2006 (8) TMI 101 - HC - Income Tax

Revision - CIT u/s 263 initiate penalty proceeding against the assessee on the ground of dissatisfaction to the reply of SCN - Tribunal rejected the penalty proceeding on the ground of CIT is not empowered to record satisfaction by invoking section 271(1) of the Act and neither by directing the Assessing authority

Summary

Issues:
1. Jurisdiction of the Commissioner of Income-tax under Section 263 for initiating penalty proceedings under sections 271(1)(a) and 273(2)(c).

Analysis:

The High Court of Gujarat was presented with a reference question regarding the jurisdiction of the Commissioner of Income-tax under Section 263 for initiating penalty proceedings under sections 271(1)(a) and 273(2)(c). The assessing officer had assessed the total income for the year 1986-87 at Rs. 2,02,240 under section 143(3) of the Income-tax Act. Upon examination, the Commissioner of Income-tax found the assessment order to be erroneous and prejudicial to the Revenue's interest due to the failure of the assessing officer to initiate penalty proceedings under the mentioned sections. Subsequently, the Commissioner set aside the assessment and directed the initiation of penalty proceedings. However, the Tribunal held that the Commissioner, under Section 263, could not direct the initiation of penalty proceedings as it fell within the jurisdiction of the assessing officer. The Revenue, dissatisfied with the Tribunal's decision, requested the High Court to address the issue.

In the case of CIT v. Parmanand Patel [2005] 278 ITR 3, a Division Bench of the High Court had previously observed that the Commissioner does not have the authority to record satisfaction by invoking Section 271(1) of the Act. The Court emphasized that if the Commissioner cannot do it on his own, he cannot direct the assessing authority to do so while exercising revisional powers. Based on this precedent, the High Court concluded that the Commissioner cannot direct the initiation of penalty proceedings through the assessing authority under Section 263. Therefore, the question was answered against the Revenue's interest and in favor of the assessee, leading to the disposal of the reference with no costs awarded.

This judgment clarifies the limitations on the Commissioner's jurisdiction under Section 263 concerning the initiation of penalty proceedings under sections 271(1)(a) and 273(2)(c). It underscores that the Commissioner cannot bypass his own limitations by directing the assessing authority to take actions that are beyond his own powers. The decision reaffirms the importance of adhering to statutory provisions and the delineation of powers within the Income-tax Act.