1972 (4) TMI 8 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Inspecting Assistant Commissioner had jurisdiction to pass the order of penalty under section 271(1)(c) read with section 274(2) of the Income-tax Act, 1961 - Once penalty proceedings are validly initiated, the Inspecting Assistant Commissioner could validly continue these proceedings without giving or recording fresh satisfaction - it is not necessary for him to initiate fresh penalty proceedings after an independent satisfaction about the concealment

Summary

Issues Involved:
1. Jurisdiction of the Inspecting Assistant Commissioner to pass the order of penalty under section 271(1)(c) read with section 274(2) of the Income-tax Act, 1961.

Detailed Analysis:

1. Jurisdiction of the Inspecting Assistant Commissioner:

The primary issue in this case revolves around whether the Inspecting Assistant Commissioner (IAC) had the jurisdiction to levy a penalty under section 271(1)(c) read with section 274(2) of the Income-tax Act, 1961, based on the satisfaction of the Income-tax Officer (ITO) regarding the concealment of income during the assessment proceedings.

The assessee, engaged in commission and consignment sales of plantains, was found by the ITO to have credited a sum of Rs. 32,466 in a fictitious name, P. Shanmugam, and admitted that these were his own transactions. The ITO estimated the net profit at Rs. 25,000 and initiated penalty proceedings under section 274(1). The case was referred to the IAC under section 271(2), who levied a penalty of Rs. 5,400 for concealment of income.

The assessee contested the IAC's jurisdiction, arguing that the IAC must satisfy himself about the concealment of income during the assessment proceedings. The Tribunal rejected this contention, interpreting "any proceedings" in section 271(1)(c) to include penalty proceedings, allowing the IAC to levy penalties based on the ITO's satisfaction.

Upon further appeal, the High Court clarified that "any proceedings" in section 271(1) do not include penalty proceedings, aligning with Supreme Court rulings. Therefore, the IAC cannot satisfy himself about concealment during assessment proceedings, as he is not an assessing or appellate authority.

The court examined various precedents, including Ram Chandra Sarda v. Income-tax Officer, which supported the assessee's view but was ultimately not followed. The court emphasized that section 274(2) should not be rendered ineffective and concluded that the ITO's satisfaction during assessment proceedings is sufficient for initiating penalty proceedings. The IAC, upon referral, can continue these proceedings without needing to form an independent satisfaction.

The court referred to multiple cases, including Commissioner of Income-tax v. A. K. Das, Durga Timber Works v. Commissioner of Income-tax, and Padgilwar Brothers v. Commissioner of Income-tax, which supported the view that the ITO's satisfaction and initiation of penalty proceedings are adequate for the IAC to impose penalties.

The Supreme Court's decision in Commissioner of Income-tax v. Angidi Chettiar was cited, emphasizing that penalty proceedings commence after assessment completion based on the ITO's satisfaction. The court concluded that the IAC, acting under section 274(2), does not need to reinitiate proceedings or form an independent satisfaction.

In summary, the High Court held that the IAC's order levying a penalty under section 271(1)(c) read with section 274(2) was valid, as it was based on the ITO's satisfaction during the assessment proceedings. The question was answered in the affirmative, favoring the Revenue, with costs awarded to the Revenue.