1973 (4) TMI 30 - HC - Income Tax

Initiation of penalty - validity When the satisfaction as to default was recorded in the assessment order whether notice can be validly issued later on - Whether issue of penalty notice under the old act when the new act has come into force is valid

Summary

Issues Involved:
1. Validity of initiation of penalty proceedings.
2. Jurisdiction of the Income-tax Officer to levy penalty under the new Act.
3. Applicability of section 297(2)(g) of the new Act.
4. Continuation of penalty proceedings initiated under the old Act.
5. Interpretation of section 297(2)(g) and its conjunctive application with the initiation of penalty proceedings.

Detailed Analysis:

1. Validity of initiation of penalty proceedings:
The primary issue was whether the initiation of penalty was valid. The facts revealed that the assessee, a registered firm, filed its return for the assessment year 1956-57 voluntarily on March 31, 1958. The Income-tax Officer (ITO) passed the assessment order on June 30, 1960, and directed the issuance of a notice under section 28 for late submission of the return. The ITO initially levied a penalty of Rs. 2,000 under section 28(1)(a) of the Indian Income-tax Act, 1922. However, the Appellate Assistant Commissioner set aside the assessment and the penalty order. A fresh assessment was made on June 15, 1963, and the ITO issued a fresh notice under section 28(3) of the old Act on July 19, 1964. The ITO later levied a penalty of Rs. 11,456 under section 271(1)(a) of the Income-tax Act, 1961. The Appellate Assistant Commissioner cancelled this penalty, leading to the initiation of fresh proceedings under section 271 read with section 274 of the new Act, resulting in a penalty of Rs. 12,027. The Tribunal set aside this fresh penalty order.

2. Jurisdiction of the Income-tax Officer to levy penalty under the new Act:
The Tribunal's conclusion that the ITO had no jurisdiction to levy penalty under section 271(1)(a) because the penalty proceedings had not been initiated when the ITO finalized the assessment was found to be erroneous. The Supreme Court in D. M. Manasvi v. Commissioner of Income-tax clarified that the satisfaction of the ITO during the assessment proceedings regarding the concealment of income is the basis for penalty proceedings. It is not essential that the notice to the person proceeded against be issued during the assessment proceedings. The satisfaction precedes the issuance of notice, which can follow subsequently.

3. Applicability of section 297(2)(g) of the new Act:
Section 297(2)(g) of the new Act states that any proceeding for the imposition of a penalty in respect of any assessment for the year ending March 31, 1962, may be initiated and any such penalty may be imposed under the new Act. The Tribunal's view that the ITO had no jurisdiction to levy penalty under the new Act because the proceedings were not initiated before finalizing the assessment was incorrect. The satisfaction of the ITO reached during the assessment proceedings on June 15, 1963, was sufficient for subsequent initiation of penalty proceedings under the new Act.

4. Continuation of penalty proceedings initiated under the old Act:
The contention that the penalty proceedings initiated under the old Act should continue under the old Act was rejected. The assessment order for the year 1956-57 was passed on June 15, 1963, after the new Act came into force. Therefore, the satisfaction of the ITO reached during the assessment proceedings allowed for the subsequent steps, including the issuance of notice and initiation of penalty proceedings, under the new Act.

5. Interpretation of section 297(2)(g) and its conjunctive application with the initiation of penalty proceedings:
The argument that once penalty proceedings are initiated under the old Act, they must continue under the old Act was not accepted. Section 297(2)(g) allows for the initiation and imposition of penalty under the new Act if the assessment is completed after April 1, 1962. The Supreme Court in Jain Brothers v. Union of India emphasized that for the imposition of penalty, the crucial date is the completion of the assessment. Both sections 271(1) and 297(2)(g) must be read harmoniously, indicating that for assessments completed after April 1, 1962, penalty proceedings must be initiated and penalties imposed under the new Act.

Conclusion:
The High Court answered the question in the affirmative, holding that the initiation of penalty proceedings was valid under the new Act. The Court emphasized that the satisfaction of the ITO during the assessment proceedings was sufficient for subsequent penalty proceedings. The Court also noted the harshness of the penalty imposed and suggested that the income-tax department consider the assessee's case sympathetically.