2019 (1) TMI 605 - HC - Income Tax

Penalty u/s 271(1)(c) - difference between the stated loss and the assessed income - rectification application accepted by tribunal - Held that - We are conscious of the decision of this court in case of Chem Amit Vs. Assistant Commissioner of Income-tax (2004 (11) TMI 24 - BOMBAY HIGH COURT) holding that if the order of rectification results in a fresh order passed in appeal, the same would give rise to an appellate order. However, in the present case after allowing the revenue s rectification application, recalling its order, the Tribunal did not proceed further to pass a fresh order in the appeal. Under the circumstances, we have entertained this petition. Coming to the merits of the petition, we may recall that while disposing of the assessee s appeal against the penalty order all that the Tribunal had by way of discussion on merits observed that the Tribunal had reduced the income of the assessee from ₹ 34.63 lakhs as Assessing Officer to Nil. The Tribunal noted that the company was defunct and had suffered loss in earlier years. Primarily on such grounds the Tribunal was of the opinion that the penalty could not have been imposed. While accepting the revenue s application for rectification the Tribunal recalled the order and posted the appeal for fresh hearing. We do not find that this order requires any interference. The previous order of the Tribunal on penalty appeal left much to be desired. It was not the disposal of the appeal on merits at all. The assessee s appeal was allowed and penalty as enhanced by the Commissioner was deleted on the grounds that the Tribunal had in quantum appeal reduced the income to Nil and that the assessee had suffered loss in earlier years. These grounds were not sufficient to delete the penalty without examination of relevant issues. It is true that the Tribunal referred to the decision of the Supreme Court in case of Virtual Soft Systems (2007 (2) TMI 147 - SUPREME COURT OF INDIA) which counsel for the assessee would be correct in pointing out may not apply to facts of the case and by virtue of the decision of the three bench judge in case of Commissioner of Income-Tax Vs. Gold Coin Health Food P. Ltd.(2008 (8) TMI 5 - SUPREME COURT) the decision in case of Virtual Soft Systems has been overruled. The view of the larger bench of Supreme Court is that penalty can be imposed even in the case of reduced loss. In the present case, therefore, we are not inclined to interfere with the order of the Tribunal. The petitioner would have full opportunity to pursue the appeal before the Tribunal on all grounds.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal allowing rectification of judgment on penalty imposition.

Analysis:
The petitioner, an assessee company, filed a return of income for the assessment year 2001-02 declaring a loss of ?3.67 crores. The Assessing Officer assessed the income at ?34.63 lakhs, which was later reduced to Nil by the Tribunal in 2008. Subsequently, penalty proceedings were initiated, resulting in the imposition of a penalty of ?13.69 lakhs by the Assessing Officer. The Commissioner enhanced the penalty, but the Tribunal, in further appeal, deleted the penalty based on the grounds that the company was defunct and had suffered losses in previous years. The Tribunal's decision on penalty imposition was based on the fact that the income was reduced to Nil in the quantum appeal, rendering the penalty unjustifiable.

The revenue filed for rectification of the Tribunal's order, which was allowed by the Tribunal citing the Supreme Court's decision in Virtual Soft Systems Ltd. v. Commissioner of Income-Tax and the Gujarat High Court's decision in Asst. CIT v. Saurashtra Kutch Stock Exchange Securities Ltd. The Tribunal recalled its earlier order and scheduled a fresh hearing. The High Court noted that the Tribunal did not pass a fresh order after allowing the rectification, leading to the present challenge.

Upon reviewing the merits of the case, the High Court observed that the Tribunal's initial order on the penalty appeal lacked a thorough examination of relevant issues. The Tribunal's decision to delete the penalty was primarily based on the reduction of income to Nil and the company's previous losses, without a comprehensive analysis. The High Court acknowledged the Supreme Court's ruling in Commissioner of Income-Tax v. Gold Coin Health Food P. Ltd., which overruled the decision in Virtual Soft Systems, emphasizing that penalties can be imposed even in cases of reduced losses.

Ultimately, the High Court declined to interfere with the Tribunal's order, allowing the petitioner to pursue the appeal before the Tribunal on all grounds. It was clarified that the petitioner could raise all defenses available in law against the penalty imposition. The petition was disposed of with these observations.