Reversal of earlier order by ITAT based on judgment of non jurisdictional HC – SLP dismissed

Reversal of earlier order  by ITAT based on judgment of non jurisdictional High Court. Question kept open though SLP dismissed by Supreme Court

ABCAUS Case Law Citation:
ABCAUS 3280 (2020) (03) SC

Important case law relied upon by the parties:
Honda Seil Ltd (295 ITR 466)
CIT v. Manjunatha Cottonand Ginning Factory (2013) 359 ITR  565
Madhushree Gupta v. Union of India (2009)317 ITR 107
Saurasthra  Kutch  Stock Exchange (305 ITR 337)

In the instant case, for the relevant Assessment Year, the assessee had filed a return of income showing loss. The assessee continued to suffer losses and its business was ultimately shut down two years later.

Income   Tax Department (‘Revenue) sought to recover the penalty u/s 271(1)(c) of the Income Tax Act, 1961 (the Act) amount from one of the directors of the assessee company whose business was closed.

The assessee moved an application u/s 254(2) of the Act in the Income Tax Appellate Tribunal (‘ITAT’).

The assessee contended that in the penalty notice, the AO had not specified the limb of the penalty i.e. whether the proposed penalty was for concealment of income or for furnishing inaccurate particulars of income. However, the penalty had been levied for furnishing inaccurate particulars of income.

The assessee submitted that the decision of Hon’ble Karnataka High Court in case of CIT vs. Manjunatha Cotton and Ginning Factory was not considered by the Tribunal.

It was also submitted that the decision of the Hon’ble Supreme Court in case of SSA’s Emerald was   also not considered as none of the twin charges in notice u/s 274 were stuck off.

Thus, the assessee contended that non-consideration of binding judicial precedents was a mistake apparent from record. He submitted that the decision in case Manjunatha Cotton and Ginning Factory was also upheld by Hon’ble Supreme Court, thus the order of ITAT suffered from gross mistake. He also relied on the judgment of the Hon’ble Supreme Court wherein it had been held that non consideration of the decision of the Hon’ble higher forum makes the order erroneous.

Reversal of order by ITAT based on judgment of non jurisdictional HC

In view of the above, the Tribunal held that the penalty  levied  by  the Assessing Officer u/s 271(1)(c)  of the Act was not sustainable and the penalty levied was deleted.

Before the Hon’ble High Court, the Revenue contended that in exercise of the power under  Section  254(2)  of  the  Act, the ITAT  could  not  have  reviewed its  earlier  order  as  the  judgment on  the  basis  of  which  the  earlier  decision was reversed was not of the ‘jurisdictional’ High Court.

However, the Hon’ble High Court despite of the view that the issue raised by the Revenue had merit, in  the  facts  of  the  case  where  the business  had been closed  way  more than two decades ago, the Court declined to interfere with the order of the ITAT.

Aggrieved with the order of the Hon’ble High Court, the Revenue had preferred a Special Leave Petition to the Hon’ble Supreme Court which was dismissed by their Lordships but the question of law raised had been kept open.

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