Procedure of penalty proceedings. - Income Tax - 1364/CBDT

INSTRUCTION NO. 1364/CBDT Dated: November 13, 1980 A sample study of the procedures followed by ITOs with regard to initiation and completion of penalty proceedings has revealed that while in a few cases penalty proceedings though called for were not initiated in more than 70% of the cases in which penalty proceedings were started, the ITOs themselves dropped the proceedings. In 65% of the cases in which penalties were imposed, the Appellate authorities held that the penal provisions invoked were not attracted or the defaults sought to be penalised did not, in fact exist. Instances have been found of cyclostyled penalty orders in which even the particular facts of the case leading to the levy of penalty have not been stated, much less any attempt being made to bring home the charge or establish the default justifying the levy of penalty. This is a very unsatisfactory state of affairs. 2. Board's Instructions No.1160 dated 31st March 1978 contains comprehensive instructions with regard to penalty work. It was advised therein inter alia: a) Before starting a penalty proceedings the ITO should make am 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 ITO should not initiate penalty prceedings in respect of the default. He should keep the assessees 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; b) Penalty proceedings should not be initiated: i) in respect of defaults under clause(a) or clause (b) of sub-section 1 of sec.271 or u/s.273 in respect of any assessment year in a case where the maximum penalty imposable under the relevant clause does not exceed 100 rupees. ii) in respect of penalties for concealment of income/furnishing inaccurate particulars thereof u/s.271(1)(c) where the income returned at a positive figure and income assessed are both below the exemption limit and no set off or brought forward loss is involved. c) As provided by law the assessee must be given a reasonable opportunity of being heard before imposing a penalty. The tendency to keep the penalty proceedings pending till the very end of the limitation period and then rushing through should be avoided. While in exceptional cases a penalty proceeding may have to be kept pending till decision of the appeal against the assessment as provided in sec.275 the penalty proceeding 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 6 months of the completion of the relevant assessments and d) An order in a routine manner using a set form should be avoided. 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. 3. The Board view with concern that the above instructions are not being followed. The Board wish to emphasise that for the sake of revenue avoidance of infructous work and good public relations it is imperative that the penalty proceedings are initiated only in liable cases and penalties are imposed after due enquiry and giving the assessee's requisite opportunity of being heard. There must be no initiation of penalty proceedings in a mechanical manner. If an assessees explanation deserves acceptance without further detailed enquiry penalty proceedings should not be initiated reasons for not doing so being duly recorded. In the cases falling under the summary assessment scheme the present practice of issuing penalty notices where prima facie the returns indicate default should be continued. When a penalty proceeding is actually initiated it must not be allowed to drag on. After giving a reasonable opportunity of being heard to the assessee the facts and circumstances of the case should be carefully considered with reference to the relevant statutory provisions and penalty proceedings finalised as far as possible along with the assessment proceedings. The use of cyclostyled penalty orders should be dispensed with. A penalty order should on its face exhibit the fact that it has been passed after requisite consideration and due regard having been given to the assessees explanation and extenuating circumstances if any. 4. The Board hope that henceforth the Assessing Officers will take necessary care to initiate penal proceedings in all liable cases and pass well reasoned penalty orders after affording the assessees reasonable opportunity of being heard and, giving due consideration to the facts and circumstances including the assesses explanation. They will view with seriousness any lapse on this account. 5. The penalty register prescribed vide the Board circular No.25-D(ALV-16) of 1963 dated 1-10-63 new column 32 being added therein vide Board instruction No.819 (F.NO.285/49574-IT(INV)] dated 1-1-75 to show the result of scrutiny of the case from the prosecution view point, the MPR and the six monthly control statement dated 13th August 1973 are the aids for keeping a constant watch over the progress and disposal of penalty work and the Board suggest to the assessing and supervisory officers to make full use thereof. 6. These instructions apply mutatis mutandis to penalty proceedings under the Wealth tax, Gift tax and Estate duty Acts and may be brought to the notice of all the officers in your charge.