CIT PATIALA vs. JAVINDER SINGH KABARI,PATIALA

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ITR/37/1998HC Punjab & HaryanaPHHC01038008199817 January 2007Bench: MR. JUSTICE M.M. KUMAR,MR. JUSTICE RAJESH BINDAL2 pages
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What did the High Court hold?

The High Court held that the Income Tax Appellate Tribunal (ITAT) was right in cancelling the penalty under Section 271(1)(c) of the Income Tax Act, 1961. The Court reasoned that penalty proceedings are distinct from assessment proceedings. The mere fact that an addition was upheld in quantum appeal does not automatically lead to the levy of penalty. The Tribunal, after examining the facts, had concluded that penalty was not leviable. The Court found that the Tribunal's satisfaction was subjective and, even if two opinions were possible on the same facts, the view taken by the Tribunal was not perverse. The revenue's counsel was unable to demonstrate that the Tribunal's view was not a possible one. Therefore, the question of law was answered against the revenue and in favour of the assessee. The operative direction was to uphold the ITAT's decision to cancel the penalty.

What were the facts?

The Revenue (Commissioner of Income-Tax, Patiala) has filed an Income Tax Reference (ITR No. 37 of 1998) before the High Court of Punjab and Haryana at Chandigarh, challenging an order passed by the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench. The ITAT's order, dated August 11, 1997, in ITA No. 75/Chandi/93, pertains to assessment year 1986-87. The Assessing Officer (AO) had made additions of Rs. 56,500/- to the assessee's returned income and levied a penalty of Rs. 38,000/- under Section 271(1)(c) of the Income Tax Act, 1961. In quantum appeal, additions of Rs. 21,500/- were deleted, but Rs. 35,000/- were upheld. The CIT(A) upheld the penalty. The ITAT, however, cancelled the penalty.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in cancelling the penalty u/s 271(1)(c) in respect of the addition of Rs.35,000/- expended by the assessee on a foreign tour and confirmed by it in quantum appeal? Assessee's Contention: The judgment does not explicitly record the assessee's arguments before the High Court. However, the ITAT's reasoning, which was accepted by the High Court, suggests the assessee argued that penalty proceedings are distinct from assessment proceedings and that mere confirmation of an addition does not automatically warrant a penalty unless mens rea is proven. Revenue's Contention: The revenue argued that the Tribunal was not right in cancelling the penalty u/s 271(1)(c) when an addition of Rs. 35,000/- was confirmed in quantum appeal. The revenue's counsel could not point out that the Tribunal's view was perverse.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

**** I.T.R. No.37 of 1998 Date of Decision:17.01.2007 Commissioner of Income-Tax, Patiala .....Petitioner Vs. Javinder Singh Kabari, Patiala

.....Respondent CORAM:- HON'BLE MR. JUSTICE M.M.KUMAR HON'BLE MR. JUSTICE RAJESH BINDAL Present:- Mr. Yogesh Putney, Advocate for the revenue. **** Rajesh Bindal, J. The following question of law has been referred for opinion of this Court arising out of order passed by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, `the Tribunal') in I.T.A. No.75/Chandi/93 dated 11.8.1997 in respect of assessment year 1986-87:- “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in cancelling the penalty u/s 271(1) (c) in respect of the addition of Rs.35,000/- expended by the assessee on a foreign tour and confirmed by it in quantum appeal?” During the course of assessment, the Assessing Officer made additions to the extent of Rs. 56,500/- on different accounts in addition to the returned income of Rs. 17,880/- and as a consequence issued notice under Section 271(1)(c) of the Income Tax Act, 1961 (for short, `the Act') and levied a penalty of Rs. 38,000/- which worked out to 200% of the amount of tax sought to be evaded. In appeal, in quantum proceedings, additions to the extent of Rs. 21,500/- were deleted, however, the additions of Rs. 35,000/- were upheld and the penalty was consequently reduced. The penalty as levied was upheld by Commissioner of Income Tax(Appeals) vide order dated October 19, 1992. In further appeal by the assessee, the plea of the assessee was accepted by the Tribunal, which observed that

I.T.R. No.37 of 1998 -2- the penalty proceedings are quite distinct from assessment proceedings. Merely because additions have been upheld, it does not automatically entails levy of penalty unless mens rea is proved. The Tribunal in the given fact situation, having examined the facts, has come to the conclusion that the penalty was not leviable in the facts and circumstances of the case. The satisfaction being subjective even if there are two opinions possible on the same facts, the view taken by the Tribunal cannot be held to be perverse. Learned counsel for the revenue could not point out that the view taken by the Tribunal is not a possible view. Accordingly, the question referred is answered against the revenue and in favour of the assessee. ( RAJESH BINDAL ) JUDGE January 17, 2007

( M.M.KUMAR ) renu JUDGE

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