IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 12TH DAY OF NOVEMBER, 2019 BEFORE THE HON’BLE MRS.JUSTICE S.SUJATHA W.P.No.31127/2019 (T – IT) BETWEEN :
SASKEN TECHNOLOGIES LTD., 139/25, RING ROAD, DOMLUR, BANGALORE-560 071 REP HEREIN BY ITS RAJIV C. MODY MANAGING DIRECTOR ...PETITIONER (BY SRI T.SURYANARAYANA, ADV.) AND :
1 . THE JOINT COMMISSIONER OF INCOME TAX SPECIAL RANGE-6, ROOM NO.243, 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU-560 095.
2 . THE PRINCIPAL COMMISSIONER OF INCOME TAX, BANGALORE RANGE-6, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BANGALORE 560 095. …RESPONDENTS (BY SRI JEEVAN J. NEERALGI, ADV.) THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER DATED 22.05.2019 (ANNEXURE-M) PASSED BY THE R-1 REJECTING THE PETITIONER’S APPLICATION FOR STAY OF THE DEMAND PURSUANT TO THE ORDER DATED 23.04.2019 PASSED BY THE R-1 UNDER SECTION 271(c) OF THE ACT FOR THE ASSESSMENT YEAR 2011-2012.
THIS PETITION COMING ON FOR PRELIMINARY HEARING, THIS DAY, THE COURT MADE THE FOLLOWING:
O R D E R Heard the learned counsel for the respective parties.
2. The petitioner has assailed the order dated 22.05.2019 passed by the respondent No.1 whereby the petitioner’s application for stay of the demand pursuant to the order dated 23.04.2019 passed by the respondent No.1 under Section 271(1)(c) of the Income Tax Act, 1961 (‘Act’ for short) relating to the assessment year 2011-12 has been rejected, and the order passed by the respondent No.2 dated 18.7.2019 rejecting the petitioner’s application for stay of the demand pursuant to the order dated 23.4.2019 passed by the respondent No.1 inter alia seeking a direction to the respondents not to enforce the demand of Rs.27,27,42,069/- under the demand notice dated 23.4.2019 issued by the respondent No.1 under Section 156 of the Act relating to the assessment year 2011-12 until disposal of the appeal filed by the petitioner relating to the assessment year in question pending before the Tribunal or the appeal filed by the petitioner challenging the order passed under Section 271(1)(c) of the Act before the CIT (Appeals), whichever is later.
3. The petitioner is a company engaged, inter alia, in the business of rendering software service. The return of income was selected for scrutiny and the 1st respondent passed a draft assessment order under Section 143(3) r/w Section 144-C of the Act proposing to make disallowance under Section 14-A of the Act and recomputed the deduction claimed under Sections 10-A and 10-AA of the Act. Aggrieved, the petitioner filed its objections before the Dispute Resolution Panel which rejected the objections of the petitioner. The 1st respondent passed the final assessment order in line with the directions issued by the DRP. Aggrieved, the petitioner and the Revenue preferred Appeal/cross appeal before the ITAT. The ITAT passed an order dismissing the Revenue’s appeal, partly allowing the petitioner’s appeal. However, the disallowance made under Section 14-A of the Act and re-computation of deduction under Sections 10-A and 10-AA of the Act came to be upheld. Aggrieved, the petitioner has filed an appeal before this Court which is pending consideration. The rectification application filed under Section 254(2) of the Act in M.P.No.38/Bang/2019 came to be disposed of, vide order dated 28.6.2019 by recalling the original order to re-adjudicate the disallowance made under Section 14-A of the Act and the re-computation of deduction under Sections 10-A and 10-AA of the Act which indeed was the basis for the levy of penalty.
4. The representations made by the petitioner requesting to cancel the levy of penalty pursuant to the order passed in M.P.No.38/Bang/2019 by the Tribunal came to be rejected. The petitioner has filed an appeal against the penalty order and the same is pending consideration before the Appellate Authority. The petitioner has filed an application for stay of the demand before the Assessing Officer pending disposal of the appeal by the Tribunal or the Appellate Authority which came to be dismissed. Hence, the present petition.
5. Learned counsel for the petitioner would submit that the basis for the levy of penalty having been set aside by the Tribunal recalling its order to re- consider the matter and the same being pending before the Tribunal, the penalty order passed under Section 271(1)(c) of the Act relating to the assessment year in question would not survive. It is further submitted that the penalty notice as well as the order does not disclose the details for the levy of penalty and the same is not in conformity with the decision of the Division Bench of this Court in Commissioner of Income Tax Vs. Manjunatha Cotton & Ginning Factory reported in (2013) 35 taxmann.com 250 (Karnataka). In such circumstances, penalty proceedings initiated by the Assessing Officer is bad in law.
6. Learned counsel for the respondent-Revenue supports the order impugned herein.
7. Having heard the learned counsel for the parties and perusing the material on record, it is evident that the basis for the levy of penalty is set aside by the Tribunal i.e., the original order of the Tribunal relating to the disallowance made under Section 14-A of the Act and re-computation of deduction under Sections 10-A and 10-AA of the Act by recalling the original order in M.P.No.38/Bang/2019 and the same is pending adjudication before the Tribunal. The petitioner has filed an appeal against the order of penalty impugned herein and the said appeal is also pending consideration before the Appellate Authority. It is well settled law that the penalty is not automatic. In such circumstances, it was obligatory on the part of the Assessing Officer to consider the application of the petitioner staying the demand of penalty subject to the decision of the Tribunal/Appellate Authority. The same having been rejected, this Court deems it appropriate to direct the respondents not to enforce the demand relating to the penalty amount under the demand notice dated 23.4.2019 issued by the respondent No.1 under Section 156 of the Act relating to the assessment year in question until disposal of the proceedings pending before the Tribunal or the Appellate Authority challenging the order passed under Section 271(1)(c) of the Act, whichever is earlier and is ordered accordingly.
Writ petition stands disposed of in terms of the above.
Sd/- JUDGE Dvr: