1981 (10) TMI 59 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Inspecting Assistant Commissioner (IAC) to levy penalties under section 271(1)(c).
2. Validity of penalty orders in the absence of an opportunity for the assessee to be heard.
3. Applicability of the principle of promissory estoppel.
4. Impact of the omission of section 274(2) with effect from 1-4-1976.
5. Effect of the settlement agreement between the assessee and the Commissioner on the penalty proceedings.
6. Competence to levy penalties afresh after the Tribunal's cancellation of earlier penalty orders.

Detailed Analysis:

1. Jurisdiction of the IAC to Levy Penalties:
The Tribunal examined whether the IAC had the inherent jurisdiction to levy penalties for the assessment years 1958-59, 1960-61, and 1961-62. The Tribunal noted that under section 274(2), the IAC would only have jurisdiction if the amount of income in respect of which particulars were concealed exceeded Rs. 25,000. Since the amounts in question were Rs. 22,500, Rs. 15,000, and Rs. 18,370 respectively, the IAC lacked jurisdiction to levy penalties for these years. Therefore, the penalty orders for these years were deemed nullities due to the inherent lack of jurisdiction.

2. Validity of Penalty Orders in the Absence of an Opportunity for the Assessee to be Heard:
For the assessment year 1959-60, the IAC had the jurisdiction since the income in question exceeded Rs. 25,000. However, the penalty was levied without giving the assessee an opportunity to be heard. The Tribunal held that this constituted an irregular exercise of jurisdiction, making the penalty order invalid but not a nullity. The Tribunal emphasized the need for the IAC to issue a show cause notice and provide an opportunity for the assessee to be heard before levying any penalty.

3. Applicability of the Principle of Promissory Estoppel:
The Tribunal considered the principle of promissory estoppel, which prevents a party from going back on a promise that has been relied upon by another party. However, the Tribunal noted that promissory estoppel cannot be applied against the law. Since the IAC lacked jurisdiction under section 274(2) for the assessment years 1958-59, 1960-61, and 1961-62, the principle of promissory estoppel could not validate the penalty orders.

4. Impact of the Omission of Section 274(2) with Effect from 1-4-1976:
The Tribunal addressed whether the IAC lost the power to levy penalties after the omission of section 274(2) from 1-4-1976. It was held that the IAC retained the power to impose penalties for the assessment year 1959-60, as he had validly assumed jurisdiction prior to the omission of section 274(2). This conclusion was based on binding precedents from the Calcutta High Court.

5. Effect of the Settlement Agreement on Penalty Proceedings:
The Tribunal examined the terms of the settlement between the assessee and the Commissioner, which included provisions for setting aside pending orders and reducing penalties. The Tribunal found that the earlier penalty orders for the assessment years 1958-59 and 1959-60 were set aside at the request of the assessee to facilitate fresh penalty orders in accordance with the settlement. Therefore, the assessee could not argue against the competence of the authority to levy fresh penalties for these years.

6. Competence to Levy Penalties Afresh:
The Tribunal rejected the argument that fresh penalties could not be imposed after the Tribunal had cancelled earlier penalty orders. It was clarified that the cancellation of earlier penalty orders was in line with the settlement agreement, and fresh penalties could be levied for the same offense without constituting double jeopardy.

Conclusion:
The Tribunal set aside the penalty orders for the assessment years 1958-59, 1960-61, and 1961-62 due to the IAC's lack of jurisdiction and restored the penalty proceedings to the file of the ITO. For the assessment year 1959-60, the Tribunal set aside the penalty order due to the lack of an opportunity for the assessee to be heard and restored the proceedings to the IAC. The Tribunal emphasized compliance with the principles of natural justice and the terms of the settlement agreement in any further proceedings.