2014 (3) TMI 1201 - AT - Income Tax

Penalty order quashed due to lack of prior approval; Revenue's appeal dismissed.

Late Shri Gyan Chand Jain Through L/H Manish Kumar Jain Versus The I.T.O. Ward 3 (2) Jaipur And Vice-Versa

The Tribunal allowed the assessee's appeal, quashing the penalty order due to the lack of mandatory prior approval from the Joint Commissioner. The ... Penalty u/s 271(1)(c) - Defective notice u/s 274 - manadation of obtaining prior approval - As per assessee AO has not obtained requisite prior approval of the Joint Commissioner before passing any order imposing penalty under Chapter XXI - HELD THAT:- In this case, the A.O. was mandatorily required to obtain prior approval for imposing penalty from the JCIT, but it has not been obtained from the JCIT. Therefore, the impugned penalty has been imposed in violation of the mandatory requirement of the Act. We cannot borrow the argument of the ld. D.R. that it does not matter if the prior approval has been obtained from the JCIT because approval has been obtained from the Additional CIT. The Hon'ble Apex Court while deciding the case of Brij Mohan [1979 (8) TMI 2 - SUPREME COURT] has held that the competence of jurisdiction of authority to initiate penalty proceedings could be governed only by law which was in force on the date of initiation of such proceedings. In this regard, the decision of the Hon'ble Apex Court in the case of Varkey Chacko [1993 (8) TMI 1 - SUPREME COURT] is also relevant. It does not make any difference if the assessee takes any legal issue in appeal before the Appellate Tribunal. Be that as it may, in this case, penalty has been imposed without obtaining prior approval of the JCIT, therefore, this penalty order is not a legal order in the eyes of law and is null and void. Therefore, we quash the penalty order in question. We have also satisfied ourselves that the provisions of sections 292B and 292BB would not cure the jurisdictional defect. However, the A.O. is at liberty to initiate penalty proceedings as per section 274 of the Act, but further subject to the limitation provisions of section 275 of the Act. We may clarify that the A.O. cannot calculate limitation from the date of this order but has to calculate it from the order of the Appellate Tribunal dated 19.10.2006. From that order, the imposition of penalty would have been barred. We allow this legal ground of the assessee’s appeal. Issues Involved:1. Legality of penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.2. Requirement of prior approval from the Joint Commissioner for imposing penalties.3. Validity of penalty proceedings without obtaining mandatory prior approval.4. Limitation period for imposing penalties.Issue-wise Detailed Analysis:1. Legality of Penalty Imposed under Section 271(1)(c):The assessee filed a Return of Income (ROI) declaring a total income of Rs. 76,980/-, but the assessment was completed at a total income of Rs. 1,00,31,240/-. The assessment order included various additions such as commission, hire charges, insurance expenses, and others. The A.O. initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income. The assessee's appeal against the penalty was partially allowed by the CIT(A), who reduced the penalty amount. Both parties were aggrieved and filed cross-appeals.2. Requirement of Prior Approval from the Joint Commissioner:The appellant-assessee raised a legal ground that the penalty order was ab initio void because the A.O. did not obtain the requisite prior approval from the Joint Commissioner before imposing the penalty, as mandated by Section 274(2) of the Act. The D.R. argued that approval from the Additional Commissioner was sufficient and that the assessee did not raise this issue before the CIT(A).3. Validity of Penalty Proceedings without Obtaining Mandatory Prior Approval:The Tribunal considered the rival submissions and noted that Section 274 of the Act mandates prior approval from the Joint Commissioner for imposing penalties under Chapter XXI. The Tribunal found that the A.O. had not obtained such approval, rendering the penalty order null and void. The Tribunal emphasized that the term 'shall' in Section 274 makes obtaining prior approval mandatory. The Tribunal relied on the decision of the Hon'ble Delhi High Court in Pawan Kumar Garg's case, which distinguished between a Joint Director and an Additional Director, underscoring the importance of adhering to statutory requirements.4. Limitation Period for Imposing Penalties:The Tribunal observed that the provisions of Sections 292B and 292BB would not cure the jurisdictional defect caused by the lack of prior approval. The A.O. was permitted to initiate fresh penalty proceedings, subject to the limitation provisions of Section 275. The limitation period would be calculated from the date of the Appellate Tribunal's order dated 19.10.2006, making the imposition of penalty barred by limitation.Conclusion:The Tribunal allowed the assessee's appeal, quashing the penalty order due to the lack of mandatory prior approval from the Joint Commissioner. Consequently, the Tribunal did not address the other grounds on merits, as they became irrelevant. The revenue's appeal was dismissed. The order was pronounced in the open court on 07th March, 2014.