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Issues involved: Application u/s 256(2) of the Income-tax Act, 1961 for direction to refer question of law, Assessment proceedings, Penalty proceedings u/s 271(1)(c), Commissioner's action u/s 263, Tribunal's decision, Reference application rejection.
Assessment Proceedings: The assessee-respondent, a registered firm, surrendered a cash credit as a havala entry during assessment for the year 1977-78. The Income-tax Officer (ITO) did not initiate penalty proceedings u/s 271(1)(c) despite the confession. The Commissioner of Income-tax initiated proceedings u/s 263 citing errors by the ITO in not initiating penalties and concluding the assessment perfunctorily. Commissioner's Action u/s 263: The Commissioner set aside the assessment, directing the ITO to reframe it, citing errors in not initiating penalty proceedings and lack of proper application of mind by the ITO. The Commissioner relied on legal precedents and the vitiated claim for registration by the assessee. Tribunal's Decision: The Tribunal canceled the Commissioner's order u/s 263, citing a previous favorable decision for the assessee in a similar case. The Tribunal held that the ITO's order was not erroneous or prejudicial to revenue interests for not initiating penalty proceedings. Reference Application Rejection: The Commissioner's application u/s 256(1) for reference was rejected by the Tribunal, which noted the similarity to the previous case and the absence of a substantial question of law. The Tribunal emphasized the need for a decision by the Supreme Court before deeming one order erroneous over the other. Final Decision: The High Court dismissed the reference application u/s 256(2) as no substantial question of law arose from the Tribunal's order. The settled position by the Supreme Court in J. K. D'Costa's case confirmed the Commissioner's limitations in setting aside assessment orders and directing penalty proceedings under section 263.
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