PCIT Vs Associated Mining Company (Karnataka High Court)
Karnataka HC: Penalty Cannot Be Quashed Merely Because Assessment Was Set Aside When Assessment Itself Stands Revived – Section 271(1)(c) Matter Remanded to ITAT
The Karnataka High Court dealt with the Revenue’s appeal concerning penalty u/s 271(1)(c) for AY 2010-11. The assessment had originally been framed u/s 153A read with Section 144, and penalty proceedings were initiated in respect of additions made therein. The CIT(A) deleted the penalty, and the ITAT dismissed the Revenue’s appeal solely because the underlying assessment orders had already been quashed by the Tribunal.
However, the High Court noted a crucial subsequent development. The ITAT orders quashing the assessments had themselves been challenged before the Karnataka High Court, and by judgment dated 22 July 2019, the High Court had allowed the Revenue’s appeals and set aside those ITAT orders. Thus, the very foundation on which the Tribunal had dismissed the penalty appeals no longer survived.
The Court observed that the ITAT had not examined the penalty proceedings on merits or considered the other legal issues. Therefore, instead of deciding the substantial questions of law itself, the High Court held that the appropriate course was to remand the penalty matter to the ITAT for fresh consideration on merits and on all legal issues.
Accordingly, the High Court set aside the ITAT’s order and remitted the matter to the Tribunal for reconsideration, leaving all contentions of both parties open.
Key takeaway: Where an ITAT order deleting penalty rests solely on the fact that the underlying assessment had been quashed, and that assessment is subsequently revived by the High Court, the penalty cannot continue to stand deleted on that ground alone. The merits and independent legal issues concerning Section 271(1)(c) must be adjudicated afresh.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The revenue is in appeal under Section 260A of the Income Tax Act, 1961 (‘the Act’, for short) questioning the order dated 14.05.2019 passed in ITA No.1800/Bang/2017 passed by the Income Tax Appellate Tribunal (‘ITAT’, for short) at Bengaluru for the Assessment Year 2010-2011, confirming the order of the DRP and the order passed by the Deputy Commissioner of Income Tax, Central Circle – 1(3), Bengaluru, raising the following substantial questions of law:-
1. “Whether on the facts and circumstances of the case, is the levy of penalty under section 271(1)(c) of the Act mandatorily requires the conclusion of any proceedings under the Act ?”
2. “Whether on the facts and circumstances of the case, the information / evidence gathered during any proceedings which evidences tax sought to be evaded is not adequate ground for levy of penalty ?”
3. “Whether on the facts and circumstances of the case, the penalty proceedings ought to have been adjudicated from when the original assessment order is subject matter of appeal under section 260A?”
4. “Whether on the facts and in the circumstances of the case, the Tribunal is right in quashing the penalty orders by holding that assessment orders have been quashed by it already without going into question that whether 271(1)(c) conditions are satisfied in case of assesse to attract penalty under said section”?
2. Heard Sri.M.Dilip learned counsel for the appellants – revenue and Sri.Shankar A., learned senior counsel along with Sri.Madhusudhan U.A., for the respondent – assessee through video conference.
3. The respondent is a Mining Company and the assessment orders were passed under Section 153A read with Section 144 of the Income Tax Act, 1961. Thereafter, penalty proceedings were also initiated under Section 271(1)(c) of the Act with regard to additions made in the assessment orders. The assessee preferred appeal against the penalty orders before the Commissioner of Income Tax (Appeals) [CIT(A)]. On appeal, the CIT(A) deleted the levy of penalty. Aggrieved by the said order, the revenue preferred appeal before the Tribunal. The Tribunal under the impugned order dismissed the appeal only on the ground that the assessment orders were quashed by the Tribunal. Hence, it was of the opinion that the penalty proceedings would not be maintainable.
4. Sri.M.Dilip, learned counsel for appellant/revenue would bring to the notice of this Court that the assessment orders which were set aside by the ITAT were the subject matter of ITA No.100015/2017 and connected appeals initiated by the appellant – revenue before this Court. It is submitted that this Court by order dated 22.07.2019 in ITA No.100015/2017 and other connected matters, set aside the order of the ITAT by allowing the appeals. Therefore, only on the said ground, he submits that the present appeal is required to be allowed.
5. However, learned counsel appearing for the respondents would submit that against the said order dated 22.07.2019 in ITA No.100015/2017 and connected matters, review petition is preferred and the said review petition is dismissed for non-compliance of office objections. It is further submitted that the applications are filed to recall the order of dismissal for noncompliance.
6. The judgment in ITA No.100015/2017 is of the year 2019 and till this date, the respondent – assessee has not brought the review petition before the Court. Therefore, as on this date, the judgment dated 22.07.2019 in ITA No.100015/2017 and connected matters prevail. Any order that would be passed in the review, could be brought to the notice of the Tribunal.
7. Be that as it may, the impugned order passed by the Tribunal setting aside impugned penalty order is solely on the ground that the assessment orders are quashed by the Tribunal. However, the orders setting aside the assessment orders by the ITAT were the subject matter of ITA No.100015/2017 and connected matters. This Court by judgment dated 22.07.2019 allowed those appeals and set aside the ITAT orders dated 18.10.2016 in ITA Nos.1355 to 1360/B/2014. Therefore, the order passed by the ITAT solely based on the assessment orders being quashed, cannot be sustained. However, it is noticed that ITAT has not gone into merits of the proceedings and other legal issues. Therefore, the matter needs to be remanded to the ITAT for consideration of legal issues on merit.
8. In the above circumstances, we deem it appropriate to remit the matter back to the Tribunal without answering the substantial questions of law raised in the present appeal. Hence, the following:-
ORDER
i. Order dated 14.05.2019 in ITA No.1798/Bang/2017 for the Assessment Year 2010-2011 is set aside and the matter is remitted back to the Tribunal for reconsideration on merits as well as on legal issues.
ii. All contentions of the parties are left open.
