Karnataka High Court
Gayathri Textiles vs Commissioner Of Income-Tax on 9 December, 1999
Equivalent citations: [2000]243ITR674(KAR), [2000]243ITR674(KARN)
JUDGMENT V.K. Singhal, J.
1. The ITAT has referred the following questions of law arising out of its order dated 24th June, 1996, in respect of the assessment year 1986-87 :
"1. On the facts and in the circumstances of the case, whether the Tribunal is right in holding that failure to obtain the previous permission from the Inspecting Assistant Commissioner of Income-tax for imposing the penalty under Section 271(1)(c) is only a procedural error and it is not fatal to the order of penalty passed under Section 271(1)(c) of the Income-tax Act, 1961 ?
2. On the facts and in the circumstances of the case, whether the Tribunal is right in remanding the matter to the Income-tax Officer to pass a fresh penalty order afresh ?"
2. The facts of the case are that the assessee is a registered firm. It was the lessee of the premises where it was, in the past, carrying on its manufacturing and trading activities. The assessee leased out the leasehold premises to Canara Bank, J. C. Road, Bangalore. For the year under consideration, the income of the assessee consisted of the difference in the rent it received and paid. The assessee declared an income of Rs. 71,740. The Assessing Officer determined the total income at Rs. 2,17,970. Penal proceedings under Section 271(1)(c) of the I. T. Act, 1961, were initiated and penalty of Rs. 17,520 was levied. On appeal, the first appellate authority cancelled the penalty holding that the Assessing Officer did not obtain the previous approval of the Inspecting Assistant Commissioner as required under Section 274(2) of the Act. On appeal by the Revenue, the Tribunal reversed the order of the first appellate authority holding that failure to obtain the previous permission from the Inspecting Assistant Commissioner for imposing penalty under Section 271(1)(c) is only a procedural error and it is not fatal to the order of penalty under Section 271(1)(c).
3. According to the Tribunal, since the prior permission from the Inspecting Assistant Commissioner was not obtained for levy of penalty under Section 271(1)(c) it was considered to be a procedural error and it is not fatal to the order of penalty passed under Section 271(1)(c). Section 271(1)(c) confers the power for levy of penalty on the Income-tax Officer. The matter has been considered at length by the Madhya Pradesh High Court in Prabhudayal Amichand v. CIT [1989] 180 ITR 84, where it was found that the approval required by the proviso to Clause (iii) of Section 271(1)(c) of the Act is only a procedural irregularity not involving the question of jurisdiction. In the case of Guduthur Bros. v. ITO [1960] 40 ITR 298 (SC), notice for penalty was issued but opportunity of hearing was not1 given. The Appellate Assistant Commissioner set aside the order imposing' the penalty as defective and directed the refund. The Income-tax Officer thereafter issued another notice for giving the opportunity and levied the penalty. It was held by the apex court that the illegality committed in not providing the opportunity vitiated the proceedings after they were lawfully initiated. It was observed by the apex court that (p. 500) :
"What the Appellate Assistant Commissioner did was to vacate the order and direct refund of the penalty in view of an illegality which had occurred during the course of the assessment proceedings. On receipt of the record, it was open to the Income-tax Officer to take up the matter from the point at which the illegality supervened and to correct his proceeding's. It was pointed out in the course of the statement of the case by the appellants that such proceedings could only be taken during the course of assessment proceeding's and those proceedings are concluded. In our opinion, the notice issued to the appellants to show cause why penalty should not be imposed on them did not cease to be operative, because the Appellate Assistant Commissioner pointed out an illegality which vitiated the proceeding's after it was lawfully initiated. That notice having remained still to be disposed of, the proceedings now started can be described as during the course of the assessment proceedings, because the action will relate back to the time when the first notice was issued."
4. The proceedings in the present matter were also validly initiated. The proceedings under Section 271(1)(c)(iii) only require prior approval of the Inspecting Assistant Commissioner for direction for payment of penalty and not for initiation of proceedings. It was a procedural defect and as such we are of the view that the Tribunal was right in holding that failure to obtain the previous permission from the Inspecting" Assistant Commissioner of Income-tax for imposing the penalty under Section 271(1)(c) is only a procedural error and it is not fatal to the order of penalty passed under Section 271(1)(c) of the I.T. Act, 1961 ; and the Tribunal was right in remanding the matter to the Income-tax Officer to pass fresh penalty order.
5. The reference is answered in favour of the Revenue and against the assessee.