1969 (8) TMI 25 - HC - Income Tax

Whether on a proper interpretation of section 271(1)(iii) and section 274(2) the Tribunal was right in reducing the penalty imposed on the assessee below the minimum prescribed u/s 271(1)(iii) - Held, no - Whether the Tribunal was right in holding that the penalty proceedings were properly initiated and that the penalty orders passed by the IAC were valid in law - Held, yes

Issues Involved:
1. Whether the Tribunal was right in reducing the penalty imposed on the assessee below the minimum prescribed under section 271(1)(iii) of the Income-tax Act, 1961.
2. Whether the Tribunal was right in holding that the penalty proceedings were properly initiated and that the penalty orders passed by the Inspecting Assistant Commissioner were valid in law.

Issue-wise Detailed Analysis:

1. Reduction of Penalty Below Minimum Prescribed:

The Tribunal's decision to reduce the penalty imposed on the assessee below the minimum prescribed under section 271(1)(iii) of the Income-tax Act, 1961, was challenged. The Tribunal had concluded that section 271(1)(iii) provided a minimum of 20% of the tax sought to be evaded in case of imposition of a penalty by the Income-tax Officer or the Appellate Assistant Commissioner. However, the Tribunal believed that this minimum was not applicable to the Inspecting Assistant Commissioner acting under section 274 or to the Tribunal hearing appeals from penalty orders passed by the Inspecting Assistant Commissioner. The Tribunal reduced the penalties below the 20% limit, considering them excessive.

Upon review, it was determined that the Tribunal's interpretation was incorrect. Section 274(2) of the Income-tax Act, 1961, clearly states that the Inspecting Assistant Commissioner, for the purpose of imposing penalties, has all the powers conferred under Chapter XXI, which includes the statutory limits of penalties prescribed in section 271(1)(iii). The Tribunal and the Inspecting Assistant Commissioner must observe the statutory limits of penalties, and cannot impose penalties beyond the prescribed maximum and minimum limits. Therefore, the Tribunal was wrong in reducing the penalty below the minimum prescribed under section 271(1)(iii).

2. Validity of Penalty Proceedings Initiated:

The Tribunal's decision that the penalty proceedings were properly initiated and the penalty orders passed by the Inspecting Assistant Commissioner were valid in law was also examined. The assessee contended that the penalty proceedings were initiated after the completion of the assessment proceedings, which would render them invalid. The Tribunal, however, held that the penalty proceedings commenced when the Income-tax Officer made a reference to the Inspecting Assistant Commissioner under section 274(2) on August 29, 1964, before the completion of the assessment proceedings on August 31, 1964.

The court reviewed the relevant sections of the Income-tax Act, 1961, particularly sections 271, 274, and 275. It was determined that penalty proceedings commence with the satisfaction of the Income-tax Officer in the course of any proceedings under the Act, and this satisfaction must be recorded before the completion of the assessment proceedings. The Tribunal correctly concluded that the penalty proceedings were initiated on August 29, 1964, when the Income-tax Officer referred the case to the Inspecting Assistant Commissioner, and thus, the penalty orders passed were valid in law.

Preliminary Points:

1. Form of Questions Raised by Tribunal: The Tribunal should not state "At the instance of the assessee" or "At the instance of the Commissioner of Income-tax" when referring questions to the High Court under section 256(1) of the Income-tax Act, 1961. The Tribunal must be satisfied that a question of law fit for reference arises, and therefore, the questions referred must be considered as those of the Tribunal.

2. Raising Questions of Law Without Application: The Tribunal cannot raise a question of law under section 256(1) without an application by the aggrieved party within the prescribed time. The statutory procedure requires an application in the prescribed form within 60 days, with a possible extension of 30 days for sufficient cause. Without such an application, the Tribunal cannot entertain or refer any question of law to the High Court.

Conclusion:

The court concluded that the Tribunal was wrong in reducing the penalty below the minimum prescribed under section 271(1)(iii) and answered the first question in the negative in favor of the revenue. The second question was answered in the affirmative, confirming that the penalty proceedings were properly initiated and the penalty orders were valid in law. Each party was ordered to bear its own costs.

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