2000 (5) TMI 14 - HC - Income Tax

Summary

Issues:
1. Interpretation of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Whether penalty imposed by the Inspecting Assistant Commissioner was justified.
3. Consideration of intentional omission in disclosing income.
4. Application of judicial discretion in penalty imposition.
5. Justification of penalty deletion by the Tribunal.

Analysis:
The judgment pertains to a reference made under section 256(2) of the Income-tax Act, 1961, regarding the deletion of a penalty imposed by the Inspecting Assistant Commissioner of Income-tax. The controversy revolves around the penalty of Rs. 9,000 imposed under section 271(1)(c) of the Act for the failure to disclose commission income in the original return for the assessment year 1970-71. The Tribunal deleted the penalty, citing that the omission was not intentional, leading to the current legal question.

The Tribunal found as a fact that the omission to disclose the commission income was not intentional, which formed the basis for deleting the penalty. The High Court concurred with this finding, emphasizing that a penalty should not be imposed if the assessee acted in an honest and genuine belief, as per established legal principles. The court referred to the case law of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26, highlighting that penalties should not be imposed merely because it is lawful to do so, and discretion should be exercised judiciously considering all relevant circumstances.

The court reiterated that penalty imposition is a result of quasi-criminal proceedings and should only be imposed when there is deliberate defiance of the law or contumacious conduct. In this case, since the Tribunal found the omission to be unintentional, the penalty levied by the Inspecting Assistant Commissioner was deemed unsustainable. Therefore, the Tribunal's decision to delete the penalty was upheld by the High Court, ultimately ruling in favor of the assessee and against the Revenue.

In conclusion, the High Court answered the referred question in the negative, supporting the deletion of the penalty by the Tribunal. The reference was disposed of accordingly, with no order as to costs.