2006 (4) TMI 52 - HC - Income Tax

Penalty - AO levied penalty u/s 271D and 271E on the ground that assessee had violated the Section 269SS and 269T of the ITA ,1961 - Held that penalty u/s 271D and 271E not sustained on the ground that these are not applicable at the time he violated

Summary

Issues Involved:
1. Applicability of Section 271-D and Section 271-E of the Income Tax Act, 1961 for transactions prior to their enactment on 1.04.1989.
2. Validity of penalty imposition for breaches of Section 269-SS and Section 269-T committed before 1.04.1989.
3. Interpretation of penal provisions and their retrospective or prospective application.

Issue-Wise Detailed Analysis:

1. Applicability of Section 271-D and Section 271-E for Transactions Prior to 1.04.1989:
The core question was whether penalties under Section 271-D and Section 271-E, which were introduced effective from 1.04.1989, could be imposed for transactions that occurred before this date. The court noted that these sections were not in force during the period when the assessee committed breaches of Section 269-SS and Section 269-T (1.04.1988 to 31.03.1989). The court emphasized that these sections were prospective in operation and could not be applied retrospectively to cover breaches committed before their enactment.

2. Validity of Penalty Imposition for Breaches of Section 269-SS and Section 269-T:
The court highlighted that prior to 1.04.1989, the relevant penal provisions were Section 276-DD and Section 276-E, which prescribed imprisonment and fines for breaches of Section 269-SS and Section 269-T. These sections were omitted from the Act with effect from 1.04.1989 and replaced by Section 271-D and Section 271-E, which provided for monetary penalties instead. The court referenced the Supreme Court's decision in General Finance Co. vs. Assistant Commissioner of Income Tax, which established that omission of a provision (as opposed to repeal) does not save the right to initiate proceedings for liabilities incurred during the currency of the provision. Consequently, any prosecution initiated under the omitted sections after 1.04.1989 would be invalid.

3. Interpretation of Penal Provisions and Their Retrospective or Prospective Application:
The court reiterated the principle that penal provisions should be interpreted based on the law in force at the time the default was committed. The court cited several precedents, including Supreme Court decisions in Onkar Saran and Sons vs. CIT and B.N. Sharma vs. CIT, which held that the law applicable at the time of filing the return containing the concealment or misstatement is relevant for determining the penalty. Applying this principle, the court concluded that only Section 276-DD could be applicable for breaches committed before 1.04.1989, and any action under Section 271-D and Section 271-E for such breaches was without jurisdiction.

Conclusion:
The court allowed the appeal, setting aside the impugned orders and quashing the penalty proceedings initiated under Section 271-D and Section 271-E. The court emphasized that the breaches committed by the assessee before 1.04.1989 could not be penalized under sections that were not in force at that time. The court acknowledged the legislative anomaly and suggested that lawmakers consider suitable amendments to address such issues.