1987 (7) TMI 153 - AT - Income Tax

Assessment Order, Assessment Proceedings, Disclosure Petition, Penalty For Concealment, Voluntary Disclosure, Waiver Or Reduction

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer to pass penalty orders under section 271(1)(c).
2. Validity of the assessments due to non-compliance with procedural requirements.
3. Delay in the imposition of penalties.
4. Service of show cause notice and mental illness of the ex-partner.
5. Voluntary disclosure and concealment of income.
6. Quantum of penalty imposed.

Detailed Analysis:

1. Jurisdiction of the Income-tax Officer:
The primary objection raised by the assessee was regarding the jurisdiction of the Income-tax Officer to pass penalty orders under section 271(1)(c). It was contended that the Income-tax Officer did not obtain prior approval of the Inspecting Assistant Commissioner before passing the penalty orders, which was a mandatory requirement. The penalty orders were passed on 30th March 1984, but the approval was granted on 31st March 1984, thus rendering the penalty orders deficient in jurisdiction. The Tribunal held that the penalty orders were passed without satisfying the condition of obtaining prior approval, which was a procedural irregularity. However, in light of the Supreme Court's decision in Guduthur Bros., the Tribunal decided to restore the matter to the Income-tax Officer for regularization, directing compliance with the requirements of law.

2. Validity of the Assessments:
The assessee argued that the assessments for the years 1959-60 to 1963-64 were illegal as the Income-tax Officer did not refer the draft assessment to the Inspecting Assistant Commissioner despite the addition of more than Rs. 1,00,000 compared to the returned income. The Tribunal held that any irregularity in the assessment proceedings that remains unchallenged does not make the assessment ab initio void. Therefore, such irregularity would not invalidate the penalty proceedings. The Tribunal concluded that the penalty orders for these years did not suffer from any infirmity due to the non-compliance with section 144B.

3. Delay in Imposition of Penalties:
The assessee contended that the penalties were imposed two decades after the event, making it unreasonable to adduce evidence after such a long lapse of time. The Tribunal found that the assessments were made in 1982 and the penalties were imposed within two years of the assessment orders, thus complying with the provisions of section 275. The Tribunal rejected the argument of inordinate delay, noting that the delay was due to various factors like suppression of income, disclosures filed, and transfer of the case from Calcutta to Delhi.

4. Service of Show Cause Notice and Mental Illness of the Ex-Partner:
The assessee argued that the show cause notice was served on Shri K.C. Agarwal, who was suffering from mental illness, making it impossible for him to respond appropriately. The Tribunal found that Shri K.C. Agarwal had participated in the assessment proceedings and had written letters on behalf of the firm. Therefore, the Tribunal rejected the plea based on mental illness, stating that the service of notice on one of the ex-partners was sufficient.

5. Voluntary Disclosure and Concealment of Income:
The assessee claimed that the income from undisclosed sources was voluntarily disclosed and there was no concealment. The Tribunal examined the disclosure petitions and found that the disclosure was not entirely voluntary as some of the additions had already been detected by the Income-tax Department. The Tribunal held that even if the income was disclosed in reassessment proceedings, the assessee would still be liable for penalty under section 271(1)(c) for concealment in the original returns. The Tribunal cited several High Court decisions supporting the imposition of penalty for concealment in original assessment proceedings.

6. Quantum of Penalty Imposed:
The assessee argued that the quantum of penalty was excessive and only the minimum penalty should be levied. The Tribunal decided not to adjudicate on the quantum of penalty at this stage, as the matter was being restored to the Income-tax Officer for obtaining the necessary approval from the Inspecting Assistant Commissioner. The Tribunal directed the Revenue authorities to consider the quantum of penalty, taking into account all the circumstances of the case.

Conclusion:
The Tribunal set aside the penalty orders and restored the matters to the file of the Income-tax Officer for compliance with the requirement of obtaining prior approval from the Inspecting Assistant Commissioner. The appeals were allowed for statistical purposes.