Penalty under Section 271C deferred until pending tax appeals are decided, while proceedings may continue

Penalty proceedings under Section 271C were permitted to continue, but the Assessing Officer was restrained from passing the final penalty order while the assessee's appeals on the underlying tax-deduction dispute remained pending before the Tribunal. The restraint was maintained to avoid multiplicity of proceedings and because the quantum controversy was still sub judice; the assessee was also complying with the recovery conditions imposed in assessment proceedings. The final penalty order was therefore deferred until the Tribunal decided the appeals for the relevant assessment years.

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Issues: Whether the Assessing Officer could be restrained from passing the final order of penalty under Section 271C of the Income-tax Act, 1961, while the assessee's appeals on the underlying tax dispute were pending before the Tribunal.

Analysis: The penalty proceedings arose out of the same controversy regarding the obligation to deduct tax at source, and the quantum dispute was still sub judice before the Tribunal. The Court noted that the Tribunal had already directed that penalty proceedings may continue but the final penalty order should not be passed for the time being. To avoid multiplicity of proceedings and to protect both sides while the appeals remained pending, the Court found it appropriate to continue that restraint in the present matter. The Court also recorded that the assessee was complying with the recovery conditions imposed in the assessment proceedings.

Conclusion: The Assessing Officer was directed not to pass the final penalty order until the assessee's appeals before the Tribunal for assessment years 2016-17 and 2017-18 were decided, though the penalty proceedings could continue up to that stage.

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