By TIOL News Service

KOLKATA, JULY 14, 2018: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether the CIT(A) in course of adjudicating an order imposing a penalty, can exceed his limited jurisdiction to adjudicate an order of assessment/reassessments. NO IS THE VERDICT.

Facts of the case:

The assessee hospital was discovered to have not disclosed the donations received by it, or claimed deduction thereon that the assessee was not entitled to, during the course of assessment proceedings. Accordingly, reassessment was carried out, making the assessee liable to pay additional tax, which was accepted and paid by assessee without challenging the relevant order. Proceedings for imposing penalty on the assessee were also taken up separately u/s 271. When the assessee challenged this levy before the FAA, the AO was directed to again reopen the matter to ascertain whether further income had escaped tax. Finally, the FAA also affirmed the penalty imposed on the assessee. On further appeal, the Tribunal did not disturb the penalty, but found that the further direction issued by FAA for the AO to reopen the matter and again assess whether some income had escaped assessment, was unwarranted.

High Court held that,

++ the key expression in the Explanation to Section 251 is "any matter arising out of the proceedings in which the order appealed against was passed". As would be evident from Section 251(1), an appeal against an order of assessment is covered by clause (a) thereof and an appeal against an order imposing a penalty is covered by clause (b) thereof. In other words, independent appeals arise out of orders of assessment and orders imposing any penalty. In this case, the order that was before the CIT(A) was an order imposing a penalty and not an assessment order. If the assessment order that resulted in the penalty proceedings being instituted was before the CIT(A), the direction may have been justified. However, in the appeal arising out of the order imposing the penalty, the matter pertaining to some other income escaping assessment did not fall within the purview of the expression "any matter arising out of proceedings in which the order appealed against was passed". Accordingly, the view taken by the Tribunal in the context of the limited authority exercised by the FAA in course of adjudicating an order imposing a penalty, does not warrant any interference.

(See 2018-TIOL-1332-HC-KOL-IT)