COMMISSIONER OF INCOME TAX JABALPUR vs. M/S KOHINOOR TOBACCO PRODUCTS PVT. LTD.

1 ITR No.56/1999 Commissioner of Income Tax Kohinoor Tobacco Products

6.3.2013 Shri Sanjay Lal, Counsel for petitioner. Shri L.L.Sharma, Counsel for respondent. It is a reference under Section 256(1) of the Income Tax Act, 1961 by the Income Tax Appellate Tribunal, Jabalpur in R.A.99/Jab/1996 by which following question has been referred for the opinion of this Court. “Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in cancelling penalty u/s 271(1)(c) levied by the A.O. at Rs.1,20,000/-?” Learned counsel appearing for the petitioner submits that the penalty imposed by the assessing officer was justified and the Tribunal have erred in setting it aside. It is submitted that the question deserves to be answered in favour of the revenue. Shri L.L.Sharma, learned counsel appearing for the respondent has supported the order passed by the Tribunal and submitted that the Tribunal was fully justified in setting aside penalty levied by the assessing officer on the ground that the addition made by the assessing officer was set aside by the Tribunal, so there was no question of imposing of penalty which was based only on the basis of addition made by the assessing officer. It is submitted that the question as referred by the Tribunal deserves to be answered in favour of the respondent. To appreciate the contentions, it would be appropriate if the factual position in the case is stated. The respondent was an assessee under the Income Tax Act and assessment order was framed, in which the rental income was found to be sham as it was subterfuge to reduce the burden of taxation by the assessee and the assessing officer had directed addition of the rental amount in the income of the respondent. The order passed by 2 ITR No.56/1999 Commissioner of Income Tax Kohinoor Tobacco Products

6.3.2013 the assessing officer directing addition of rental income was challenged by the respondent before the CIT(A), but the respondent remained unsuccessful against which an appeal was preferred before the Income Tax Appellate Tribunal which was allowed, the addition was set aside and the matter was remanded back to the assessing officer. The assessing officer had re-assessed the income of the respondent and found that the rental income was in accordance with law, the income was shown correctly and assessment order was framed accordingly. In the meantime, after initial assessment order, the assessing officer had initiated proceedings against the respondent under section 271(1)(c) of the Income Tax Act, 1961. The assessing officer had found that a case was made out for imposition of the penalty and imposed a penalty of Rs.1,20,000/- on the respondent. This order was assailed before the CIT(A) but the appeal was dismissed. Thereafter, the matter travelled to the Income Tax Appellate Tribunal, Jabalpur in ITA No.693(JBL)/91 and the Tribunal had found that the addition of the income was already set aside, as per order passed by the Tribunal, so there was no question of imposition of penalty and set aside the order directing imposition of the penalty. On the basis of these facts, the question has been referred for the opinion of this Court. So far as rental income which was initially held to be sham and was added in the income of the respondent, is concerned, this question has already been decided by a Division Bench of this Court in Commissioner of Income Tax Vs. Kohinoor Tobacco Products (P) Ltd reported in (2006) 283 ITR 162 (MP), but in the present case, the question is in respect of imposition of penalty which has been set aside by the Income Tax Appellate 3 ITR No.56/1999 Commissioner of Income Tax Kohinoor Tobacco Products

6.3.2013 Tribunal. The facts show that the addition of the rental income itself was set aside in the appeal by the Tribunal. When the addition was set aside, there was no question of imposition of penalty and the Income Tax Appellate Tribunal have rightly set aside the order, in which no error is found. In the opinion of this Court, in the facts and circumstances of the case, the Tribunal was justified in law in setting aside the penalty under Section 271(1)(c) of the Income Tax Act levied against the respondent. The question as referred by the Tribunal is answered in favour of the respondent and against the revenue. The opinion of this Court be sent to the Tribunal.

(Krishn Kumar Lahoti)

(M.A.Siddiqui) Judge Judge C.