2004 (9) TMI 46 - HC - Income Tax

Whether Tribunal was justified in law in holding that the Commissioner of Income-tax had no jurisdiction to direct the Income-tax Officer to initiate the penalty proceedings under section 273(b) and under section 140A? - Held that non-initiation of penalty proceeding by the assessing authority in the course of assessment proceedings, also renders the order erroneous and prejudicial to the interests of the Revenue and, therefore, can be the subject-matter of revision under section 263 Thus we answer the question of law referred to us in the negative, i.e., in favour of the Revenue and against the assessee.

Summary

Issues:
Jurisdiction of Commissioner of Income-tax to direct initiation of penalty proceedings under section 273(b) and 140A of the Income-tax Act, 1961.

Analysis:
The High Court was tasked with determining whether the Income-tax Appellate Tribunal was justified in holding that the Commissioner of Income-tax had no jurisdiction to direct the Income-tax Officer to initiate penalty proceedings under specific sections of the Income-tax Act, 1961. The case stemmed from the assessment year 1980-81, where the Commissioner of Income-tax found errors in the assessment order by the Income-tax Officer, leading to the allowance of excess depreciation and travelling expenses. The Commissioner directed the Income-tax Officer to reframe the assessment and consider initiating penalty proceedings. The Tribunal modified the Commissioner's order, limiting the reassessment to depreciation and travelling expenses, excluding the direction on penalty proceedings. The High Court, citing a previous decision, held that the non-initiation of penalty proceedings during assessment renders the order erroneous and prejudicial to revenue, justifying revision under section 263 of the Act.

The key issue revolved around the interpretation of the Commissioner's jurisdiction to direct the initiation of penalty proceedings under specific sections of the Income-tax Act. The Commissioner, upon finding errors in the assessment order related to excess depreciation and travelling expenses, directed the Income-tax Officer to reframe the assessment and consider initiating penalty proceedings. The Tribunal modified this direction, excluding the part related to penalty proceedings. The High Court, referencing a prior decision, emphasized that the failure to initiate penalty proceedings during assessment renders the order erroneous and prejudicial to revenue, allowing for revision under section 263 of the Act.

In conclusion, the High Court ruled in favor of the Revenue, affirming the Commissioner's jurisdiction to direct the initiation of penalty proceedings under the Income-tax Act. The Court's decision was influenced by the understanding that the non-initiation of penalty proceedings during assessment could render the order erroneous and prejudicial to revenue, justifying revision under section 263 of the Act. As a result, the High Court answered the question of law in the negative, supporting the Revenue's position, with no order as to costs.