Court upholds tax demand despite penalty cancellation, emphasizing lack of legal merit.

The court dismissed the Writ Petition challenging a tax demand notice for two assessment years. The petitioner's argument that the tax amount was unjustified after the cancellation of a penalty was rejected. The court clarified that the cancellation only applied to the penalty, not the tax liability. Despite a significant reduction in tax liability by the appellate authority, the petitioner did not appeal further, making the appellate order final. As the petitioner failed to challenge the tax liability properly, the court upheld the demand, emphasizing the lack of legal merit in the challenge against the tax liability.

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Issues:
1. Challenge to the correctness and sustainability of notice demanding tax amounts for two assessment years.
2. Interpretation of cancellation of penalty versus tax liability.
3. Applicability of appellate authority's order on tax liability.
4. Failure to challenge tax liability post-appellate order.

Analysis:
1. The petitioner contested the demand notice for tax amounts for two assessment years, citing the cancellation of penalty in Ext.P3 order by the Commissioner of Income-tax. The petitioner argued that demanding the amount despite penalty cancellation was unjustified.

2. The standing counsel clarified that Ext.P3 cancellation pertained only to the penalty under section 271(1)(c) of the Income-tax Act, not the tax liability. The tax amount in Ext.P2 was for the petitioner's tax dues for the mentioned assessment years. The petitioner's revision petition and subsequent appeal against the original assessment order were also highlighted.

3. The appellate authority's order significantly reduced the original tax liability from Rs. 9,35,624 to 1/3 of Rs. 3,51,794. The petitioner did not further appeal to the Tribunal, making the appellate order final. The counsel argued that the petitioner cannot merge distinct causes of action to evade tax payment obligations.

4. The Court acknowledged the respondent's assertion that the amount in Ext.P2 was for tax, not penalty, and noted the absence of a challenge to the tax liability post the appellate order. As the petitioner failed to challenge the tax liability through proper legal procedures, the Court dismissed the Writ Petition, emphasizing that the challenge against Ext.P2 lacked legal merit. The Court declined interference in the matter, including the demand for the assessment year 2005-06.

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