The Karnataka High Court has directed a stay on penalty orders and demand notices issued by the Income Tax Department, stating that the Section 275 of Income Tax Act, 1961 clearly bars the issuance of penalty orders while the appeals are pending.
Justice S R Krishna Kumar stated that “A perusal of Section 275 of the I.T. Act will indicate that there is clear embargo/bar on proceeding to pass penalty order if an appeal is pending on the Assessment Order.”
The case involved a petition challenging the issuance of penalty and demand notices despite the pending appeal on the assessment order.
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Anjanadri Fuel station challenging orders dated September 18, 2023, and October 13, 2023, sought several reliefs including a writ of certiorari to quash the penalty orders and notices, and a writ of mandamus to direct their cancellation.
The petitioner also requested a writ of prohibition to prevent further action based on these orders and notices, arguing that they were issued while an appeal was pending.
The petitioner’s counsel submitted that the penalty orders and demand notices were wrongly issued despite the appeal being filed on May 12, 2023, against the assessment order dated March 30, 2023. The argument was based on the premise that, according to Section 275 of the Income Tax Act, the issuance of penalty orders is barred while an appeal is pending.
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This view was supported by a previous ruling in the case of B.S. Uday Shetty vs. The Assistant Commissioner of Income Tax, which held that penalty proceedings should be kept in abeyance until the appeal is resolved.
In contrast, the respondents argued that since the penalty orders are themselves appealable, the stay on these orders and notices until the appeal is decided was not warranted.
The high court, upon reviewing the provisions of Section 275 and the case law of B.S. Uday Shetty vs. The Assistant Commissioner of Income Tax, agreed with the petitioner. The court ruled that the penalty orders and demand notices should be kept in abeyance until the appeals are disposed of.
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