2014 (2) TMI 1075 - HC - Income Tax

Penalty u/s 271B of the Act Audit of accounts as per section 44AB of the Act Mandatory requirement to obtain approval - Held that - The order imposing penalty does not disclose that prior approval of the Joint Commissioner was obtained in either of the two cases Relying upon Indrajit Banerjee Vs. Commissioner of Wealth Tax, Kolkata & Anr. 2014 (1) TMI 415 - CALCUTTA HIGH COURT - It was the obligation of the Income Tax Officer to indicate in his order that he passed the order after obtaining requisite approval - Since the order passed by the Income Tax Officer does not contain the requisite recital, it has to be held that no such approval was obtained - The order itself is incompetent - An incompetent order is a nullity and the point as regards nullity can be taken at any stage the order of penalty cannot be sustained thus, the order set aside and the matter remitted back to the AO for passing an order under Section 271B after obtaining necessary approval Decided in favour of Assessee.

Summary

Issues Involved:
1. Imposition of penalty under Section 271B without prior approval of the Joint Commissioner.
2. Compliance with the provisions of Section 274(2) of the Income Tax Act.

Analysis:

Issue 1: Imposition of penalty under Section 271B without prior approval of the Joint Commissioner
In the present case, both appellants were served with notices to show cause why penalty under Section 271B should not be imposed. The penalty was imposed without obtaining the prior approval of the Joint Commissioner, as required by Section 274(2) of the Income Tax Act. The appellant's counsel argued that the orders imposing the penalty did not disclose the necessary approval, citing a previous judgment where it was held that an order imposing a penalty exceeding a certain amount without the required approval is incompetent and a nullity. The court agreed with this argument and held that the orders imposing the penalty were unsustainable due to the lack of necessary approval.

Issue 2: Compliance with the provisions of Section 274(2) of the Income Tax Act
Section 274(2) of the Income Tax Act mandates that no order imposing a penalty exceeding a specified amount can be made without the prior approval of the Joint Commissioner. The appellant's counsel contended that the orders imposing the penalty did not adhere to this provision, rendering them invalid. The court, after considering the arguments presented, concluded that the orders imposing the penalty were defective and set them aside in both appeals. The matters were remanded to the Assessing Officer for a fresh decision under Section 271B after obtaining the necessary approval and ensuring compliance with the law.

In summary, the High Court of Calcutta, in the judgment delivered by Girish Chandra Gupta and Sudip Ahluwalia, set aside the orders imposing penalties under Section 271B on the appellants as they were made without the required prior approval of the Joint Commissioner, as mandated by Section 274(2) of the Income Tax Act. The court emphasized the importance of compliance with statutory provisions and remanded the matters to the Assessing Officer for fresh consideration in accordance with the law.