1991 (11) TMI 108 - AT - Income Tax

Tribunal cancels penalties under IT Act for ITO's delay, protective assessment not sustainable

The Tribunal upheld the Dy. CIT(A)'s decision to delete penalties under sections 271(1)(b), 273, and 271(1)(c) of the IT Act, 1961. The penalties were ... - Issues:- Departmental appeal against deletion of penalties under sections 271(1)(b), 273, and 271(1)(c) of the IT Act, 1961 by Dy. CIT(A).- Dispute regarding the filing of a petition under section 146 and its impact on penalties imposed by the ITO.- Justifiability of penalties under sections 271(1)(b), 273, and 271(1)(c) initiated by the ITO.Analysis:1. The Dy. CIT(A) deleted penalties imposed by the ITO under sections 271(1)(b), 273, and 271(1)(c) citing lack of clarity on providing a reasonable opportunity to the assessee. The Dy. CIT(A) observed that if the application under section 146 was not addressed by the ITO within 90 days, it would be deemed accepted, rendering the penalties redundant.2. The appeal by the Revenue contended that the Dy. CIT(A) erred in canceling the penalties based on the filing of a petition under section 146. The case involved a minor assessee whose father filed the income return. The ITO conducted the assessment under section 144, considering investments as made by the father. The assessee later filed an application under section 146, leading to the dispute on the validity of penalties.3. The Revenue argued that since the application under section 146 was not on record and no action was taken by the ITO, the assessment order under section 144 should stand. However, the assessee's counsel provided evidence of filing the application within the prescribed time, invoking section 146(2) which deems the application allowed if not disposed of within 90 days.4. The Tribunal agreed with the assessee's counsel, emphasizing the mandatory disposal of section 146 applications within 90 days. Citing a Bombay High Court judgment, non-response to such applications implies acceptance. Consequently, the assessment made under section 144 was deemed canceled, invalidating the penalties imposed during that assessment.5. Additionally, the Tribunal highlighted that penalties on a protective assessment, where income attribution is disputed, are not sustainable. Referring to a Calcutta High Court decision, it was established that protective penalties are not permissible until the income ownership is conclusively determined. The Guwahati High Court also supported the stance that protective penalties cannot be levied.6. Ultimately, the Tribunal dismissed the appeals, affirming that the assessee was not liable for penalties under sections 271(1)(b), 273, or 271(1)(c) of the IT Act, 1961, due to the cancellation of the assessment under section 144 and the protective nature of the assessment.