1982 (4) TMI 36 - HC - Income Tax

Court clarifies jurisdiction on penalty proceedings separate from assessment under Income-tax Act.

The court held that the Additional Commissioner could not direct the Income-tax Officer to initiate penalty proceedings as they are separate from ... Revision Issues Involved:1. Legality of the Tribunal's decision to vacate the Additional Commissioner's direction to initiate penalty proceedings u/s 271(1)(a) and 273 of the Income-tax Act, 1961.2. Whether the failure of the Income-tax Officer (ITO) to charge interest and initiate penalty proceedings was erroneous and prejudicial to the interests of the Revenue.Summary:Issue 1: Legality of Tribunal's Decision on Penalty ProceedingsThe Tribunal concluded that penalty proceedings are distinct and independent from assessment proceedings. The Additional Commissioner could only revise an order passed in a 'proceeding' the record of which was summoned and examined. Therefore, he could not direct the ITO to initiate penalty proceedings as there were no such proceedings or records before him. The Tribunal held that the Addl. Commissioner was not justified in directing the initiation of penalty proceedings or a levy thereof, which are matters relatable to entirely different proceedings.Issue 2: Failure to Charge Interest and Initiate Penalty ProceedingsThe Tribunal treated the failure to charge interest differently. It held that interest forms part of the sum payable by the assessee determined in the assessment order, and the Commissioner can set aside the assessment order if the ITO has failed to exercise his discretion in a judicial manner. The Tribunal upheld the Addl. Commissioner's order on this aspect and directed the ITO to consider the levy of interest u/s 139(1) and 217 in accordance with law, after giving the assessee a hearing.Arguments and Precedents:Mr. Lalwani, appearing for the Commissioner, argued that penalty proceedings can be initiated only in the course of assessment proceedings, and the failure to do so by the ITO can be the subject of directions by the Commissioner while examining the assessment record. He cited cases from the Madhya Pradesh High Court, including Addl. CIT v. Indian Pharmaceuticals, Addl. CIT v. Kantilal Jain, and Addl. CWT v. Nathoolal Balaram, to support his contention.However, the court disagreed with the Madhya Pradesh High Court's view, citing its own precedent in Addl. CIT v. J.T.K. D'Costa, where it was held that penalty proceedings do not form part of the assessment proceedings. The court emphasized that the failure of the ITO to record his satisfaction or lack thereof in the assessment order regarding the leviability of penalty does not vitiate the assessment orders.Conclusion:The court concluded that the Commissioner's jurisdiction under s. 263 is confined to the assessment order/proceedings, and he cannot extend his powers to deal with penalty proceedings when they are not before him. The court answered the question in the affirmative and in favor of the assessee, stating that the Commissioner could not pass an order pertaining to penalty u/s 263 of the Act.