1996 (5) TMI 14 - HC - Income Tax

Summary

Issues:
1. Whether the levy of penalty without the previous approval of the Inspecting Assistant Commissioner was illegal?
2. Whether the penalty order could be remanded to cure the defect of not obtaining the previous approval?

Analysis:
1. The case involved an application by the Department under section 256(1) of the Income-tax Act, 1961, regarding penalty proceedings for the assessment year 1979-80. The Income-tax Officer initiated penalty proceedings without specific mention of which item was treated as concealment of income out of the total addition of Rs. 32,707. The Commissioner of Income-tax (Appeals) upheld the penalty, but the Tribunal found the penalty order illegal due to lack of previous approval of the Inspecting Assistant Commissioner for the entire addition. The Tribunal held that the defect could not be cured as the first appellate authority had no power of remand, canceling the penalty.

2. Regarding the second question, the court referred to previous decisions to determine that procedural irregularities not involving jurisdiction could be cured. The court cited cases where procedural defects in penalty orders could be rectified, emphasizing that the clause in section 275 of the Income-tax Act applied only to the initial penalty order. The court held that the levy of penalty without the Inspecting Assistant Commissioner's approval was illegal, and upon remand, the authorities must restrict penalty proceedings to the specific amount of Rs. 23,600 out of the total addition of Rs. 32,707. The court directed the case to go back to the assessing authority for rectification while considering the factual position of the case.

In conclusion, the court answered both questions in favor of the Revenue and against the assessee. The judgment clarified that the levy of penalty without the Inspecting Assistant Commissioner's approval was illegal, but the defect could be cured by restricting penalty proceedings to the specific amount. The court directed the authorities to consider the factual position while rectifying the defect. The reference was decided without any order as to costs, and a copy of the order was to be transmitted to the Tribunal for further action in accordance with the law.