THE COMMISSIONER INCOME TAX vs. THE CHIEF ELECTORAL OFFICER HRY

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ITA/191/2004HC Punjab & HaryanaPHHC01051319200423 November 2010Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the appeals filed by the Revenue had no merit. This decision was based on a prior order of even date passed in ITR No. 183 of 1999 (Commissioner of Income Tax, Chandigarh Vs. The Chief Electoral Officer, Haryana, Chandigarh), wherein the order of the Tribunal dated May 15, 1998, in the quantum appeal, had been upheld. Since the underlying demand, which formed the basis for the penalty, was effectively dealt with by upholding the Tribunal's order in the quantum appeal, the penalty imposed under Section 221(1) was rendered unsustainable. The reasoning implies that if the quantum demand is quashed or set aside, the consequential penalty for non-payment of that demand also falls. The ratio decidendi is that a penalty for non-payment of a demand cannot survive if the demand itself is quashed or its validity is in question and the matter is decided in favour of the assessee. The operative direction was that the appeals are dismissed.

What were the facts?

The Revenue, Commissioner of Income Tax, Panchkula, filed an appeal against the order of the Income Tax Appellate Tribunal (ITAT) dated June 4, 2003. This order related to assessment year 1994-95 and concerned the cancellation of a penalty of Rs. 2,67,420 imposed under Section 221(1) of the Income Tax Act, 1961. The penalty was levied for the assessee, M/s. Chief Electoral Officer, Haryana, Chandigarh's failure to pay Rs. 26,74,200 by the due date. The demand for this sum was created under Section 201 of the Act. The assessee claimed inability to pay due to paucity of funds. The Assessing Officer imposed the penalty, which was then cancelled by the Commissioner of Income Tax (Appeals). The ITAT upheld the cancellation, noting that the demand itself had been quashed.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal has erred in law in cancelling the order imposing penalty of Rs. 2,67,420/-, u/s 221(1) of the Income Tax Act, 1961, for the assessment year 1994-95, when the ITAT has referred the question of law in quantum appeal to the Hon’ble Punjab and Haryana High Court, vide order dated 31.3.1999, which is still pending? Assessee's contentions: The judgment does not record any specific contentions made by the assessee before the High Court. However, the ITAT's order, as noted in the facts, upheld the cancellation of penalty because the demand itself had been quashed. Revenue's contentions: The Revenue argued that the ITAT erred in cancelling the penalty under Section 221(1) because the quantum appeal, which involved a question of law referred to the High Court, was still pending. The Revenue contended that the penalty should have been sustained despite the pending quantum appeal.

Which sections of the Income-tax Act were involved?

Section 221(1),Section 260A,Section 201

AI-generated summary — verify with the full judgment below

Income Tax Appeal No. 191 of 2004 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 191 of 2004 Date of decision: 23.11.2010 Commissioner of Income Tax Panchkula --- Appellant Versus M/s. Chief Electoral Officer, Haryana, Chandigarh. --- Respondent --- CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Yogesh Putney, Senior Standing Counsel for the appellant. Mr. Pankaj Jain, Advocate for the respondent. --- AJAY KUMAR MITTAL, J. This order will dispose of Income-Tax Appeal Nos. 191 and 257 of 2004 as both of them arise out of the same order and a common question of law is involved therein. The facts have been taken from Income Tax Appeal No. 191 of 2004. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against the order dated 4.6.2003, passed by the Income Tax Appellate Tribunal

Income Tax Appeal No. 191 of 2004 2 (in short “the Tribunal”) in ITA No. 523/CHANDI/99, relating to the assessment year 1994-95. The following substantial question of law has been claimed for determination of this Court: “Whether on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal has erred in law in cancelling the order imposing penalty of Rs. 2,67,420/-, u/s 221(1) of the Income Tax Act, 1961, for the assessment year 1994-95, when the ITAT has referred the question of law in quantum appeal to the Hon’ble Punjab and Haryana High Court, vide order dated 31.3.1999, which is still pending?” The facts, in brief, necessary for adjudication, as narrated in the appeal are that penalty proceedings under Section 221 of the Act were initiated against the assessee as it had failed to make the payment of Rs. 26,74,200/- by the stipulated date. The demand for the said sum had been created under Section 201 of the Act. The assessee took a plea that payment could not be made due to paucity of funds and it had made a request to the Government to grant permission to make payment after some time, but the assessing officer found that no such sanction had been granted. The assessing officer, thus, imposed penalty of Rs. 2,67,420/-, i.e. amount equivalent to 10% of total outstanding demand, vide order dated 8.10.1997. The Commissioner of Income Tax (Appeals), for short [“CIT(A)”] held that the assessing officer was not justified in imposing *rkmalik*

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