AMIT BAJAJ ADVOCATE

ITAT Ahemedabad has in  GE India Industrial Pvt. Ltd. Vs. CIT(A) held that Penalty proceedings must be kept in abeyance till disposal of quantum appeal by first appellate authority

In this case penalty proceedings have been initiated by ld. CIT(A) pursuant to enhancement of income made by him vide his order dated 17.07.2012. The appeal against this order has been filed before the Tribunal on 4th October, 2012 which is in fact the first appeal of the assessee against the enhancement of income by ld. CIT(A). As the appellate proceedings are already on, we are not going into the merits of the case.

 We further find that there is no dispute about the fact that as per the provision of Section 275(1)(a) of the Act ld. CIT(A) will get six months time to dispose of the penalty proceedings from the end of the month in which the order of the Tribunal is received by the Commissioner or the Chief Commissioner. In view of these facts, we are of the considered opinion that if ld. CIT(A) is allowed to proceed with the penalty proceedings, already undertaken by him, prejudice will cause to the assessee as it will have to face multiplicity of the proceedings. In case assessee succeeds in quantum appeal, the penalty order passed   by ld. CIT(A) will have  no legs to stand while in a situation the assessee fails ld. CIT(A) will get ample time of six months to dispose of the penalty proceedings. Therefore, exercising our appellate powers conferred u!s 254(1) of the Act, as interpreted by Hon’ble Apex Court in the case of ITO vs. Mohammad Kunhi 71 ITR 815 and to prevent multiplicity of proceedings and harassment to the assessee, we are inclined to direct ld. CIT(A) to keep the penalty proceedings in abeyance till the disposal of quantum appeal by the Tribunal.

INCOME TAX APPELLATE TRIBUNAL ‘ AHMEDABAD’

Stay Application No.62/Ahd/2012

(Arising out of ITA No.2210/Ahd/2012) -  A.Y. 2004-05

GE India Industrial Pvt. Ltd. Vs. CIT(A)

Date of pronouncement : 04.01.2013

ORDER

PER: D.K. TYAGI, JUDICIAL MEMBER

This Stay Application has been filed by the assessee for securing stay of penalty proceedings initiated by the CIT(A) u/s 271(1)(c) of the Act pursuant to his appellate order dated 17.07.2012.

2. Brief facts, leading to this stay application are as under:-

Assessee company is engaged in manufacturing and trading of electrical lamps, trading of critical locomotives, manufacturing and trading in engineering plastics and related products, erection and commissioning services, export of computer software etc. Assessment u/s 143(3) of the Act was completed on 29thDecember, 2006 wherein following adjustments/disallowances were made to the return of income:-

• Denial of set off business loss and prohibition on carry forward of business loss;

• Net disallowance of Rs.9,59,91,566/- on account of non-acceptance of revised return; and

• Transfer pricing adjustment of Rs.2,11,55,611/-

In appeal ld. CIT(A) vide its order dated 17th July, 2012 deleted net disallowance of Rs.9,59,91,566/- on account of non-acceptance of revised return. It was further held by him that assessee is entitled to set off the relevant unabsorbed business loss in the year under appeal and carry forward the balance unabsorbed business loss. However, ld. CIT(A) enhanced the income of the assessee on account of following:-

• Bad debts of Rs.7,53,08,029/- pertaining to Power Control Domestic Tariff Area division written off through provision for bad and doubtful debt account; and

• Upward Transfer Pricing Adjustment of Rs.5,50,73,555/-.

3. Ld. CIT(A) in its order also recorded his satisfaction that assessee had furnished inaccurate particulars of income with respect to the enhancements made by him. Consequently ld. CIT(A) has initiated penalty proceedings u/s 271(1)(c) of the Act. Thereafter notice u/s 274 read with Section 271(1)(c) of the Act was issued to the assessee seeking appearance before ld. CIT(A) to show cause as to why an order imposing penalty should not be made. The assessee filed detailed submissions in response to this show cause notice. Alternatively it was contended by the assessee before ld. CIT(A) that since the assessee proposed to file an appeal before the I.T.A.T. on the quantum proceedings (the appeal has since been filed on 4th October, 2012), the penalty should be kept in abeyance till the disposal of appeal by Hon’ble I.T.A.T. Reliance in this regard was placed on the provisions of Section 275(1)(a) of the which provide that where an appeal against the relevant order has been filed before Hon’ble I.T.A.T., the time limit for disposal of penalty proceeding is six months from the end of the month in which the order of the Hon’ble I.T.A.T. is received by the Commissioner/Chief Commissioner. Hence, it was argued upon that the ld. CIT(A) would have adequate time to dispose of penalty proceeding even after receipt of order passed by Hon’ble I.T.A.T. This request of the assessee was not accepted by ld. CIT(A) hence this stay petition has been filed by the assessee.

4. At the time of hearing ld. counsel of the assessee submitted that ld. CIT(A) is acting in undue haste and not waiting till the disposal of assessee’s appeal in quantum proceeding by Hon’ble I.T.A.T. despite the fact that as per the provisions of Section 275(1)(a) of the Act he will have six months from the end of the month in which the order of the I.T.A.T. is received by the Commissioner or the Chief Commissioner to dispose of the penalty proceedings. It was further submitted that assessee has strong prima facie case on the penalty as well as on the quantum proceedings and any action by the ld. CIT(A) in imposing penalty would cause immense undue hardship to the assessee. It was, therefore, prayed that a direction should be given to ld. CIT(A) to keep the penalty proceedings in abeyance till the disposal of quantum appeal by Hon’ble I.T.A.T. For making this submission reliance was placed on the decision of Hon’ble Bombay High Court in the case of CIT vs. Wander Pvt. Ltd. (ITA No.2753 of 2010) wherein following was held:-

“As noted earlier, the appeal against the quantum proceedings has been admitted and is pending hearing in this Court. If the appellant succeeds in the quantum proceedings, it would not even be necessary to consider the proceedings under section 271. In the circumstances, no prejudice has been caused to the appellant (i.e. tax authorities) even qua the penalty proceedings.

The apprehension that any order in the penalty proceedings may be barred by limitation under section 275(1A), is not well founded. In any event, the apprehension is set at rest by directing that in the event the same being held to be barred by limitation, this appeal shall stand revived automatically and without further orders of this Court.”

Reliance was also placed on the judgment of Hon’ble Allahabad High Court in the case of Commercial Engineers Body Builders Co. Pvt. Ltd. vs. Union of India (163 TAXMAN 218) wherein it was held as under:-

“Learned counsel for the petitioner has submitted that in the present case penalty notice under section 274 read with section 271 of the Income-tax Act was issued for the first time by the Commissioner, Income-tax (Appeals) and no penalty proceeding was issued by the Assessing Officer while framing the assessment. Looking to the facts and circumstances of the case we direct that, in the mean time, till the disposal of the appeal before the Tribunal, penalty proceedings may be finalized but the penalty order may not be served on the petitioner.”

Reliance was also placed on the judgment of Hon’ble Apex Court in the case of ITO vs. Mohammad Kunhi 71 ITR 815 wherein it was held that the Tribunal while exercising its appellate power under the Income Tax Act, has also the power to ensure that fruits of success are not rendered futile or nugatory and for this purpose it is empowered to pass appropriate orders including orders of stay. On the basis of these submissions, ld. counsel of the assessee prayed for exercising our inherent powers and stay the penalty proceedings initiated by ld. CIT(A) till the disposal of quantum appeal by the Tribunal.

5. Ld. D.R., on the other hand, placing reliance on the decision of Hon’ble Supreme Court in the case of Commissioner of Income Tax vs. Manick Sons submitted that Tribunal cannot assume power which are inconsistent with the express provisions of the Act or its scheme and therefore prayed that no direction for staying the penalty proceedings initiated by ld. CIT(A) may kindly  be issued. He, however, did not make any submission regarding the merits of the case.

6. After hearing both the parties, perusing the record and the case laws relied by both the parties we find that in this case penalty proceedings have been initiated by ld. CIT(A) pursuant to enhancement of income made by him vide his order dated 17.07.2012. The appeal against this order has been filed before the Tribunal on 4th October, 2012 which is in fact the first appeal of the assessee against the enhancement of income by ld. CIT(A). As the appellate proceedings are already on, we are not going into the merits of the case. However, it will not be out of place to mention that the contention of the assessee that it has prima facie case in its favour, has not been commented upon by the Revenue. As per the provisions of Section 275(1)(a) of the Act Assessing Officer cannot pass an order imposing penalty u/s 271(1)(c) of the Act till relevant assessment is subject matter of appeal before ld. CIT(A) (i.e. the first appellate authority). By the same analogy assessee’s prayer for stay of penalty proceedings undertaken by ld. CIT(A) till the disposal of appeal by the Tribunal does not appear to be unreasonable. We further find that there is no dispute about the fact that as per the provision of Section 275(1)(a) of the Act ld. CIT(A) will get six months time to dispose of the penalty proceedings from the end of the month in which the order of the Tribunal is received by the Commissioner or the Chief Commissioner. In view of these facts, we are of the considered opinion that if ld. CIT(A) is allowed to proceed with the penalty proceedings, already undertaken by him, prejudice will cause to the assessee as it will have to face multiplicity of the proceedings. In case assessee succeeds in quantum appeal, the penalty order passed   by ld. CIT(A) will have  no legs to stand while in a situation the assessee fails ld. CIT(A) will get ample time of six months to dispose of the penalty proceedings. Therefore, exercising our appellate powers conferred u!s 254(1) of the Act, as interpreted by Hon’ble Apex Court in the case of ITO vs. Mohammad Kunhi 71 ITR 815 and to prevent multiplicity of proceedings and harassment to the assessee, we are inclined to direct ld. CIT(A) to keep the penalty proceedings in abeyance till the disposal of quantum appeal by the Tribunal.

7. In the result, Stay Application filed by the assessee is allowed.

Order pronounced in open Court on 04.01.2013