1992 (2) TMI 138 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under section 273(2)(aa) of the Income-tax Act, 1961.
2. Satisfaction of the Assessing Officer regarding the nature of the offense.
3. Applicability of section 273(2)(c) and section 273(2)(aa).
4. Procedural irregularities in issuing penalty notices.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 273(2)(aa) of the Income-tax Act, 1961:
The appellant, a firm running a hospital and nursing home, faced a search under section 132 of the Income-tax Act on 9-12-1985. Following this, the assessee discussed tax matters with the Commissioner of Income-tax and submitted returns of income for the assessment years 1983-84, 1984-85, and 1985-86. The assessments were completed on a larger income due to the department's different estimate of the hospital's construction costs. Penalty proceedings were initiated under sections 271(1)(a), 271(1)(c), and 273(2)(c), but later, notices were issued for penalty under section 273(2)(aa).

2. Satisfaction of the Assessing Officer Regarding the Nature of the Offense:
The appellant argued that for the levy of penalty, there should be satisfaction on the part of the Assessing Officer during the assessment proceedings. The initial satisfaction was regarding the default under section 273(2)(c), but the penalty was ultimately levied under section 273(2)(aa). The appellant contended that this change in the nature of the offense without proper satisfaction rendered the penalty order void ab initio, citing the Supreme Court decision in CIT v. S.V. Angidi Chettiar and the Bombay High Court decision in CIT v. Dajibhai Kanjibhai.

3. Applicability of Section 273(2)(c) and Section 273(2)(aa):
The appellant argued that section 273(2)(c) was not applicable as there was no liability to pay advance tax under section 210 for the assessment years 1983-84 and 1984-85. For the assessment year 1985-86, although the appellant was liable to make an estimate under section 209A(4), the penalty was levied under section 273(2)(aa) contrary to the satisfaction reached during the assessment proceedings. The Tribunal agreed that the provisions of section 273(2)(c) were not attracted for the assessment years 1983-84 and 1984-85 and upheld the contention that the satisfaction reached was only in respect of section 273(2)(c).

4. Procedural Irregularities in Issuing Penalty Notices:
The Tribunal noted that the penalty proceedings were initiated under section 273(2)(c) and not section 273(2)(aa). The subsequent notices issued were also under section 273(2)(c), but the penalty was ultimately levied under section 273(2)(aa). The Tribunal held that the assessing authority did not have any material to reach a prima facie satisfaction objectively regarding the default under section 273(2)(c). The applicability of section 273(2)(aa) entered the mind of the Income-tax Officer only after the completion of the assessment proceedings, making the penalty order without jurisdiction.

Conclusion:
The Tribunal concluded that the levy of penalty under section 273(2)(aa) was without jurisdiction due to the lack of proper satisfaction regarding the nature of the offense during the assessment proceedings. The appeals were allowed, and the penalty orders were quashed. The Tribunal did not find it necessary to go into the merits of the case for the levy of penalty under section 273(2)(aa).