1980 (3) TMI 25 - HC - Income Tax

Summary

Issues Involved:
1. Competence and jurisdiction of the ITO to issue simultaneous penalty proceedings under Section 271 and Section 274(2) of the I.T. Act, 1961.
2. Jurisdiction of the ITO to initiate proceedings under Section 273 of the I.T. Act for non-furnishing of an estimate of advance tax.
3. Validity of penalty proceedings under Section 271(1)(a) for non-submission of returns under Section 139(1) of the I.T. Act.

Issue 1: Competence and Jurisdiction of the ITO to Issue Simultaneous Penalty Proceedings

The petitioner challenged the competence and jurisdiction of the Income Tax Officer (ITO) to issue simultaneous penalty proceedings under Section 271 and Section 274(2) of the Income Tax Act, 1961. The petitioner argued that two simultaneous penalty proceedings before the ITO and the Inspecting Assistant Commissioner (IAC) are unknown to law and indicated non-application of mind by the ITO. The ITO issued notices under Section 271 for concealment of income and referred the case to the IAC for penalty imposition under Section 274(2).

The court held that the ITO was justified in initiating proceedings under Section 271 and referring the matter to the IAC under Section 274(2) upon finding undisclosed income exceeding Rs. 25,000. However, once the matter was referred to the IAC, the ITO had no jurisdiction to ask the assessee to show cause against the imposition of penalty under Section 271. The court concluded that the ITO's simultaneous notices were without jurisdiction and commanded the ITO to forbear from giving effect to the said notices.

Issue 2: Jurisdiction of the ITO to Initiate Proceedings under Section 273

The petitioner contested the ITO's jurisdiction to initiate proceedings under Section 273 for not furnishing an estimate of advance tax, arguing that the assessments were made under Section 147 and not regular assessments as defined in Section 2(40) of the Act. The court considered conflicting decisions from the Patna High Court and the Bombay High Court on whether reassessment under Section 147 constitutes a "regular assessment."

The court favored the Bombay High Court's decision, which held that the expression "regular assessment" includes reassessment under Section 147. The court reasoned that the procedure for assessment under Section 147 involves the same steps as Sections 143 and 144, thereby making it a regular assessment. Consequently, the court upheld the ITO's jurisdiction to issue the notice under Section 273.

Issue 3: Validity of Penalty Proceedings under Section 271(1)(a) for Non-Submission of Returns

The petitioner argued that the ITO could not initiate penalty proceedings under Section 271(1) for non-compliance with Section 139(1) once a notice under Section 148 was issued. The petitioner relied on a Patna High Court decision that supported this contention. However, the court referred to a Division Bench decision of the Calcutta High Court, which dissented from the Patna High Court and held that default under Section 139(1) remains penalizable despite subsequent notices under Sections 139(2) or 148.

The petitioner also contended that it was under no obligation to submit a return under Section 139(1) due to sustaining a loss, citing an Allahabad High Court decision. The court noted that the question of bona fide belief regarding assessable income is a fact-specific issue that cannot be decided at this stage. Thus, the court upheld the validity of the penalty proceedings under Section 271(1)(a).

Conclusion:

The court ruled in favor of the petitioner regarding the simultaneous penalty proceedings under Section 271 and Section 274(2), declaring the ITO's notices without jurisdiction. However, the court upheld the ITO's jurisdiction to initiate proceedings under Section 273 and validated the penalty proceedings under Section 271(1)(a) for non-submission of returns under Section 139(1). The application was disposed of with no order as to costs, and the operation of the judgment was stayed for a fortnight as requested by the petitioner.