2019 (12) TMI 773 - HC - Income Tax

Penalty u/s 271(1)(c) - HELD THAT - Disallowance made under Section 14-A of the Act and re-computation of deduction under Sections 10-A and 10-AA of the Act by recalling the original order and the same is pending adjudication before the Tribunal. The petitioner has filed an appeal against the order of penalty impugned herein and the said appeal is also pending consideration before the Appellate Authority. It is well settled law that the penalty is not automatic. In such circumstances, it was obligatory on the part of the Assessing Officer to consider the application of the petitioner staying the demand of penalty subject to the decision of the Tribunal/Appellate Authority. The same having been rejected, this Court deems it appropriate to direct the respondents not to enforce the demand relating to the penalty amount under the demand notice dated 23.4.2019 issued by the respondent No.1 under Section 156 relating to the assessment year in question until disposal of the proceedings pending before the Tribunal or the Appellate Authority challenging the order passed under Section 271(1)(c) of the Act, whichever is earlier and is ordered accordingly.

Summary

Issues:
1. Rejection of application for stay of demand under Section 271(1)(c) of the Income Tax Act, 1961.
2. Disallowance under Section 14-A, re-computation of deductions under Sections 10-A and 10-AA of the Act.
3. Appeal against penalty order and application for stay of demand.

Analysis:
The petitioner challenged the order rejecting the application for stay of demand under Section 271(1)(c) of the Income Tax Act, 1961, relating to the assessment year 2011-12. The petitioner, a software service company, objected to the draft assessment order proposing disallowances and recomputed deductions under various sections of the Act. The Dispute Resolution Panel rejected the objections, leading to the final assessment order by the 1st respondent. Appeals were filed before the ITAT, resulting in partial allowance of the petitioner's appeal. However, certain disallowances and deductions were upheld, prompting the petitioner to file an appeal before the High Court, which is pending. A rectification application was disposed of, recalling the original order for re-adjudication, forming the basis for penalty levy.

The representations to cancel the penalty levy were rejected, leading to an appeal before the Appellate Authority, which is pending. The petitioner sought a stay of demand pending appeal, which was dismissed, culminating in the present petition. The petitioner argued that since the Tribunal set aside the basis for penalty levy and the matter is pending, the penalty order under Section 271(1)(c) for the assessment year in question should not stand. It was contended that the penalty notice lacked necessary details, contrary to established court decisions, rendering the penalty proceedings unlawful.

The respondent-Revenue supported the impugned order. Upon review, the Court noted that the Tribunal set aside the basis for penalty levy, which is pending adjudication, along with the appeal against the penalty order before the Appellate Authority. Emphasizing that penalty is not automatic, the Court found it necessary for the Assessing Officer to consider the petitioner's application for stay of demand pending Tribunal/Appellate Authority decisions. Since the application was rejected, the Court directed the respondents not to enforce the penalty demand until the Tribunal/Appellate Authority proceedings conclude, as per the demand notice issued under Section 156 of the Act for the assessment year in question. Consequently, the writ petition was disposed of accordingly.