1977 (8) TMI 39 - HC - Income Tax

Summary

Issues:
Validity of penalty order under section 271(1)(c) read with section 274 of the Income-tax Act, 1961.

Analysis:
The case involved a question regarding the validity of a penalty order passed by the Inspecting Assistant Commissioner under section 271(1)(c) read with section 274 of the Income-tax Act, 1961. The Income-tax Officer initiated penalty proceedings against the assessee for concealing income and furnishing inaccurate particulars. The Inspecting Assistant Commissioner imposed a penalty of Rs. 5,600 after the minimum penalty exceeded Rs. 1,000. The assessee appealed, arguing that the penalty proceedings were not properly initiated as the Inspecting Assistant Commissioner was not satisfied of the concealment during the assessment proceedings.

The Tribunal, relying on a Calcutta High Court decision, held that satisfaction of concealment is a condition precedent for initiating penalty proceedings under section 271. It further stated that in cases referred to the Inspecting Assistant Commissioner under section 274(2), the power to initiate proceedings and exercise powers under section 271 also vests with the Inspecting Assistant Commissioner. Therefore, the Tribunal set aside the penalty order passed by the Inspecting Assistant Commissioner.

The High Court analyzed sections 271 and 274 of the Income-tax Act, noting that the satisfaction of concealment by the Income-tax Officer is necessary to initiate penalty proceedings under section 271. If the penalty exceeds Rs. 1,000, the case is referred to the Inspecting Assistant Commissioner, who then has the power to impose the penalty. The Court emphasized two stages in the penalty process: initiation by the Income-tax Officer or Appellate Assistant Commissioner based on satisfaction of concealment, and the subsequent hearing and levy of penalty. The Inspecting Assistant Commissioner's jurisdiction is triggered only upon reference by the Income-tax Officer under section 274(2).

The Court cited a Division Bench decision of the Calcutta High Court and a judgment of the Andhra Pradesh High Court, supporting the view that penalty proceedings are initiated upon the Income-tax Officer's satisfaction of concealment, not upon the issuance of notice by the Inspecting Assistant Commissioner. Ultimately, the High Court answered the question in the negative, favoring the department, and upheld the penalty order.

In conclusion, the High Court dismissed the reference, holding the penalty order valid under section 271(1)(c) read with section 274 of the Income-tax Act, 1961. The assessee was directed to bear the costs of the reference, including a hearing fee of Rs. 100. Judge D. Pathak concurred with the judgment.