1970 (1) TMI 25 - HC - Income Tax

Whether on a proper construction of section 28 of the Income-tax Act 1922 the Income-tax Officer ceases to have the power to impose a penalty under that section once an appeal has been filed before the Appellate Assistant Commissioner against the assessment which gave rise to the initiation of penalty proceedings

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer to impose a penalty under section 28 of the Indian Income-tax Act, 1922, after an appeal has been filed before the Appellate Assistant Commissioner.
2. Interpretation of section 28 of the Act regarding the powers of the Income-tax Officer, Appellate Assistant Commissioner, and the Appellate Tribunal to impose penalties.
3. Distinction between assessment proceedings and penalty proceedings under the Act.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income-tax Officer to Impose a Penalty:

The primary question was whether the Income-tax Officer (ITO) loses the power to impose a penalty under section 28 of the Indian Income-tax Act, 1922, once an appeal is filed before the Appellate Assistant Commissioner (AAC) against the assessment order. The court held that the ITO does not cease to have the power to impose a penalty even after an appeal is filed. The language of section 28 does not support the contention that the ITO's jurisdiction is ousted upon the filing of an appeal. The court emphasized that the jurisdiction of the ITO to impose penalties remains intact unless explicitly ousted by the statute.

2. Interpretation of Section 28 of the Act:

The court examined the scheme of the Act, particularly sections related to assessment, penalties, and appellate powers. It was argued that the penalties depend on the final quantum of total income determined by the appellate authorities. The court noted that section 28 of the Act does not contain any language that ousts the jurisdiction of the ITO to impose penalties once an appeal is filed. The section explicitly states that the ITO, AAC, or the Appellate Tribunal can impose penalties, and there is no provision indicating that the ITO's power is terminated upon the filing of an appeal.

The court also considered the argument that the AAC and the Tribunal have the power to impose penalties and that such powers should be exercised to avoid multiple penalties for the same offense. However, it was concluded that the law provides for the ITO to impose penalties initially, and the appellate authorities can also impose penalties if circumstances warrant. The court found no basis to interpret section 28 in a manner that restricts the ITO's powers.

3. Distinction Between Assessment Proceedings and Penalty Proceedings:

The court clarified that assessment and penalty proceedings are distinct and separate under the Act. Penalty is an additional tax imposed for dishonest and contumacious conduct, and its imposition depends on the satisfaction of the conditions specified in section 28. The findings in assessment proceedings are relevant but not conclusive in penalty proceedings. The court noted that additional evidence can be presented in penalty proceedings to rebut findings from the assessment.

The court rejected the argument that the AAC is in a better position to impose penalties due to the wide-ranging powers to examine all aspects of the assessment. It was emphasized that if the ITO imposes a penalty, the assessee has the opportunity to appeal to the AAC and the Tribunal, providing multiple levels of scrutiny. If the AAC or Tribunal were to impose the penalty initially, the assessee would lose the benefit of multiple appeals.

Conclusion:

The court concluded that the ITO does not lose the power to impose a penalty under section 28 of the Act upon the filing of an appeal before the AAC. The language of section 28 is clear and does not oust the ITO's jurisdiction. The distinction between assessment and penalty proceedings was maintained, and the court emphasized the procedural fairness provided by allowing multiple levels of appeal. The question referred to the court was answered in the negative, affirming the ITO's authority to impose penalties regardless of the appeal status. The assessee was ordered to pay the costs of the reference, with counsel's fee set at Rs. 250.