1978 (1) TMI 39 - HC - Income Tax

Summary

Issues Involved:
The judgment involves questions regarding the computation of penalties for assessment years 1958-59, 1960-61, 1961-62, 1962-63, and 1963-64 based on a settlement proposal made by the assessee. The key issues are whether the penalties should be reduced as per the settlement terms and whether there was a requirement for a formal order under section 271(4A) of the Income Tax Act.

Judgment Details:

Issue 1 - Computation of Penalties:
The assessee made a settlement proposal to the Commissioner of Income-tax (CIT) requesting no penal proceedings be taken. The settlement terms included penalties of 5% and 10% of the tax amounts. The Income Tax Officer (ITO) initiated penalty proceedings, but the Inspecting Assistant Commissioner (IAC) recommended against reducing the penalties. The Commissioner approved the minimum penalties for the assessment years. The Tribunal concluded that there was no order under section 271(4A) of the Income Tax Act, but applied the principle of promissory estoppel to limit the penalty to 5% as per the settlement terms. However, the Court held that a formal order under section 271(4A) was necessary, and the penalties should not be reduced without such an order.

Issue 2 - Requirement for Formal Order under Section 271(4A):
The Court emphasized the need for a formal order under section 271(4A) of the Income Tax Act to reduce or waive penalties. It stated that the section mandates an order, as indicated by the proviso and sub-section (4B). The Court rejected the argument that no specific order was required under the section, emphasizing that statutory authorities must act in accordance with the statute. The Court highlighted that the absence of a formal order under section 271(4A) could impact other assessees benefiting from settlements. It directed the Commissioner to rectify this omission and pass formal orders. The Court also clarified that the rule of promissory estoppel cannot be applied against statutory obligations, and settlement terms cannot override statutory provisions.

In conclusion, the Court answered the first question in favor of the revenue, stating that penalties should not be reduced based on the settlement terms without a formal order under section 271(4A). The second question was answered in the affirmative, indicating that the Tribunal had erred. Each party was directed to bear their respective costs, and a copy of the judgment was to be sent to the Tribunal for reference.