1988 (6) TMI 72 - AT - Income Tax

Summary

Issues:
1. Levy of penalty under section 271(1)(c) of the IT Act, 1961.
2. Compliance with the proviso to section 271(1)(c) regarding prior approval of the IAC.
3. Validity of the penalty imposed on the assessee.
4. Merits of the penalty levied on the assessee.

Analysis:

1. The case involves the assessee's second appeal against the penalty of Rs. 67,460 imposed under section 271(1)(c) of the IT Act, 1961. The assessment was initially completed on an income of Rs. 26,160, which was later revised to Rs. 5,60,000 based on a petition filed by the assessee disclosing additional investments. The penalty was levied without the assessee's appearance or reply, leading to the appeal challenging the penalty on both substantive and procedural grounds.

2. The key issue revolved around the compliance with the proviso to section 271(1)(c) which mandates prior approval of the IAC if the concealed income exceeds Rs. 25,000. The ITO did not seek specific approval from the IAC, arguing that the CIT's direction to levy a minimum penalty under section 119 was sufficient. However, the tribunal held that the ITO's failure to obtain prior approval rendered the penalty invalid, emphasizing the mandatory nature of the proviso.

3. The validity of the penalty imposed on the assessee was further scrutinized. The tribunal rejected the argument that the CIT's order directing the minimum penalty was administrative and binding on the ITO, emphasizing that procedural compliance with the law was essential. The tribunal found that the ITO's failure to follow the prescribed procedure, including seeking approval from the IAC, rendered the penalty invalid.

4. On the merits of the penalty, the tribunal considered the assessee's contention that no penalty should be levied unless it was proven that the assessed income was earned by the assessee during the relevant period. Citing precedent, the tribunal held that the assessee's admission of a higher income in a settlement petition constituted proof of concealment, justifying the penalty. However, since the penalty was deemed invalid due to procedural lapses, the tribunal allowed the assessee's appeal, canceling the penalty imposed under section 271(1)(c).

In conclusion, the tribunal ruled in favor of the assessee, canceling the penalty imposed under section 271(1)(c) due to the ITO's failure to obtain prior approval from the IAC as mandated by the proviso to the section. The tribunal emphasized the mandatory nature of procedural requirements and invalidated the penalty despite finding merit in the concealment of income based on the assessee's admission during the settlement petition.