1987 (7) TMI 34 - HC - Income Tax

Validity of Penalty Proceedings in Income-tax Act: Court Rules in Favor of Revenue

Commissioner Of Income-Tax Versus Mamta Tiwari And Others

The court ruled that penalty proceedings initiated under section 273(b) during the revision of assessment under section 155(1) of the Income-tax Act, ... Advance Tax, Penalty, Regular Assessment Issues Involved:1. Validity of penalty proceedings initiated under section 273(b) during the revision of assessment under section 155(1) of the Income-tax Act, 1961.Detailed Analysis:Issue 1: Validity of Penalty Proceedings Initiated Under Section 273(b) During Revision of Assessment Under Section 155(1)The primary question referred to the court was whether the Tribunal was justified in holding that penalty proceedings under section 273(b) of the Income-tax Act were invalid because they were initiated during the revision of assessment under section 155(1) rather than during the regular assessment proceedings.Material Facts:- The assessees, partners in a registered firm, filed returns for the assessment years 1974-75 to 1976-77.- The Income-tax Officer (ITO) completed the assessments without initiating penalty proceedings under section 273.- Upon completion of the firm's assessment, the ITO rectified the assessments under section 155 and initiated penalty proceedings under section 273(b).- The assessees contended that the penalty proceedings were invalid as they were not initiated during the regular assessment proceedings.- The ITO overruled the objection and levied penalties, which the Appellate Assistant Commissioner later set aside.- The Tribunal upheld the Appellate Assistant Commissioner's order, leading to the Revenue seeking a reference to the High Court.Arguments:- Revenue's Argument: The Tribunal erred in holding the penalty proceedings invalid. Citing the Supreme Court's decision in S. Sankappa v. ITO, it was argued that proceedings under section 155 are part of the assessment proceedings, thus attracting section 273.- Assessees' Argument: Penalty proceedings under section 273 could only be initiated during regular assessment proceedings under sections 143 or 144, not during proceedings under section 155.Court's Analysis:- Interpretation of Section 273: The court noted that section 273 contemplates initiation of penalty proceedings 'in the course of any proceedings in connection with the regular assessment.' The term 'regular assessment' is defined under section 2(40) to mean assessments under sections 143 or 144.- Nature of Section 155 Proceedings: The court examined whether proceedings under section 155 could be considered part of the regular assessment. Referring to the Supreme Court's observations in S. Sankappa's case, the court noted that orders under section 154 or section 155 are part of the assessment proceedings as they amend the original assessment.- Comparison with Section 147: The court discussed various High Court decisions which held that reassessment proceedings under section 147 are not part of regular assessment proceedings for levying penalties under section 273. However, the court differentiated section 155 from section 147, noting that section 155 involves amending an existing assessment rather than creating a new assessment.- Harmonious Construction: The court emphasized a harmonious interpretation of sections 153 and 155, concluding that an order under section 155, if not barred by limitation, remains part of the assessment proceedings.- Specific Provisions: The court addressed the contention regarding section 215(3), which provides for refund of excess interest due to orders under section 154 or 155. The court clarified that section 215(3) was enacted to remove doubts and does not imply that orders under section 155 are not part of the assessment proceedings.Conclusion:- The court concluded that the order passed under section 155 is part of the proceedings for assessment under section 143 if the original assessment was under section 143.- Therefore, penalty proceedings initiated during the revision of assessment under section 155 are valid as they are part of the proceedings in connection with the regular assessment.Judgment:- The Tribunal was not justified in holding the penalty under section 273(b) as bad in law.- The court answered the question in the negative and against the assessees, with parties bearing their own costs.This comprehensive analysis ensures that the legal terminology and significant phrases from the original text are preserved while providing an in-depth understanding of the judgment.