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.
