Assessee cannot be made to suffer in claiming refund of penalty with interest due to Revenue’s inaction

The present petition was filed against the order passed by Commissioner of Income Tax rejecting the revision petition filed by the Petitioner under section 264 of the Income Tax Act, 1961 (Act) on the ground that the petitioner had not made out sufficient cause for condonation of delay in filing the revision application. It was further sought to quash the order levying penalty under section 271 (1)(c) of the Act and refund of the penalty amount with interest.

The Court observed that there was no dispute about the fact that the order of penalty was made against the petitioner on the basis of the assessment of income of the petitioner done by the assessing officer under section 143(3) of the Act. While completing the assessment, the assessing officer formed an opinion that the petitioner had concealed particulars of its income and on such ground, the assessing officer exercised powers under section 271(1)(c) of the Act to impose the penalty upon the petitioner. This order was made when the appeal of the petitioner was pending before the Tribunal against the order of the assessing officer as confirmed by the Commissioner of Income Tax (Appeals).

The Tribunal allowed the appeal of the petitioner and the effect thereof was quashing of the order of assessing officer of making addition in the income of the petitioner for the relevant Assessment Year. Since the addition of the above said amount in the income of the petitioner for the purpose of assessment was removed by the order of the Tribunal, the penalty imposed upon the petitioner under section 271 (1)(c) of the Act was required to be cancelled by making necessary order under Section 275(1A) of the Act and the amount of penalty recovered from the petitioner by adjustment was required to be refunded to the petitioner.

It was held that what is provided by Section 275(1A) is that the order imposing or enhancing or reducing or cancelling the penalty may be passed on the basis of the assessment as revised by giving effect to the order in appeal. The concerned authority was thus required to make specific order for cancelling the penalty by giving effect to the order in appeal made in favour of the petitioner. However, failure of assessing officer or concerned authority to pass such order would not mean that the Assessee has no right of refund on his becoming successful in appeal against the order of assessment. Further, if there is failure to exercise power under Section 275(1A) within outer limit of six months, the Assessee would be justified in approaching before this Court under Article 226 of the Constitution. The word ‘MAY’ as mentioned in the provision was held to be construed to create an obligation upon the authority to pass consequential order upon conclusion of the litigation.

Though time limit of six month is provided for the order contemplated to be passed of imposing, enhancing, reducing, cancelling penalty or dropping the proceedings for imposition of penalty for giving effect to any order passed in appeal, but when such order is to be passed in favour of the Assessee, time limit for passing such order by the concerned officer should not come in the way of the Assessee for cancelling the penalty on his getting success before the higher forum in appeal merely because the concerned officials failed to discharge his duty of giving effect to the order made in the appeal in favour of the Assessee.

The petitioner had approached the Commissioner under Section 264 of the Act, seeking cancellation of penalty, instead of rejecting his revision application, on the ground of delay, the petitioner could have been given relief by making necessary order for cancelling penalty for giving effect to the order made in the appeal in his favour.
Accordingly, since the concerned authorities who were under obligation to pass necessary order for cancellation of penalty by giving effect to the order made in favour of the petitioner since failed in passing necessary order for cancelling of penalty and for refund of the penalty amount to the petitioner, the petitioner was held to be justified in invoking the powers of Court under Article 226 of the Constitution of India seeking direction of refund of penalty amount to the concerned authority by giving effect to the order made in the appeal preferred by the petitioner and confirmed by the Court.

Section 244 of the Act provides for interest on refund where no claim is needed and would not apply in respect of any assessment for the Assessment Year commencing on 1st May, 1989 or any subsequent assessment orders. But then in the case like the present one, Section 244A of the Act would apply for interest on refunds.

[Shanti Enterprise vs. ACIT & Anr.]
(Gujarat HC, 17.10.2014)