2015 (11) TMI 1453 - SC - Income Tax

Penalty proceeding under Section 271D - whether penalty proceeding is independent of the assessment proceeding? - Held that - Penalty order was passed before the appeal of the assessee against the original assessment order was heard and allowed thereby setting aside the assessment order itself. It is in this backdrop, a question has arisen as to whether the penalty order, which was passed on the basis of original assessment order and when that assessment order had been set aside, could still survive. The Tribunal as well as the High Court has held that it could not be so for the simple reason that when the original assessment order itself was set aside, the satisfaction recorded therein for the purpose of initiation of the penalty proceeding under Section 271E would also not survive. This according to us is the correct proposition of law stated by the High Court in the impugned order. As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under Section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under Section 271(1)(c) of the Act. Thus, insofar as penalty under Section 271E is concerned, it was without any satisfaction and, therefore, no such penalty could be levied. - Decided in favour of assesee

Summary

Issues:
1. Whether penalty proceedings under Section 271D of the Income Tax Act are independent of the assessment proceeding for Assessment Years 1991-1992 and 1992-1993.

Analysis:
The Supreme Court addressed the issue of whether penalty proceedings under Section 271D of the Income Tax Act are separate from the assessment proceedings for specific Assessment Years. The case involved an assessment order passed based on information regarding large-scale purchase and sale of wheat by the assessee without filing income tax returns. The Assessing Officer observed a contravention of Section 269SS, leading to the initiation of penalty proceedings under Section 271E. The Commissioner of Income Tax (Appeals) set aside the original assessment order, directing a fresh assessment. However, the fresh assessment order did not record satisfaction for initiating penalty proceedings under Section 271E. Subsequently, a penalty order was passed based on the original assessment order before it was set aside. The main question was whether the penalty order could still stand after the original assessment order was nullified.

The Tribunal and the High Court held that the penalty order could not be upheld once the original assessment order was set aside. They reasoned that the satisfaction recorded in the original assessment order for initiating penalty proceedings would no longer be valid. The Supreme Court concurred with this reasoning, affirming that when the original assessment order is nullified, any penalty based on it cannot survive. The Court emphasized that for a penalty under Section 271E to be valid, there must be a proper satisfaction recorded, which was lacking in the case of the fresh assessment order. As no satisfaction was recorded for the penalty under Section 271E, the Court concluded that such penalty could not be imposed. Consequently, the appeals were dismissed based on these findings.