Penalty for audit-report default u/s271B: order invalid without recorded JCIT prior approval; case sent back for fresh order.

The dominant issue was whether a penalty order under s. 271B could stand without recording prior approval of the competent authority as mandated by the Act. The HC held that it is incumbent on the ITO to disclose in the penalty order that prior approval of the JCIT was obtained; absence of such recital warrants an inference that approval was not taken, rendering the order incompetent and a nullity that can be challenged at any stage. Consequently, the penalty order was set aside and the matter was remitted to the AO to pass a fresh order under s. 271B after obtaining necessary approval, resulting in relief to the assessee.

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Issues Involved:
1. Imposition of penalty under Section 271B without prior approval of the Joint Commissioner.
2. Compliance with the provisions of Section 274(2) of the Income Tax Act.

Analysis:

Issue 1: Imposition of penalty under Section 271B without prior approval of the Joint Commissioner
In the present case, both appellants were served with notices to show cause why penalty under Section 271B should not be imposed. The penalty was imposed without obtaining the prior approval of the Joint Commissioner, as required by Section 274(2) of the Income Tax Act. The appellant's counsel argued that the orders imposing the penalty did not disclose the necessary approval, citing a previous judgment where it was held that an order imposing a penalty exceeding a certain amount without the required approval is incompetent and a nullity. The court agreed with this argument and held that the orders imposing the penalty were unsustainable due to the lack of necessary approval.

Issue 2: Compliance with the provisions of Section 274(2) of the Income Tax Act
Section 274(2) of the Income Tax Act mandates that no order imposing a penalty exceeding a specified amount can be made without the prior approval of the Joint Commissioner. The appellant's counsel contended that the orders imposing the penalty did not adhere to this provision, rendering them invalid. The court, after considering the arguments presented, concluded that the orders imposing the penalty were defective and set them aside in both appeals. The matters were remanded to the Assessing Officer for a fresh decision under Section 271B after obtaining the necessary approval and ensuring compliance with the law.

In summary, the High Court of Calcutta, in the judgment delivered by Girish Chandra Gupta and Sudip Ahluwalia, set aside the orders imposing penalties under Section 271B on the appellants as they were made without the required prior approval of the Joint Commissioner, as mandated by Section 274(2) of the Income Tax Act. The court emphasized the importance of compliance with statutory provisions and remanded the matters to the Assessing Officer for fresh consideration in accordance with the law.

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