1971 (7) TMI 42 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Tribunal erred in reducing the penalty from Rs. 1,800 to Rs. 200 held that Appellate Tribunal cannot reduce the quantum of penalty below the minimum prescribed by the statute

Summary

Issues:
1. Reduction of penalty by the Income-tax Appellate Tribunal from Rs. 1,800 to Rs. 200.
2. Interpretation of the jurisdiction and powers of the Income-tax Appellate Tribunal in imposing penalties under section 271(1)(a) of the Income-tax Act, 1961.

Analysis:
1. The case involved the imposition of a penalty on the assessee for failing to file returns of income in time for assessment years 1957-58 to 1962-63. The Income-tax Officer initially imposed a penalty of Rs. 2,209, which was reduced to Rs. 1,800 by the Appellate Assistant Commissioner and further reduced to Rs. 200 by the Income-tax Appellate Tribunal. The main issue was whether the Tribunal had the authority to reduce the penalty below the statutory rate of 2% per month as specified in section 271(1)(i) of the Income-tax Act, 1961.

2. The Tribunal contended that it had the discretion to reduce the penalty below the specified rate, arguing that the provision fixing the rate in section 271(1)(i) was binding only on the Income-tax Officer and not on the Tribunal. However, the High Court disagreed with this interpretation. The Court held that the Tribunal's jurisdiction in imposing penalties is limited by the same constraints that apply to the Income-tax Officer. The Court emphasized that the Tribunal, as an appellate body, must operate within the boundaries set by the original authority's jurisdiction.

3. The Court referred to the provisions of section 254(1) of the Income-tax Act, which grants the Tribunal the power to pass orders as it deems fit. However, this power is not unlimited and must align with the jurisdiction of the authority whose decision is under appeal. The Court emphasized that the Tribunal's discretion in penalty proceedings is subject to the statutory provisions, and it cannot disregard the clear mandates of the law. The Court highlighted that the statutory rate of 2% specified in section 271(1)(i) is not variable and must be adhered to by both the Income-tax Officer and the Tribunal.

4. The Court rejected the argument that the Tribunal could exercise discretion similar to the Income-tax Officer in imposing penalties. It clarified that once the Tribunal found the case attracting the penalty under section 271(1)(a), it was obligated to apply the statutory rate of 2% without reducing the penalty below that amount. Therefore, the Tribunal's decision to reduce the penalty from Rs. 1,800 to Rs. 200 was deemed erroneous by the Court.

5. In conclusion, the High Court answered the question referred by the Commissioner of Income-tax in the affirmative, stating that the Tribunal erred in reducing the penalty below the statutory rate. The Commissioner of Income-tax was awarded costs, and the Court upheld the statutory provisions regarding the imposition of penalties under section 271(1)(i) of the Income-tax Act, 1961.