COMMISSIONER OF INCOME TAX vs. SHYAM RAJ SINGH

ITA/446/2008HC Punjab & HaryanaPHHC01080439200821 March 2014Author: MR. JUSTICE SURINDER GUPTA,MR. JUSTICE RAJAN GUPTA5 pages
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What were the facts?

The Revenue (Commissioner of Income Tax, Faridabad) appealed against an order of the Income Tax Appellate Tribunal (ITAT), Delhi Bench, for Assessment Year 2001-02. The assessee, Shri Shyam Raj Singh, had filed a return declaring an income of ₹2,67,640. The assessment was completed at ₹4,43,780, with an addition of ₹1,31,262 on account of cessation of liability, leading the Assessing Officer (AO) to levy a penalty of ₹46,072 under Section 271(1)(c). The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the penalty, albeit on different grounds, stating it was due to inaccurate particulars in the BPCL account. The ITAT cancelled the penalty, finding the AO had not recorded satisfaction for initiating penalty proceedings and that the CIT(A) could not change the basis of the penalty.

What did the High Court hold?

The High Court addressed two substantial questions of law. Regarding the first question, concerning the sufficiency of notice for penalty initiation after the amendment to Section 271(1B) by the Finance Act, 2008, the Court held that the initiation of penalty proceedings were valid. The Court referred to its own decision in CIT v. Pearey Lal and Sons (EP) Limited, emphasizing that the existence and recording of satisfaction by the AO during assessment are matters of substance, not just form. The Court concluded that the Tribunal's view that mere mention of separate penalty proceedings did not justify initiation was incorrect. Therefore, the first question was answered in favour of the revenue. On the second question, concerning the deletion of penalty by the Tribunal, the Court found that the AO had primarily levied penalty on the ground of cessation of liability, while the CIT(A) shifted the basis to inaccurate particulars in the BPCL account. The Court noted that the amount in question was shown as payable to BPCL and would not amount to cessation of liability. The assessee's plea that the discrepancy arose from reconciliation issues and not intentional understatement was considered plausible. Consequently, the Court held that the levy of penalty by the AO and CIT(A) was not justified. The appeal was disposed of accordingly.

What were the issues?

1. Whether, in light of the amendment inserting Section 271(1B) by the Finance Act, 2008 (effective from 1.4.1989), the issuance of a notice for penalty imposition is sufficient compliance for initiating penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961? - Assessee's contention: Not recorded. - Revenue's contention: The amendment makes issuance of notice sufficient for initiation of penalty proceedings. 2. Whether the Income Tax Appellate Tribunal was legally correct in deleting the penalty levied by the Assessing Officer, on grounds different from those initially cited by the Assessing Officer? - Assessee's contention: The discrepancy in the BPCL account was due to reconciliation issues and not intentional understatement of income or deliberate furnishing of inaccurate particulars. The assessee claimed it was plausible that there was no intentional understatement. - Revenue's contention: The Tribunal erred in law by deleting the penalty levied under Section 271(1)(c) of the Act.

Which sections of the Income-tax Act were involved?

Section 260A,Section 271(1)(c),Section 143(3),Section 41(1),Section 271(1B)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of decision: 21.3.2014 Commissioner of Income Tax, Faridabad ……Appellant Vs. Shri Shyam Raj Singh (through legal heir Shri Deepak Singh) …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MS. JUSTICE ANITA CHAUDHRY Present: Mr. Tejinder K.Joshi, Advocate for the appellant. None for the respondent. Ajay Kumar Mittal,J.

1.

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 31.8.2007, Annexure A.4 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘I’ New Delhi in ITA No.4601/DEL/2005 for the assessment year 2001-02. It was admitted on 18.8.2008 to consider the following substantial questions of law:- i) Whether in the facts and circumstances of the case, by virtue of the amendment inserted by Finance Act, 2008 w.e.f 1.4.1989, issuance of notice for imposition of penalty is sufficient compliance for initiation of penalty proceedings under section 271(1) (c)? ii) Whether on the facts and circumstances of the case, the Hon’ble Income Tax Appellate Tribunal is right in la

The order continues below.

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