2011 (1) TMI 420 - HC - Income Tax

Penalty u/s 271(1) - the assessee submitted that the issue raised in this appeal stands concluded by the decision of this Court in ITA No. 225 of 2003 (Commissioner of Income Tax-I Ludhiana v. Shri Subhash Kumar Jain) decided on 10.9.2010. He further submitted that the aforesaid view is supported by the amendment made by Finance Act 2002 which has been made effective from 1.6.2002 whereby Section 271(1) itself has been amended and the Commissioner has been empowered to levy penalty. According to the learned counsel it is only after 1.6.2002 that the CIT would have jurisdiction to order for initiating penalty proceedings while passing an order under Section 263 of the Act whereas the present case is governed by the unamended provision of Section 271(1) of the Act.

Summary

Issues:
Whether the Commissioner can direct for initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961 while exercising jurisdiction under Section 263 of the Act.

Analysis:
The appeal before the Punjab and Haryana High Court involved the determination of whether the Commissioner, under Section 263 of the Income Tax Act, 1961, can direct the initiation of penalty proceedings under Section 271(1)(c) of the Act. The case revolved around an assessment where the assessee declared an income but failed to explain certain aspects, leading to the Commissioner setting aside the assessment order as erroneous and prejudicial to revenue's interest. The Commissioner directed the Assessing Officer to frame a fresh assessment considering penal action under Section 271(1)(c). The Tribunal later held that the CIT cannot direct penalty proceedings as they were not part of the assessment proceedings, leading to the revenue's appeal.

The Court considered the arguments presented by the parties, with the counsel for the assessee relying on a previous decision and an amendment to Section 271(1) by the Finance Act, 2002. The counsel argued that the amendment empowered the Commissioner to levy penalties, but this provision was effective only from 1.6.2002, while the present case was governed by the unamended provision. The Court found merit in the assessee's submission, referencing the decision in a similar case to support their conclusion.

Ultimately, the Court ruled against the revenue, stating that the issue had already been addressed in a previous judgment. The Court dismissed the appeal, affirming that the Commissioner, under the circumstances of the case, did not have the jurisdiction to direct the initiation of penalty proceedings under Section 271(1)(c) while exercising powers under Section 263 of the Income Tax Act, 1961.