Commissioner of Income Tax vs Chakiat Agencies P. Ltd.

K. Raviraja Pandian, J.—The correctness of the order of the Tribunal dated November 30, 2005 made in I.T.A. No. 1185/Mds/2002 relating to the assessment year 1996-97 wherein and whereby the penalty levied by the Assessing Officer u/s 271(1)(c) of the Income Tax Act, 1961 and upheld by the Commissioner of Income Tax (Appeals) has been directed to be deleted by the Tribunal on the premise that the Tribunal by its order dated April 30, 2003 made in I.T.A. No. 57 of 2000 allowed the quantum appeal of the assessee.

Facts: The assessee is a shipping agent. For the assessment year 1996-97, the assessee had claimed deduction u/s 80O of the Income Tax Act on the ground that the assessee rendered service to foreign shipping company and also certain technical services like booking of cargo and gathering and supplying details of market conditions to foreign shipping companies. The Assessing Officer found that there was no actual receipt of foreign exchange by the assessee and thus levied penalty u/s 271(1)(c) in a sum of Rs. 30,30,430. The assessee filed an appeal before the Commissioner of Income Tax (Appeals) who upheld the order of the Assessing Officer. On further appeal, the Income Tax Appellate Tribunal decided the issue in favour of the assessee on the ground that when the assessee''s claim of deduction u/s 80O had been allowed by the Tribunal in its order dated April 30, 2003, in I.T.A. No. 57/Mds/2000, the very basis for the levy of penalty has gone. The correctness of the same is now canvassed before this Court by framing the following question of law:

Whether in the facts and circumstances of the case, the Tribunal was right in cancelling the penalty levied u/s 271(1)(c) when the assessee has not produced any evidence, convincing the services rendered to foreign principal fell within the Section 80O?

The learned Counsel for the Revenue submitted that the Revenue not accepting the order of the Tribunal dated April 30, 2003 granting the relief u/s 80O made in quantum appeal filed a tax case appeal. When the tax case appeal was pending before this Court, the present appeal in respect of penalty is filed. The quantum tax case appeal has been decided by this Court in the case of Commissioner of Income Tax Vs. Chakiat Agencies (P) Ltd., , wherein the order of the Tribunal granting the relief in favour of the assessee has been upheld.

In view of the fact that the quantum appeal has been decided in favour of the assessee, virtually the basis for imposition and levy of penalty u/s 271(1)(c) is not available. When such is the position, the imposition of penalty is not in accordance with law. Hence the question of law is answered in the affirmative and in favour of the assessee. The appeal is dismissed.