1971 (3) TMI 19 - HC - Income Tax

Income-tax Officer refers penalty proceedings to Inspecting Assistant Commissioner - Inspecting Assistant Commissioner wrote the words no penalty and consequently ITO noted penalty dropped - ITO s order canot be revised by Commissioner under his jurisdiction u/s 263

Summary

Issues:
1. Whether the Inspecting Assistant Commissioner and the Income-tax Officer passed valid orders in the penalty proceedings for the assessment year 1962-63?
2. Whether the order passed by the Commissioner of Income-tax under section 263(1) was valid?

Analysis:

Issue 1:
The Income-tax Officer initiated penalty proceedings under section 271(1)(c) for the assessment year 1962-63 and referred the case to the Inspecting Assistant Commissioner due to the penalty amount exceeding his jurisdiction limit. The Inspecting Assistant Commissioner, after receiving the case, wrote "no penalty" and signed on September 25, 1963. The Tribunal held that this action did not constitute passing an order as formalities like fixing a hearing date and hearing the assessee were not followed. The Tribunal concluded that the Income-tax Officer sought administrative instructions, and the Inspecting Assistant Commissioner provided administrative guidance, not a formal order. Consequently, the Tribunal ruled that the Commissioner had no jurisdiction under section 263(1) as no valid order was made by the Income-tax Officer. The Tribunal's decision was based on the absence of a formal order under section 263(1).

Issue 2:
The Inspecting Assistant Commissioner's action of writing "no penalty" was considered an order made under section 274(2) by the High Court. The Court disagreed with the Tribunal's view that the Inspecting Assistant Commissioner was seeking administrative instructions, emphasizing that the Commissioner had the authority to make a decision on the penalty. The High Court highlighted that the formal requirements for passing an order against the assessee were not necessary at the stage of deciding whether a penalty should be imposed. Therefore, the Court held that the Inspecting Assistant Commissioner's action constituted a valid order under section 274(2). Regarding the subsequent entry made by the Income-tax Officer on October 3, 1963, noting the penalty proceedings had been dropped, the High Court affirmed that this entry did not amount to an order under section 263(1). The Court clarified that the Commissioner lacked jurisdiction to proceed under section 263(1) based on the Income-tax Officer's entry. The High Court upheld the Tribunal's decision on this aspect, affirming that no valid order was made by the Income-tax Officer under section 263(1).

In conclusion, the High Court answered the first question in the negative, indicating that the Inspecting Assistant Commissioner's action constituted a valid order under section 274(2). The second question was answered in the affirmative, confirming that the Income-tax Officer's entry did not amount to an order under section 263(1), and the Commissioner's jurisdiction under section 263(1) was lacking. The High Court ruled in favor of the assessee, granting costs and counsel's fee.