1982 (3) TMI 136 - AT - Income Tax

Issues Involved:

1. Validity of revised returns filed by the assessee.
2. Legality of the ITO's action under section 154 to initiate penalty proceedings and charge interest.
3. Competency of the appeals filed by the assessee before the AAC.
4. Applicability of the Voluntary Disclosure of Income and Wealth Ordinance, 1975.
5. Interpretation of sections 139, 154, 217, 246, 271, and 273 of the Income-tax Act, 1961.

Detailed Analysis:

1. Validity of Revised Returns Filed by the Assessee:

The assessee filed revised returns for the assessment years 1965-66 to 1971-72 and 1973-74 on 20-3-1974. The Tribunal noted that these revised returns were not valid in law as the assessments for those years were not pending on the date of filing. Consequently, the ITO issued notices under section 148 to assess income that had escaped assessment.

2. Legality of the ITO's Action under Section 154:

The ITO did not initially charge interest under sections 139 and 217 or initiate penalty proceedings under sections 271(1)(a) and (1)(c) for the relevant years. However, he later considered this a mistake apparent on record and issued show-cause notices to rectify this mistake under section 154. The Tribunal held that the ITO could not, under section 154, initiate penalty proceedings or charge interest that he had failed to do during the original assessments. This action was deemed an abuse of the process of law and not a mistake apparent from the record.

3. Competency of the Appeals Filed by the Assessee Before the AAC:

The departmental representative argued that the appeals were not maintainable as the orders under section 154 were not covered by section 246(f) or (o). However, the Tribunal found that the orders under section 154 had the effect of enhancing the assessment, thus touching the pocket of the assessee. Therefore, the appeals were competent under section 246(f).

4. Applicability of the Voluntary Disclosure of Income and Wealth Ordinance, 1975:

The assessee filed a declaration under the Voluntary Disclosure Scheme on 21-12-1975. The ITO initially believed this gave the assessee immunity against penalties and interest. However, the AAC observed that the returns filed earlier could not be considered as disclosures under the scheme. The Tribunal did not delve into this issue in detail, as it had already found that the ITO's actions under section 154 were invalid.

5. Interpretation of Sections 139, 154, 217, 246, 271, and 273 of the Income-tax Act, 1961:

- Section 139: The Tribunal concluded that the provisions of section 139(8), substituted by the Taxation Laws (Amendment) Act, 1970, were not applicable for the assessment years in question. Instead, the interest should have been charged under section 139(1) as it stood during those years.
- Section 154: The Tribunal held that the ITO's actions under section 154 were invalid as they constituted an abuse of the process of law.
- Section 217: The Tribunal found that the ITO's rectification orders to charge interest under section 217 were also invalid, as there was no mistake apparent from the record.
- Section 246: The Tribunal interpreted the words "having the effect of enhancing the assessment" to mean any action that increases the total amount payable by the assessee, thus making the appeals competent.
- Sections 271 and 273: The Tribunal emphasized that penalty proceedings under these sections must be initiated during the assessment proceedings, not afterward through rectification orders under section 154.

Conclusion:

The Tribunal allowed the appeals by the assessee, holding that the ITO's actions under section 154 to initiate penalty proceedings and charge interest were invalid. The appeals were found to be competent under section 246(f), and the Tribunal did not find it necessary to address the applicability of the Voluntary Disclosure Scheme in detail.

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