1990 (12) TMI 23 - HC - Income Tax

Summary

Issues:
- Whether the Tribunal was justified in canceling the penalty under section 271(1)(c) of the Income-tax Act for the assessment years 1964-65, 1965-66, and 1966-67?
- Can the Tribunal examine the question of levy of penalty on merits when the assessment proceedings have been remitted to the Appellate Assistant Commissioner for de novo consideration?

Analysis:
The case involved tax references under section 256(2) of the Income-tax Act, 1961, where the Tribunal had to decide whether canceling the penalty under section 271(1)(c) for the assessment years 1964-65, 1965-66, and 1966-67 was justified. The assessee, a company deriving income from managing agency and dividends, had claimed certain losses and expenses which were disallowed by the Income-tax Officer. Additionally, the assessee introduced bogus hundi credits, leading to penalty proceedings under section 271(1)(c) of the Act.

During the penalty proceedings, it was found that the assessee had concealed income particulars, and the Inspecting Assistant Commissioner levied penalties for the respective assessment years. However, on appeal, the Tribunal concluded that the penalty was not justified as the hundi credits were genuine and produced before the authorities. The Tribunal also considered that penalty proceedings should be based on the conclusions of the assessments to be made after remittance to the Appellate Assistant Commissioner.

The Revenue contended that the Tribunal should not have canceled the penalty as the assessment proceedings were remitted for de novo consideration. The court agreed with the Revenue, stating that penalty proceedings should align with the assessment conclusions post-remittance. The court cited previous judgments emphasizing that penalty considerations should be tied to the assessment outcomes. The Tribunal erred in canceling the penalty prematurely, and the court ruled in favor of the Revenue.

The court highlighted that the Tribunal's cancellation of the penalty was incorrect, and the questions were answered in the negative, favoring the Revenue. It was noted that depending on the pending assessment proceedings, the Revenue could initiate penalty proceedings if warranted. The court awarded costs to the Revenue and emphasized the finality of orders unless disturbed by a lawful process.

In conclusion, the Tribunal's premature cancellation of the penalty was deemed incorrect, and the court ruled in favor of the Revenue, emphasizing the need for penalty considerations to align with assessment outcomes post-remittance.