Pendency of penalty. - Income Tax - 1160/CBDT

INSTRUCTION NO. 1160/CBDT Dated : March 31, 1978 Section(s) Referred: 271 ,273 Statute: Income - Tax Act, 1961 The Board's concern at the increasing pendency of penalty proceeding was conveyed to the Commissioners of Income-tax during the Commissioners' Conference held in June, 1977. The Commissioners were advised to ensure that penalty proceedings were not initiated in a routine manner and the pendency was reduced to the minimum. It was emphasised that it is essential to have a practical approach in such matters. The Board regret to note that the number of penalty proceedings awaiting disposal continues to increase. 2. Before starting a penalty proceeding, the Income-tax Officer should make an enquiry from the assessee with a view to finding out whether he was prevented by any reasonable cause from complying with his statutory obligations. If the assessee has a genuine explanation which deserves acceptance without further detailed enquiry, the Income-tax Officer should not initiate penalty proceedings in respect of the default. He should keep the assessee's explanation, obtained in writing, in the file and also record his reasons for not initiating the penalty proceedings. Care should be taken to avoid initiation of penalty proceedings in a mechanical manner. The Board feel that if the ITO applies his mind properly to the facts of each case and refrains from infructuous action, the number of penalty proceedings requiring disposal will go down considerably. 3. Board's order F.No.284/64/77-IT(Inv), dated 23rd January, 1978, printed below, made under section 119(2) (a) of the Income-tax Act directs the Income-tax Officers not to initiate any penalty proceeding for an offence under clause (a) or clause (b) of sub-section (1) of section 271 or under section 273 in respect of any assessment year in a case where the maximum penalty imposable under the relevant clause does not exceed one hundred rupees. This order is in force from 1st February, 1978. So far as penalties in respect of concealment of income/furnishing inaccurate particulars thereof are concerned (section 271 (1)(c), the Board's earlier order under section 119 (F.No.284/4/75-IT(Inv), dated 16th October, 1975) directs the Income-tax Officers not to initiate penalty proceedings where the income returned at a positive figure and income assessed are both below the exemption limit and no set-off of brought forward loss is involved. The Board hope that besides improving the public image of the Department amongst small assessees, the combined effect of these orders will be to reduce the comparatively infructuous work involved in petty penalty proceedings and give the officers more time to deal with the other penalty cases. 4. No penalty can be imposed unless the assessee has been heard or has been given a reasonable opportunity of being heard. The public Accounts Committee have observed that this mandatory provision of law was disregarded in a few cases resulting in loss of considerable revenue. The instances noted by the PAC arose because the penalty proceedings were kept pending till the very end of the limitation period and were then rushed through. The instructions contained in the Board's Circular No.25-D (XLV-16) of 1963 dated 1st October, 1963 for proper maintenance of the penalty register, watching the progress of the cases entered therein and completion of the penalty proceedings within one year of passing of the assessment order were disregarded. Further, little use was made of monthly progress reports which show the agewise pendency as also of the six monthly control statement prescribed under the Board's Instruction No.585 (F.No.284/36/73-IT(Inv) dated 13th August, 1973. These instructions were reiterated in the Board's instruction No.862 (F.No.284/25/75-IT(Inv) dated the 8th August, 1975 and should be carefully followed. While in exceptional cases a penalty proceeding may have to be kept pending till decision of the appeal against the assessment as provided in section 275, the penalty proceedings should ordinarily be completed soon after the assessment. In actual practice, the Board consider that in the vast majority of cases, it should be possible to complete penalty proceedings within six months of the completion of the relevant assessments. Both in the interests of Revenue and good public relations, it is also essential that the back-log of pendency work is cleared as quickly as possible. 5. It has come to the Board's notice that occcasionally orders levying penalties for defaults under sections 271(1)(a)/18(1)(a), 271(1)(b)/18/(1)(b) and 273 are passed in a routine manner using a set form. Such orders may not be reasoned and supported by adequate details and are, therefore, untenable in appeal. It is emphasised that an order levying a penalty should be a "speaking order" showing that the discretion vested in the authority imposing the penalty has been judiciously exercised. 6. The Board in their Instruction No.819 (F.No.285/495/74-IT(Inv) dated 1st January, 1975 prescribed a check mechanism to ensure that each and every concealment case gets examined from the prosecution angle. They would reiterate that the new column '32' in the Register of Penalties should be properly filled in, to show the result of scrutiny of the case from the prosecution view -point. 7. These instructions apply mutatis mutandis to penalty proceedings under the wealth Tax, Gift Tax and Estate Duty Acts.