2014 (4) TMI 209 - HC - Income Tax

High Court Overturns Tribunal's Deposit Order in Tax Penalty Challenge

Deloitte Consulting India P. Ltd. Versus Assistant Commissioner of Income-tax

The High Court set aside the Tribunal's order for an additional deposit in a case challenging a penalty under section 271(1)(c) of the Income-tax Act for ... Stay application on penalty u/s 271(1)(c) of the Act - Order for deposit of amount – Held that:- The order of the Tribunal has been passed in total disregard of the principles laid down in KEC International Ltd. v. B. R. Balakrishnan [2001 (3) TMI 32 - BOMBAY High Court] wherein parameters have been laid down to be observed by the authorities - the assessee has a strong prima facie case on the merits before the Tribunal - the assessee has already paid the full tax amount and also approximately 25 percent of the penalty amount earlier, the Tribunal ought not to have required the assessee to deposit a further sum of ₹ 50 lakhs – thus, the order of the Tribunal is set aside to the extent it directs the assessee to deposit a further amount – stay granted. Issues:Challenge to order directing deposit for staying outstanding demand of penalty under section 271(1)(c) of the Income-tax Act, 1961 for assessment year 2004-05.Detailed Analysis:The petitioner, engaged in the export of computer software and IT services, declared income and marketing expenses in its return for the assessment year 2004-05. The Transfer Pricing Officer disallowed the marketing expenses, leading to a revised return adding back the expenses to income. The Assessing Officer denied exemption under section 10A, resulting in tax on the enhanced income. The penalty under section 271(1)(c) was imposed, and stay applications were rejected until the High Court granted a stay conditionally.The petitioner contended that the revised return was filed before adverse orders, and the prohibition under section 92C(4) did not apply since the claim was given up before the Transfer Pricing Officer's decision. The petitioner argued for the benefit of deduction under section 10A. The Tribunal's order for further deposit was challenged, emphasizing the pending appeal, full tax payment, and lack of prima facie consideration by the Tribunal.The Revenue supported the Tribunal's order, citing the additional deposit as reasonable. The High Court noted the principles in KEC International Ltd. case for stay applications, emphasizing the need for authorities to consider the assessee's case, financial viability, and appeal timelines. The Tribunal's failure to provide prima facie reasons for the additional deposit was criticized.The High Court found the petitioner had a strong prima facie case and had already paid the full tax amount and a portion of the penalty. The Tribunal's order for an additional deposit was set aside, considering the petitioner's compliance and previous court directions. The writ petition was allowed to the extent of directing the petitioner to deposit a further amount of Rs. 50 lakhs, maintaining other directions in the impugned order.In conclusion, the High Court allowed the writ petition, setting aside the Tribunal's order for an additional deposit, while maintaining other directions. The petitioner's compliance, full tax payment, and strong prima facie case were considered in the decision.