2014 (11) TMI 808 - HC - Income Tax

Levy of penalty u/s 273(a)(aa) when reassessment proceedings started - Whether the Tribunal was right in law in holding that penalty u/s 273(a) (aa) cannot be levied as it has been initiated in the reassessment proceedings Held that - The Tribunal rightly was of the view that the penalty proceedings u/s 273 can be initiated only during regular assessment and as the penalty proceedings u/s 273 have been initiated in the reassessment stage which cannot be termed as regular assessment - in Modi Industries Limited And Others Versus Commissioner of Income-Tax And Another 1995 (9) TMI 324 - SUPREME Court the meaning of regular assessment has been defined - once proceedings of penalty us 273(2)(a) or sec.273(2)(aa) have not been initiated in the regular assessment by AO, then penalty proceedings cannot be initiated in the reassessment proceedings and penalties are liable to be deleted - thus, this was reassessment and therefore the provisions of Section 273(2)(aa) will not be applicable in the reassessment proceedings the order of the Tribunal us upheld Decided against revenue.

Summary

Issues:
1. Penalty proceedings under Section 273 initiated during reassessment stage.
2. Interpretation of "regular assessment" under Section 273 for penalty proceedings.

Issue 1: Penalty proceedings under Section 273 initiated during reassessment stage

The case involved an assessee company engaged in rig manufacture, where the original return for the assessment year 1986-87 declared a total income. Subsequently, a revised return was filed after a survey by the Department, resulting in a reassessment under Section 143(3) read with Section 147. The Assessing Officer then levied a penalty under Section 273(2)(a) after finalizing the penalty order on 5.12.1991. The Tribunal, in its order, noted that penalty proceedings under Section 273 should be initiated during a 'regular assessment' and not during reassessment. The Tribunal deleted the penalty order based on this legal point without delving into the case's merits.

Issue 2: Interpretation of "regular assessment" under Section 273 for penalty proceedings

The main question referred was whether the Tribunal was correct in holding that penalty under Section 273(a)(aa) cannot be levied as it was initiated during reassessment proceedings. The advocate for the applicant argued that the penalty proceedings under Section 273 were initiated in the original assessment order passed under Section 143(3) and not during the reassessment stage. On the other hand, the respondent's advocate relied on legal precedents to support the argument that penalty for failure to pay advance tax is viable only during a 'regular assessment' as defined under Section 143 or Section 144. The Tribunal's findings emphasized that penalty proceedings under Section 273 should not be initiated during reassessment proceedings, and penalties were liable to be deleted in such cases. The Court held that in this scenario, as it was a reassessment, the provisions of Section 273(2)(aa) would not be applicable, thereby ruling in favor of the assessee and against the department.

This judgment highlights the importance of understanding the distinction between 'regular assessment' and reassessment under Section 273 for penalty proceedings. It underscores that penalty proceedings should align with the stage of assessment to ensure legal validity and avoid discrepancies. The decision provides clarity on the initiation of penalty proceedings under Section 273, emphasizing the significance of adhering to procedural requirements for imposing penalties under the Income Tax Act.