1976 (2) TMI 58 - AT - Income Tax

Summary

Issues:
1. Whether the Addl. CIT was justified in directing the ITO to initiate penalty proceedings under s. 273(c) against the assessee and levy interest under s. 217(1A) for the assessment year 1970-71.

Analysis:
The appeal was filed by the assessee against the order of the Addl. CIT directing the ITO to initiate penalty proceedings under s. 273(c) and levy interest under s. 217(1A) for the assessment year 1970-71. The Addl. CIT concluded that since the assessee had not filed a revised estimate of advance tax under s. 212(3A), penal action under s. 273(c) and interest under s. 217(1A) were warranted. The Addl. CIT relied on the Tribunal's decision in the case of J.J. D'costa and two High Court decisions to set aside the assessment and direct the ITO to consider penalty and interest. The assessee argued that the CIT cannot issue directions to the ITO to levy penalty under s. 263. The Departmental Representative supported the Addl. CIT's decision based on previous Tribunal and High Court decisions.

The Tribunal examined the essential requirements of s. 263 and concluded that the CIT could not direct the ITO to levy penalty under s. 273 or s. 271(a)(a) as penalty proceedings are independent of assessment proceedings. The Tribunal emphasized that penalty proceedings are distinct and separate from assessment proceedings, and the CIT cannot shift from one proceeding to another. The Tribunal cited the Supreme Court's decision and held that penalty proceedings cannot be considered an integral part of the assessment order. The Tribunal further clarified that interest and penalty stand on different footing, with penalty being the ITO's prerogative based on satisfaction, while interest is ancillary to tax payable.

The Tribunal referred to the decisions of two different Benches inDelhiand held that the CIT cannot direct the ITO to initiate penalty proceedings under s. 273. However, the Tribunal upheld the direction to consider charging interest under s. 217(1A) as valid, following previous decisions. Consequently, the Tribunal allowed the appeal in part, canceling the direction to initiate penalty proceedings under s. 273(c) but upholding the direction to consider interest under s. 217(1A).

In conclusion, the Tribunal clarified the distinction between penalty and interest proceedings, emphasizing the independence of penalty proceedings from assessment proceedings and upholding the CIT's authority to direct charging of interest but not to initiate penalty proceedings.