Guidelines with respect to disposal of penalty proceedings. - Income Tax - 1798/CBDT

INSTRUCTION NO. 1798/CBDT Dated: September 29, 1988 A study made to identify the reasons for large pendency of penalty proceedings under the Income-tax Act shows that disposal of penalty proceedings is being given a very low priority and that the general trend is to complete these proceedings, often in a hurried manner, only towards the end of the limitation period. It was also found that penalty proceedings were kept pending for a long time even after the relevant assessments had become final and assessees had furnished replies to the show cause notices. 2. Effectiveness of penalties as a deterrent measure depends to a large extent on quick finalisation of the relevant proceedings. Apart from that, mounting arrears of penalty proceedings damage the Department's image in public and invite criticism from various quarters. 3. The Board desires that in the financial year 1988-89 disposal of penalty proceedings should be given a high priority, with special emphasis on the following points;- i. All pending penalty proceedings relating to cases where assessments have been made under section 143(1) of the Income-tax Act or those relating to section 140A(3) of the Income-tax Act, 1961 should be finalised by 31.12.1988. ii. As regards pending penalty proceedings, other than those referred to in (i) above, each Commissioner of Income-tax should prepare a plan of action for his charge so that the rate of disposal is maximised and the pendency is drastically reduced. 4. In Board's order F.No.284/64/77-IT(Inv.) dated 3.6.1985 under section 119(2)(a) of the Income-tax Act, it has been stated that hereforth proceedings u/s 271(1)(a), 271(1)(b) and 273 of the Income-tax Act, 1961 should not be initiated in respect of any assessment year in a case where the maximum amount of penalty imposable under the relevant clause does not exceed an amount of five hundred rupees only. The Board's decision that all pending penalty proceedings should be dropped, if the maximum penalty imposable under any of the clauses mentioned above does not exceed a sum of five hundred rupees only, was also communicated under Instruction No.1622 (F.No.284/14/80-IT(Inv.III) dated 4.6.1985. The aforesaid instructions, which aim at minimising generation of unproductive work, should be adhered to strictly. 5. The Board desire that while dealing with penalty proceedings, special attention should be given to the following aspects:- i. Penalty Proceedings should be initiated only after due application of mind. Care should be taken to ensure that proper opportunity of being heard is given to the assessee and that the penalty order is passed well before limitation. One of the reasons for delay in disposal of penalty proceedings and poor quality of penalty orders is improper record management. There are instances where because of the failure to place in file, assessee's replies to penalty notices, challans, assessee's application for extension of time for furnishing return of income etc., the penalty proceedings were kept pending for a long time and were ultimately disposed of in a hurried manner only towards the end of the limitation period. Utmost care is needed in making penalty orders relating to concealment of income/wealth and proper investigation should be made to collect evidence in order to fully support the finding regarding concealment. The amount of penalty imposable under section 271(1)(a) depends on the total income and tax determined in assessment. Therefore, where a penalty under section 271(1)(a) has been imposed with reference to a certain amount of income or tax and subsequently the amount of total income and tax has been reduced in appeal, revision or any other proceedings under the Act, the amount of penalty under section 271(1)(a) should be correspondingly reduced. It has been found that some of the assessing officers are not doing so. Prompt reduction of the quantum of penalty in each cases will, besides reducing infructuous demand, also project a better image of the Department. 6. These instructions may please be brought to the notices of all concerned officers in your region.