2014 (7) TMI 89 - HC - Income Tax

Tribunal cannot delete penalty under Section 271(1)(c) based solely on admission of tax appeal on quantum additions

The Gujarat HC held that the Tribunal erred in deleting penalty u/s 271(1)(c) based solely on admission of a tax appeal on quantum additions. The HC ... Penalty u/s 271(1)(c) of the Act – Quantum additions - Whether the Tribunal is right in reversing the order passed by CIT(A) and deleting penalty levied u/s 271(1)(c) of the Act, in spite of the fact that the addition made in both the AYs were on the basis of seized documents establishing the fact of running an undisclosed business, taxing the income from which has been confirmed by the Appellate Tribunal – Held that:- The Tribunal erred in deleting the penalty - Admission of a Tax Appeal by the High Court, in majority cases, is exparte and without recording even prima facie reasons - Whether ex-parte or after by-parte hearing, unless some other intention clearly emerges from the order itself, admission of a Tax Appeal by the High Court only indicates the Court's opinion that the issue presented before it required further consideration - It is an indication of the opinion of the High Court that there is a prima facie case made out and questions are required to be decided after admission. Mere admission of an appeal by the High Court cannot without there being anything further, be an indication that the issue is debatable one so as to delete the penalty u/s 271(1)(c) of the Act even if there are independent grounds and reasons to believe that the assessee’s case would fall under the mischief envisaged in the Clause (c) of Sub-Section (1) of Section 271 of the Act - unless there is any indication in the order of admission passed by the High Court simply because the Tax Appeal is admitted, would give rise to the presumption that the issue is debatable and that therefore, penalty should be deleted - upon mere admission of a Tax Appeal on quantum additions, is an indication that the issue is debatable one and that therefore, penalty should automatically be deleted without any further reasons or grounds emerging from the record – the order of the Tribunal is set aside and remitted back for fresh consideration – Decided in favour of Revenue. 1. ISSUES PRESENTED and CONSIDEREDThe core legal question considered by the Court was:Whether the Appellate Tribunal was correct in law and on facts in reversing the penalty order passed under Section 271(1)(c) of the Income Tax Act, 1961, despite the fact that additions to income for both assessment years were based on seized documents establishing the existence of an undisclosed business, and the income arising therefrom was confirmed as taxable by the Tribunal itself.2. ISSUE-WISE DETAILED ANALYSISIssue: Validity of penalty under Section 271(1)(c) of the Income Tax Act where additions to income were confirmed but penalty was deleted by the Tribunal on the ground that the issue was debatable due to admission of the appeal by the High Court.Relevant Legal Framework and Precedents: Section 271(1)(c) of the Income Tax Act empowers the Assessing Officer to impose penalty where an assessee is found to have concealed income or furnished inaccurate particulars of income. The principle established in CIT v. P. K. Narayanan and CIT v. HMA Udyog P. Ltd. is that where two views are possible on a question of law or fact, no penalty can be imposed. However, the Court clarified that mere admission of an appeal by the High Court does not ipso facto render the issue debatable for the purpose of penalty.Court's Interpretation and Reasoning: The Tribunal deleted the penalty solely on the ground that the High Court had admitted the assessee's appeal and framed substantial questions of law, thereby rendering the issue debatable. The Tribunal relied on precedents where penalty was deleted because the High Court had admitted the appeal, indicating a prima facie case and a debatable issue.The Court disagreed with this reasoning, observing that admission of a Tax Appeal by the High Court is often ex parte and without recording prima facie reasons. Admission merely indicates that the Court considers the issue worthy of further consideration, not that the issue is conclusively debatable or that the assessee's claim is bona fide. Therefore, admission alone cannot be the sole ground for deleting penalty under Section 271(1)(c).Key Evidence and Findings: The additions to income were based on seized documents establishing the existence of an undisclosed business. The Tribunal itself had confirmed the income additions. The penalty imposed was approximately 100% of the tax sought to be evaded, and was confirmed by the Assessing Officer and Commissioner (Appeals) before being deleted by the Tribunal.Application of Law to Facts: Given that the additions were confirmed and the penalty was imposed after due opportunity to the assessee, the Court found that the Tribunal erred in deleting the penalty solely because the High Court admitted the appeal. The Court emphasized that without any further indication in the High Court's admission order that the issue was debatable or that the assessee's claim was bona fide, penalty cannot be deleted on that ground alone.Treatment of Competing Arguments: The Revenue argued that the penalty was justified as the assessee attempted to evade tax and the additions were based on conclusive evidence. The Tribunal's deletion of penalty was erroneous. The assessee contended that admission of the appeal by the High Court was a relevant factor indicating a debatable issue, justifying deletion of penalty.The Court acknowledged that admission of appeal may be a relevant factor in some cases but rejected the proposition that it automatically renders the issue debatable for penalty purposes. It clarified that unless the admission order explicitly or implicitly indicates the issue is debatable or the assessee's claim is bona fide, admission alone cannot justify deletion of penalty.Conclusions: The Tribunal's order deleting penalty on the sole ground of High Court's admission of appeal was unsustainable. The question was answered in favor of the Revenue and against the assessee. The matter was remanded to the Tribunal for fresh consideration of other contentions raised by the assessee in accordance with law.3. SIGNIFICANT HOLDINGS'Admission of a Tax Appeal by the High Court, in majority cases, is ex-parte and without recording even prima facie reasons. Whether ex-parte or after by-parte hearing, unless some other intention clearly emerges from the order itself, admission of a Tax Appeal by the High Court only indicates the Court's opinion that the issue presented before it required further consideration. It is an indication of the opinion of the High Court that there is a prima facie case made out and questions are required to be decided after admission. Mere admission of an appeal by the High Court cannot without there being anything further, be an indication that the issue is debatable one so as to delete the penalty under Section 271(1)(c) of the Income Tax Act.''When two views are possible, no penalty can be imposed is a principle that has been enunciated in the decision in the case of CIT v. P. K. Narayanan and CIT Vs HMA Udyog P. Ltd. However, mere admission of appeal by the High Court cannot be equated with existence of two views on the issue.'The Court established the principle that admission of a Tax Appeal by the High Court does not ipso facto render the issue debatable for the purpose of penalty under Section 271(1)(c). The Court held that penalty can only be deleted on the ground of debatable issue if there is clear indication in the admission order or elsewhere that the issue is genuinely debatable or the assessee's claim is bona fide.Final determination: The Tribunal's order deleting penalty solely on the ground of High Court's admission of appeal was set aside. The penalty order was restored and the matter remanded for fresh consideration of other contentions.