1982 (1) TMI 10 - HC - Income Tax

Summary

Issues:
1. Jurisdiction to pass fresh orders for penalty under the Income Tax Act, 1961.
2. Correctness of penalty order passed under the Indian Income Tax Act, 1922.

Analysis:
The High Court of Madhya Pradesh was presented with a reference under section 256(1) of the Income Tax Act, 1961, by the Income-tax Appellate Tribunal, Indore Bench. The primary issue revolved around the correctness of the Tribunal's decision regarding the jurisdiction to pass fresh penalty orders under section 271(1)(c) of the Income Tax Act, 1961. The Tribunal had held that even though the original authority completed the penalty order within the prescribed limitation period, he would lack jurisdiction to pass fresh orders if the matter was remanded to him. The High Court analyzed the relevant provisions and precedents, emphasizing that penalty proceedings should have been initiated under the provisions of the Income Tax Act, 1961, and not the Indian Income Tax Act, 1922. It cited the Supreme Court's decision in Jain Brothers v. Union of India, clarifying that penalty proceedings should align with the provisions of section 271 of the Income Tax Act, 1961, when assessments are completed post-April 1, 1962.

Moving on to the second issue, the Court examined whether the penalty order passed under the Indian Income Tax Act, 1922, was legally valid. The Tribunal had not remanded the case to the Income Tax Officer (ITO) due to limitations prescribed by section 275 of the Act. However, it failed to consider whether the ITO had the jurisdiction to issue the penalty notice under section 271(1)(c) of the Act. The Court highlighted that the ITO lacked jurisdiction to impose the penalty as per section 274(2) of the Income Tax Act, 1961, which vested such authority with the Income-tax Appellate Commissioner (IAC). Consequently, the penalty proceedings were deemed vitiated. The Court referred to the decision in CIT v. Indian Molasses Co. P. Ltd., asserting that the ITO's lack of jurisdiction rendered the penalty order invalid. Therefore, the Court declined to answer the first question and affirmed that the penalty imposed by the ITO under the Indian Income Tax Act, 1922, was indeed vitiated.

In conclusion, the High Court upheld the Tribunal's decision regarding the invalidity of the penalty order under the Indian Income Tax Act, 1922. The Court's response to the second question was affirmative, ruling against the Department. The reference was answered accordingly, with each party bearing its costs in this matter.