2008 (10) TMI 744 - HC - Income Tax

Judicial Review Overturns Tax Penalty Dismissal, Mandates Comprehensive Hearing and Substantive Legal Assessment of Income Tax Proceedings

GHC ruled that ITAT improperly dismissed a penalty appeal summarily without merit-based adjudication. The court quashed ITAT's order from 29.06.2007 and ... - The Gujarat High Court addressed whether the Income Tax Appellate Tribunal (ITAT) erred in disposing of a penalty appeal summarily without adjudicating the merits. The case involved penalty proceedings under section 271(1)(c) of the Income Tax Act following additions made for alleged bogus purchases in Assessment Year 1997-98. The Tribunal had canceled the penalty solely because the quantum appeal was admitted by the High Court, relying on the principle from Rupam Mercantiles Ltd. v. DCIT that a substantial question of law raised by the High Court admission precludes a penalty for frivolous or mala fide claims.The Court held that the Tribunal's summary disposal without examining whether the penalty was otherwise exigible constituted an error. It emphasized the necessity for the Tribunal to 'record a decision afresh on merits of the controversy, including all legal contentions.' Accordingly, the High Court quashed and set aside the Tribunal's order dated 29.06.2007 and restored the appeal to the Tribunal for a fresh hearing and decision in accordance with law. The appeal was disposed of on these terms.