2017 (12) TMI 1464 - AT - Income Tax

Penalty proceedings u/s 271(l)(c) - levy penalty immediately after the culmination of the assessment proceedings - Held that - Once the statute provides an assessing authority the discretion to either levy penalty u/s 271(l)(c) immediately after the assessment or after waiting for the outcome of appellate proceedings, it is expected that such a discretion would be carefully exercised by the relevant assessing authority. In the instant case, the facts on record clearly establish that the AO deemed it fit not to levy penalty immediately after the culmination of the assessment proceedings. Show-cause notice dated 12th April, 2017 issued by the AO is also silent on the point as to why suddenly the case warrants levy of penalty without awaiting the outcome of the first appellate proceedings. The reason behind separate limitations as prescribed by the legislature need be understood in this context. There may be a case where the discretion to levy penalty will be in order where immediately after the assessment, the AO chooses to levy penalty, because in his view the material in assessment proceedings requires such an action. I Moreover, taking a prima facie view in the matter, we also find that if at all the AO wanted to levy the penalty without waiting for the orders of the Tribunal in quantum appellate proceedings then, as per the provisions of section 271(l)(c), such an order could only have been passed by 30th April, 2014 and 30th April, 2015 for AY 2006-07 & AY 2007- 08 respectively. Moreover, we find that even equity demands stay of penalty proceedings be granted in the instant case. Provisions of section 275 adequately safeguard the interest of revenue and hence even after the disposal of the appeals by the Tribunal, adequate time is available with the AO for levy of penalty. Thus we grant a stay against penalty proceedings u/s 271(l)(c) of the Act initiated by the AO in the instant case, vide show cause notices dated 12th April, 2017, for a period of six months or till disposal of appeals whichever is earlier.

Summary

Issues Involved:
1. Whether the ITAT possesses the power to stay penalty proceedings under section 271(1)(c) of the Income Tax Act.
2. Whether the ITAT should exercise its power to stay the penalty proceedings in the facts of this case.

Issue-wise Detailed Analysis:

1. Power of ITAT to Stay Penalty Proceedings:

The petitioner sought a stay against penalty proceedings initiated by the Additional Commissioner of Income Tax under section 271(1)(c) for the assessment years 2006-07 and 2007-08, pending the disposal of quantum appeals by the Tribunal. The petitioner argued that the ITAT has inherent powers to grant such a stay as part of its appellate powers under section 254(1) of the Act. This argument was supported by various judicial precedents, including decisions from the Hon’ble Jurisdictional High Court, Gujarat High Court, and the Apex Court.

The Tribunal noted that section 254(2A) of the Act allows the ITAT to pass an order of stay in any proceedings relating to an appeal filed before it. The Tribunal concluded that this power is not limited to the proceedings of the appeal itself but extends to any related proceedings, including penalty proceedings that are a direct result of the pending appeal. The Tribunal referred to several precedents, including CIT v. ITAT and GE India Industrial (P.) Ltd., which supported the existence of such a power with the Tribunal.

The Tribunal further emphasized that the doctrine of implied and ancillary powers supports the Tribunal’s authority to stay related proceedings to ensure the right of appeal is fully effective. Therefore, the Tribunal concluded that it has the power to stay penalty proceedings under section 271(1)(c) pending the disposal of quantum appeals.

2. Exercise of Power to Stay Penalty Proceedings:

Upon establishing its jurisdiction, the Tribunal considered whether it should exercise its power to stay the penalty proceedings in the facts of this case. The petitioner argued that the quantum demand had already been paid, and the penalty proceedings should be kept in abeyance pending the disposal of the quantum appeals. The petitioner highlighted that the AO had previously exercised discretion to keep the penalty proceedings in abeyance, as evidenced by the timeline of relevant dates.

The Tribunal observed that the AO had initially chosen not to levy the penalty immediately after the assessment proceedings but later issued fresh show-cause notices for penalty proceedings. The Tribunal noted that the statute provides discretion to the AO to levy penalty either immediately after the assessment or after awaiting the outcome of appellate proceedings. The Tribunal emphasized that this discretion should be exercised reasonably, fairly, and equitably.

The Tribunal also considered the provisions of section 275, which provide an outer limit for passing an order of penalty and safeguard the interest of revenue. The Tribunal found that if the AO wanted to levy the penalty without waiting for the Tribunal’s order in quantum appeals, such an order could only have been passed within the prescribed limitation period, which had already expired.

Considering the legal and factual positions, the Tribunal concluded that this was a fit case for exercising its power to stay the penalty proceedings. The Tribunal granted a stay against the penalty proceedings for a period of six months or until the disposal of the appeals, whichever is earlier. The Tribunal also directed the registry to expedite the hearing of the appeals and instructed the assessee to cooperate in the early disposal of the appeals.

Conclusion:

The stay petitions filed by the petitioner were allowed, and the Tribunal granted a stay against the penalty proceedings under section 271(1)(c) of the Act, pending the disposal of the quantum appeals.