Valley Refractories Limited Vs DCIT (ITAT Kolkata)
Summary: The Kolkata Bench of the Income Tax Appellate Tribunal allowed the assessee’s appeal and quashed the penalty order after following the decision of the Hon’ble Third Member, who held that the assessee could challenge the validity of the underlying assessment in collateral or penalty proceedings.
The dispute before the Third Member arose because the Members of the Division Bench had agreed on the invalidity of the assessment order but differed on whether that invalidity could be raised by the assessee in an appeal against the consequential penalty. The Third Member recorded that there was no dispute that the impugned assessment was invalid in law. Both Members had agreed with the assessee that, in the absence of a valid notice under Section 143(2) of the Income Tax Act, 1961 issued by the Assessing Officer/Assistant Commissioner/Deputy Commissioner having jurisdiction over the assessee, the assessment was invalid.
The Judicial Member’s differing view was that the assessee could not challenge the validity of the assessment during collateral or penalty proceedings because the assessment order had attained finality.
The Revenue relied upon CIT vs. Hotel Highland Park, reported in [(2000) 246 ITR 130 (J&K)]. As recorded by the Third Member, the Jammu & Kashmir High Court had held that assessment and penalty proceedings were separate proceedings, that an appeal against penalty was confined to the penalty order, and that the validity of an assessment order which had attained finality could not be challenged in an appeal against the penalty order.
