2002 (7) TMI 251 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the order under section 263 of the Income Tax Act.
2. Non-initiation of penalty proceedings under section 271(1)(c).
3. Incorrect charging of interest under sections 234B and 234C.

Issue-wise Detailed Analysis:

1. Validity of the order under section 263:
The appeal was filed by the assessee against the order under section 263 dated 22-12-1997 by the CIT, Visakhapatnam, which set aside the assessment order under section 143(3) dated 31-3-1997. The CIT held the assessment order to be erroneous and prejudicial to the interest of Revenue, directing a reframing of the assessment and initiation of penalty proceedings under section 271(1)(c), and correct charging of interest under sections 234A, 234B, and 234C. The background involved search and seizure operations under section 132, leading to declarations of additional income and subsequent revised returns. The CIT noticed that the Assessing Officer (AO) had given credit for taxes paid by group members in the hands of the firm, resulting in short charging of interest under section 234. The CIT also noted that the AO had not initiated penalty proceedings under section 271(1)(c), which he deemed erroneous and prejudicial to the interest of Revenue.

2. Non-initiation of penalty proceedings under section 271(1)(c):
The CIT held that non-initiation of penalty proceedings for concealment of income was erroneous and prejudicial to the interest of Revenue. The CIT referred to Explanation 5 of section 271(1)(c), stating that immunity from penalty is available only to a person making a declaration under section 132(4). Since the declaration was made by partners and family members, the firm could not claim immunity. The CIT found no evidence of any assurance or understanding with the Department regarding non-initiation of penalty proceedings. The assessee argued that the revised return was filed after detailed discussions with the Department and an understanding that no penalty proceedings would be initiated. The AO's note confirmed that the revised return and non-initiation of penalty proceedings were based on discussions with the Departmental authorities, including the CIT, and an agreement to declare the entire additional income in the hands of the firm.

3. Incorrect charging of interest under sections 234B and 234C:
The CIT noted that the AO had incorrectly charged interest under sections 234B and 234C by giving credit for taxes paid by partners and family members in the hands of the firm. The assessee argued that this was part of the agreement with the Department. The AO's note indicated that the taxes paid by the group were given credit in the hands of the firm, and interest under sections 234B and 234C was charged due to additional tax payable. The note also mentioned that if credit for taxes was not given, the interest would be recommended for waiver. Subsequently, the CCIT, Hyderabad, waived the entire additional interest charged under these sections.

Conclusion:
The Tribunal found that the AO had acted based on a detailed discussion and understanding with the Department, including the CIT, and had used his discretion judiciously. The Tribunal held that the CIT could not direct the AO to initiate penalty proceedings under section 271(1)(c) through section 263, as penalty proceedings and assessment proceedings are independent. The Tribunal also found that the incorrect charging of interest could have been corrected under other provisions of the Act, such as section 154, rather than invoking section 263. Therefore, the Tribunal quashed the order of the CIT and allowed the appeal filed by the assessee.