Commissioner of Income Tax vs Coromandal Indag Products (P.) Ltd.

N.V. Balasubramanian, J.—The Income Tax Appellate Tribunal has stated a case and referred the following question of law for our

consideration u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as ""the Act"") :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in cancelling the penalty levied u/s 271(1)(c) of

the Income Tax Act, 1961, for the assessment year 1984-85 ?

The assessment year involved is 1984-85. The question that is the subject matter of consideration is whether the Assessing Officer was justified

in imposing penalty u/s 271(1)(c) of the Act in respect of the claim for deduction made by the assessee u/s 35(1)(iv) of the Act. The Assessing

Officer found that the claim for deduction made by the assessee was false and on that basis, he levied penalty. The Commissioner of Income Tax

(Appeals) also upheld the order of the Assessing Officer levying penalty on the ground that the assessee made a false claim.

The matter went in appeal before the Appellate Tribunal and the Appellate Tribunal, while considering the order of assessment, went into the

claim of the assessee relating to Section 35(1)(iv) of the Act and set aside the order of the Assessing Officer and remitted the matter to the

Assessing Officer for reconsideration of the claim for deduction made by the assessee in a proper perspective. The Appellate Tribunal, while

considering the question of imposition of penalty, held that since it remitted the matter to the Assessing Officer to reconsider the claim for deduction

made by the assessee, the penalty levied was not sustainable in law. The Appellate Tribunal, in our view, should have stopped with that

observation, but it proceeded further and observed that the claim for deduction made by the assessee was only a legal contention and therefore the

claim could not be regarded as a false claim. We are of the view, the Appellate Tribunal should not have entered into the merits of the matter and

given a finding on the question whether the claim for deduction made by the assessee was a false claim or not, particularly when the Appellate

Tribunal has remitted the matter to the Assessing Officer to reconsider the claim for deduction made by the assessee u/s 35(1)(iv) of the Act.

Therefore, we are of the opinion that the view expressed by the Appellate Tribunal that the claim for deduction made by the assessee was not a

false claim is not sustainable on the facts of the case in view of the order of remittal made by the Appellate Tribunal. Further, when the Appellate

Tribunal has remitted the matter to the Assessing Officer to consider the question regarding the allow-ability of the claim u/s 35(1)(iv) of the Act,

the question whether the claim of the assessee is false or not can be decided at the time of consideration of the assessee''s claim for deduction, and

not earlier. Therefore, we uphold the order of the Appellate Tribunal on the ground that since the matter was remitted to the Assessing Officer, the

penalty imposed cannot be sustained. However, we are not approving the observation made by the Appellate Tribunal that the assessee''s claim is

not a false claim.

Since the question of law does not bring out the real issue, we reframe the question as under :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in cancelling the penalty levied u/s 271(1)(c) for

the assessment year 1984-85 having remitted the issue relating to the disallowance of the assessee''s claim u/s 35(1)(iv) for fresh consideration by

the Assessing Officer which led to imposition of the impugned penalty?

Though we answer the question of law as refrained by us in the affirmative, technically still the question whether penalty is leviable or not would

depend upon the final order of assessment that may be made by the Assessing Officer in accordance with law. No costs.