2005 (7) TMI 72 - HC - Income Tax

Order made by the Commissioner of Income-tax invoking the provisions of section 263 - return was filed belatedly - Whether Tribunal is right in law in setting aside the order made by the Commissioner of Income-tax invoking the provisions of section 263 of the Income-tax Act wherein he had directed the Income-tax Officer to consider initiation of penalty proceedings under section 271(1)(a)? - This court does not find any infirmity in the order of the Tribunal and the Tribunal was justified in setting aside the order made by the Commissioner under section 263 of the Act wherein a direction had been issued to the Assessing Officer to consider initiation of penalty proceedings under section 271(1)(a)

Issues Involved:
1. Whether the Appellate Tribunal was right in setting aside the order made by the Commissioner of Income-tax invoking the provisions of section 263 of the Income-tax Act.
2. Whether the Assessing Officer's failure to initiate penalty proceedings under section 271(1)(a) of the Act made the assessment order erroneous and prejudicial to the interests of the Revenue.
3. Whether the Commissioner had the authority to direct the Assessing Officer to initiate penalty proceedings under section 271(1)(a) of the Act.

Detailed Analysis:

1. Setting Aside the Commissioner's Order under Section 263 of the Act:
The Tribunal held that the Commissioner's directions regarding the levy of penalty under section 271(1)(a) were not in accordance with the law as interpreted by the High Courts of Delhi and Rajasthan. The Tribunal noted contrary decisions by the Madhya Pradesh High Court but adopted the view favorable to the assessee, partially striking down the Commissioner's order.

2. Assessing Officer's Failure to Initiate Penalty Proceedings:
The Commissioner initiated revisional proceedings under section 263 on the grounds that the Assessing Officer failed to charge interest under section 139(8) and did not initiate penalty proceedings under section 271(1)(a) for a 25-month delay in filing the return. The Commissioner found no reasonable cause for the delay and noted that the Assessing Officer had not recorded any satisfaction about the delay. The Commissioner deemed the non-initiation of penalty proceedings as erroneous and prejudicial to the interests of the Revenue.

3. Authority of the Commissioner to Direct Initiation of Penalty Proceedings:
The court examined the legal framework and precedents, noting that section 271(1) requires the Assessing Officer or the appellate authority to be satisfied in the course of any proceedings under the Act. The satisfaction must be recorded before concluding the assessment proceedings. The Commissioner is not empowered to record satisfaction or direct the Assessing Officer to initiate penalty proceedings. The court cited multiple judgments, including Malabar Industrial Co. Ltd. v. CIT, which established that the Commissioner cannot substitute his satisfaction for that of the Assessing Officer.

The court also highlighted that penalty proceedings and assessment proceedings are distinct and separate under the Act. The Commissioner's direction to initiate penalty proceedings would be a colorable exercise of jurisdiction, as the Commissioner cannot create proceedings where none exist.

Conclusion:
The court found no infirmity in the Tribunal's order and upheld that the Tribunal was justified in setting aside the Commissioner's order under section 263. The question referred was answered in the affirmative, in favor of the assessee and against the Revenue. The reference was disposed of accordingly, with no order as to costs.

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