Unless there was any indication in the order of admission of appeal by the High Court simply because the tax appeal was admitted would not give rise to the presumption that the issue was debatable and that therefore, penalty should be deleted - Commissioner of Income Tax v. Prakash S. Vyas

GUJARAT HIGH COURT

Tax Appeal No. 606 of 2010

Commissioner of Income Tax.............................................................................Appellant.
V
Prakash S. Vyas................................................................................................Respondent

Akil Kureshi And Sonia Gokania,JJ.

Date :November 15, 2011

Appearances

Mr. Bhatt, Sr. Advocate With Ms. Mauna M Bhatt For the Petitioner :

Section 271(1)(c ) of the Income Tax Act, 1961 — Penalty — Concealment Penalty — Unless there was any indication in the order of admission of appeal by the High Court simply because the tax appeal was admitted would not give rise to the presumption that the issue was debatable and that therefore, penalty should be deleted — Commissioner of Income Tax v. Prakash S. Vyas.

JUDGMENT

Akil Kureshi- The Revenue is in appeal against the judgment of the Tribunal dated 25.9.2009. Following substantial question of law arises for consideration.

“(I) Whether the Appellate Tribunal is right in law and on facts in reversing the order passed by CIT(A) and thereby deleting penalty levied u/s.271(1)(c) of the Act, in spite of the fact that the addition made in both the assessment years 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 ?

2. By our order dated 28.6.2011, we had issued notice for final disposal making following observations :

“ Counsel for the Revenue pointed out that tribunal has deleted penalty only on the ground that High Court having admitted assessee's appeal, issue can be stated to be debatable. Issue notice for final disposal, returnable on 26.7.2011.”

3. In response to notice issued, learned counsel, Shri Soparkar appeared for the respondent – assessee. We have heard the learned counsel appearing for both side. We propose to dispose of the Tax Appeal finally by this order for which purpose, above noted question is framed as substantial question of law for our determination.

4. As can be gathered from the question itself, the issue pertains to penalty under Section 271(1)(c) of the Income Tax Act,1961 (‘the Act’ for short) imposed by the Assessing Officer and confirmed by the CIT (Appeals), but reversed by the Tribunal by the impugned judgment.

5. The Assessing Officer by his order dated 25.7.2006 confirmed the penalty of Rs.2,40,000/- after hearing the assessee. The said amount was approximately 100% of the tax sought to be evaded. The assessee carried the order of the Assessing Officer before the Appellate Authority. The Commissioner (Appeals) dismissed the appeal by an order dated 18.6.2008. The assessee went further in appeal before the Tribunal. The Tribunal by the impugned order reversed the order passed by the Assessing Officer and CIT(A). The reasons recorded in the Tribunal’s order deleting the penalty are available in Para.5.1 of the order of the Tribunal which are as under :

“5.1 Our attention was brought to a decision dated 26.6.2009 in the case of Nirma Ltd. in ITA No.1971/Ahd/2007 for the AY 1998-99, wherein relying upon a decision dated 20.3.2009 in ITAT in ITA No.1972/Ahd/2007 in the case of the same assessee for the AY 2000-01, the Tribunal cancelled the penalty levied u/s 271(1)(c) of the Act, inter alia, on the ground that the issue was debatable in view of the fact that a substantial question of law had been admitted by the Hon'ble High Court. In the case under consideration, we are of the opinion that in view of findings of the ITAT in their order dated 26.10.2005 in the case of Shri Pradeep S Shah and now when the Hon'ble High Court have admitted even a question relating to perversity of the order dated 23.11.2007 in ITA Nos.1076, 1077 and 1089/Ahd/1998 of the ITAT, the issue as to whether income from Minal Service station can be assessed in the hands of the assessee, becomes debatable. 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 [1999] 238 ITR 905 and CIT Vs HMA Udyog P. Ltd., 211 CTR 543(Del). A plea or claim which is held by the Hon'ble High Court to give rise to a substantial question of law, cannot be treated to be frivolous or mala fide as to attract levy of penalty under Section 271(1)(c) of the Income Tax Act.”

6. From the above portion of the order of the Tribunal, it can be seen that the sole ground on which the Tribunal was persuaded to delete the penalty was that the issue on which the penalty was based, was carried in appeal before the High Court and High Court had admitted the assessee’s appeal and framed substantial questions of law. In view of the Tribunal, this fact itself was sufficient to hold that the issue was debatable. In view of the Tribunal, since the issue being debatable, no penalty could be sustained under Section 271(1) (c) of the Act.

7. Our intention behind issuing notice for final disposal was that we had come across few other orders of the Income Tax Tribunal deleting penalty on similar reasoning. We were prima facie of the opinion that the issue required consideration. Looking to the recurrent nature of the issue, we had issued a short notice for final disposal.

8. Counsel for the revenue submitted that the Tribunal erred in deleting the penalty imposed by the Assessing Officer and confirmed by CIT(A). He submitted that the assessee had sought to evade tax. Quantum addition was confirmed right upto stage of the Tribunal. The Assessing Officer, therefore, was justified in imposing penalty after giving opportunity to the assessee. He submitted that the penalty minimum leviable under Section 271(1)(c) was imposed. Said order of the Assessing Officer was confirmed by the Appellate Authority. The Tribunal erred in reversing the orders of the Revenue Authorities.

9. On the other hand, learned Senior Counsel, Mr.Soparkar, submitted that though not the sole ground, factum of the High Court admitting the quantum of appeal would be a relevant ground while examining the question of penalty.

10. Having, thus, heard learned counsel for the parties, we reiterate that the sole ground on which the Tribunal deleted the penalty was that with respect to the quantum additions, the assessee had approached the High Court and High Court had admitted the appeal framing substantial questions of law for consideration. In view of the Tribunal, this would indicate that the issue was debatable and that therefore, no penalty under Section 271(1)(c) could be imposed.

11. We are of the opinion that the Tribunal erred in deleting the penalty on this sole ground. 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 Act even if there are independent grounds and reasons to believe that the assessee’s case would fall under the mischief envisaged in the said Clause (c) of Sub-Section (1) of Section 271 of the Act. In other words, 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.
12. This is not to suggest that no such intention can be gathered from the order of Court even if so expressed either explicitly or in implied terms. This is also not to suggest that in no case, admission of a Tax Appeal would be a relevant factor for the purpose of deciding validity of a penalty order. This is only to put the record straight insofar as the opinion that the Tribunal as expressed in the present impugned order viz. that 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.

13. This is precisely what has been done by the Tribunal in the present case. Order of the Tribunal, therefore, cannot be sustained. Question framed is answered in favour of the Revenue and against the assessee. Order of the Tribunal is reversed. Since apparently the assessee had raised other contentions also in support of the appeal before the Tribunal, the proceedings are remanded before the Tribunal for fresh consideration and disposal in accordance with law. Tax Appeal is disposed of accordingly.

[2014] 272 CTR 353 (GUJ)