1980 (2) TMI 133 - AT - Income Tax

Summary

Issues:
- Controversy over cancellation of penalty under s. 273(b) of IT Act, 1961 by the learned AAC.

Detailed Analysis:
1. The appeal by the Revenue pertains to the assessment year 1975-76, questioning the cancellation of a penalty of Rs. 2,000 imposed by the ITO under s. 273(b) of the IT Act, 1961.

2. The assessee failed to file an estimate of advance tax under s. 212(3) as required by law. The ITO initiated penalty proceedings under s. 273(a) and later imposed a penalty under s. 273(b) without providing the assessee with a further opportunity to explain the default.

3. The assessee appealed to the AAC, arguing that the penalty was incorrectly imposed under s. 273(b) without proper notice and opportunity for a hearing. The AAC agreed with the assessee, emphasizing that penalty should be based on a notice issued during assessment proceedings, not on findings in the assessment order.

4. The Revenue appealed against the AAC's decision, contending that the penalty was justified under s. 273(b) despite the notice being issued under s. 273(a). The Revenue argued that the penalty proceedings were valid under s. 292B, which allows for mistakes in notices if they align with the intent of the Act.

5. The Tribunal acknowledged the assessee's failure to file the advance tax estimate, which warranted penalty under s. 273(b). However, the ITO's failure to follow proper procedures, issue a correct notice under s. 273(b), and provide the assessee with an opportunity to explain the default rendered the penalty invalid.

6. Imposition of penalty under s. 273 requires a quasi-criminal procedure, including providing the assessee with an opportunity to be heard and determining if the default was without reasonable cause. The ITO's failure to follow these procedures invalidated the penalty.

7. The Tribunal emphasized the distinction between penalties under s. 273(a) and s. 273(b), highlighting the necessity for the assessee to be informed of the specific charge to provide a proper explanation. The absence of a clear opportunity for the assessee to explain the default undermined the penalty proceedings.

8. Reference to s. 292B by the Revenue was dismissed as the penalty notice did not align with the intent of the Act, as it incorrectly specified the charge under s. 273(a) instead of s. 273(b). The Tribunal upheld the AAC's decision to cancel the penalty.

9. The Tribunal concluded that the levy of the penalty was improper due to procedural irregularities, supporting the AAC's decision to cancel the penalty under s. 273(b).

10. Consequently, the appeal by the Revenue was dismissed, affirming the cancellation of the penalty imposed under s. 273(b) for the assessment year 1975-76.