1999 (12) TMI 40 - HC - Income Tax

Summary

Issues Involved: The judgment involves the following issues: 1. Whether failure to obtain previous permission for imposing penalty under section 271(1)(c) is fatal to the penalty order? 2. Whether remanding the matter for passing a fresh penalty order is justified?

Issue 1: Failure to Obtain Previous Permission for Penalty Order

The assessee, a registered firm, declared income from leasing premises to a bank. The Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961, without obtaining prior approval from the Inspecting Assistant Commissioner. The first appellate authority cancelled the penalty due to lack of approval. However, the Tribunal reversed this decision, deeming the absence of prior permission as a procedural error, not fatal to the penalty order. The Tribunal cited the Madhya Pradesh High Court case of Prabhudayal Amichand v. CIT [1989] 180 ITR 84, which held that the required approval is a procedural irregularity, not affecting jurisdiction. Additionally, the Supreme Court case of Guduthur Bros. v. ITO [1960] 40 ITR 298 emphasized the importance of providing an opportunity for hearing before levying a penalty.

Issue 2: Remanding for Fresh Penalty Order

The Tribunal justified its decision to remand the matter to the Income-tax Officer for passing a fresh penalty order. It clarified that the prior approval from the Inspecting Assistant Commissioner is necessary for the direction of payment of penalty, not for initiating proceedings. The Tribunal concluded that the failure to obtain previous permission was a procedural defect, and thus upheld the penalty order under section 271(1)(c) of the Income-tax Act, 1961. The judgment emphasized that the proceedings were validly initiated, and the remand for a fresh penalty order was deemed appropriate.

In conclusion, the High Court of Karnataka ruled in favor of the Revenue and against the assessee, upholding the penalty order under section 271(1)(c) of the Income-tax Act, 1961, despite the procedural error of not obtaining prior permission from the Inspecting Assistant Commissioner. The Tribunal's decision to remand the matter for a fresh penalty order was deemed justified based on the procedural nature of the defect.