Addl. Commissioner of Income Tax vs Sudershan Talkies

B.N. Kirpal, J.—The statement of the case has been drawn up and a reference has been made to this court in respect of the assessment years 1967-68, 1968-69 and 1969-70 arising out of I.P.A. Nos. 3333, 3334 and 3335 of 1972-73 before the Tribunal. The facts as stated by the Income Tax Tribunal are that in respect of these assessment years, assessments were framed on total in respect of these assessment years, assessments were framed on total incomes of Rs. 1,57,707, Rs. 1,98,974 and Rs. 2,83,653, respectively. The assessed had not complied with the provisions requiring the payment of advance tax at the time when the assessment orders were passed. The Income Tax Officer while passing the assessment orders did not charge any interest u/s 217 of the Act. There was also no mention made in the assessment orders or in any separate order passed regarding initiation of penalty proceedings u/s 273 of the Act.

As the said assessment orders appeared to be prejudicial to the interests of the Revenue, the Commissioner of Income Tax issued notices on August 19, 1972, asking the respondent to show cause why action u/s 263 of the Income Tax Act should not be taken. After taking the assessed''s reply into consideration, a consolidated order was passed by the Commissioner of Income Tax to the effect that the orders passed by the Income Tax Officer were prejudicial to the interests of the Revenue and were erroneous inasmuch as the said orders did not contain any direction for the charging of any penal interest u/s 217 of the Act and, secondly, the Income Tax Officer did not initiate proceedings u/s 273(b) for the default in not complying with the provisions of section 212(3) of the Act.

The Commissioner of Income Tax, having come to the aforesaid conclusion, set aside the assessment orders and directed the Income Tax Officer to make fresh assessments, according to law, after giving the assessed an opportunity of being heard.

The assessed filed appeals before the Income Tax Tribunal. The Tribunal came to the conclusion that there was no justification for the Commissioner of Income Tax to exercise his jurisdiction u/s 263 of the Act and to direct the Income Tax Officer to initiate proceedings for imposition of penalty u/s 273(b) of the Act. The order of the Commissioner of Income Tax in this regard was set aside.

An application u/s 256(1) having been filed, the Tribunal has referred the following question to this court :

"Whether, on the facts and circumstances of the case, the Tribunal was correct in holding that the question of charging interest u/s 217 and levying penalty u/s 273(b) was totally extraneous to the scope of the assessment order and, as such, it could not be covered by recourse to section 263 of the I.T. Act, inasmuch as it was neither prejudicial to the interests of the Revenue nor was it erroneous ?"

From the narration of facts, it is clear that there is an obvious error in the order of the Income Tax Tribunal. The Tribunal had upheld the action of the Commissioner of Income Tax in so far as it concerns section 217. Therefore, the reference to this provision in the question is not correct. We, accordingly, reframe the question as follows :

"Whether, on the facts and circumstances of the case, the Tribunal was correct in holding that the question of levying penalty u/s 273(b) was totally extraneous to the scope of the assessment order, and, as such, it could not be covered by recourse to section 263 of the Income Tax Act, inasmuch as it was neither prejudicial to the interests of the Revenue nor was erroneous ?"

It has been vehemently contended by Shri Gupta that the Tribunal was wrong in arriving at the aforesaid conclusion. It is submitted by learned counsel that when the Income Tax Officer had failed to initiate proceedings u/s 273 it had acted in a manner prejudicial to the interests of the Revenue, and, Therefore, the Commissioner of Income Tax was fully justified in taking recourse to the provisions of section 263 of the Act. In support of this, learned counsel places reliance upon the decisions reported as Addl. Commissioner of Income Tax Vs. Kantilal Jain, and Addl. Commissioner of Wealth Tax Vs. Nathoolal Balaram, . It is no doubt true that the said decisions help the contention raised by learned counsel for the Revenue but as far as this court is concerned the matter is no longer rest integra. A similar question had come up for consideration before this court in the case of Addl Commissioner of Income Tax, Delhi-I Vs. J.K. D''costa, . Proceedings for levy of penalty were not initiated by the Income Tax Officer and the Commissioner had, in that case, passed an order u/s 263 of the Act and directed the Income Tax Officer to initiate proceedings for the levy of penalty. This court came to the conclusion that the proceedings for the levy of penalty whether u/s 271(1)(a) or section 273(b) are proceedings independent of, and separate from, the assessment proceedings. It then came to the conclusion that failure to initiate penalty proceedings would not give jurisdiction to the Commissioner of Income Tax to pass an order u/s 263 and direct initiation of penalty proceedings. After this point was decided in favor of the assessed, the Commissioner of Income Tax filed a SLP being SLP (Civil) Nos. 11391-11392 of 1981 (see Controller of Estate Duty Vs. Prakashchand, and the same was dismissed by the Supreme Court on March 2, 1984. It is clear, Therefore, that the Division Bench decision of this court in Addl Commissioner of Income Tax, Delhi-I Vs. J.K. D''costa, has been confirmed by the Supreme Court and the facts of that case are similar to the facts of the present case. It must follow, Therefore, that the Tribunal was right in setting aside the order of the Commissioner of Income Tax passed u/s 263 of the Act in so far as it directed the Income Tax Officer to initiate penalty proceedings u/s 273(b) of the Act. The question of law is, Therefore, answered in the affirmative and against the Revenue.

There will, however, be no order as to costs.