposed, the requirements of Section 271 must be established. Accordingly, it would have been open to the Court to set aside the impugned order in its entirety and to remand the proceedings back to the assessing officer for fresh consideration. However, since arguments before the Court have been addressed on the prima facie merits of the case as well, no need to follow that course of action since that would lead to another round of proceedings before this Court again. Having regard to the circumstances which have been noted an appropriate order for partial deposit of the penalty would be necessitated. An order for the deposit of the entire penalty is clearly not justified - dispose of the petition by directing Petitioner shall deposit an amount of Rs. Fifty lakhs in two equal installments on or before 28 February 2013 and 31 March 2013.

Summary

Issues:
1. Challenge to notice of demand under Section 156 of the Income Tax Act, 1961 for assessment year 2004-05 and rejection of application for stay of demand pending disposal of appeal.
2. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
3. Discretionary powers of assessing officer under Section 220(6) regarding stay of demand.

Analysis:
Issue 1:
The petitioner challenged a notice of demand dated 30 March 2012 under Section 156 of the Income Tax Act, 1961, and an order dated 2 January 2013 rejecting an application for stay of demand. The petitioner, a joint venture company, claimed to have rendered services to an associated enterprise and filed returns disclosing income. The Assessing Officer made adjustments based on Transfer Pricing Officer's findings, leading to a penalty imposition and subsequent appeals.

Issue 2:
The penalty under Section 271(1)(c) was imposed after the Assessing Officer determined total income, and subsequent appeals were dismissed. The petitioner argued that there was no concealment of income, and the penalty was not justified as the claim was disclosed during assessment proceedings. The court emphasized the need for a valid exercise of discretion by the assessing officer under Section 220(6) and highlighted the importance of fairness and objectivity in decision-making.

Issue 3:
The assessing officer's discretionary powers under Section 220(6) were discussed in detail. The court emphasized the need for a valid exercise of discretion, stating that a mere bald statement of denial for stay is insufficient. Assessing officers were reminded to act fairly and provide reasons for their decisions, subject to judicial review. In this case, both the assessing officer and CIT failed to exercise their jurisdiction properly, leading to the court directing a partial deposit of the penalty amount pending appeal.

In conclusion, the court directed the petitioner to deposit a specified amount in installments to stay the recovery of the penalty, highlighting the importance of a valid exercise of discretion by the authorities and the need for fairness and objectivity in decision-making processes.