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Karnataka High Court has given a vast judgment on the scope of the provisions of section 271 of the Income Tax Act, 1961. One of the issue before the Court was related to competent authority  to initiate penalty proceedings u/s 271 for failure to furnish returns, company with notices, concealment of income etc.

Case Details:
ITA-2564, 2565/2005
1. CIT,  2. ITO (Appellant) vs M/s Manjunatha Cotton and Ginning Factory (Respondent)
Date of Judgment: 13-12-2012

Court’s Observations:
The Court deliberated on the various aspects of the section in quite details. The Court ruled that penalty proceedings u/s 271 has to be initiated by the authority which is satisfied about the concealment of the particulars of the income or furnishing of inaccurate particulars of income. The detailed observations of the Court were as under:

WHO INITIATES PENALTY PROCEEDINGS

54. As is clear from the words in Section 271, if the Assessing Officer or the Commissioner of Appeals or the Commissioner in the course of any proceedings under this Act is satisfied that any person has concealed particulars of his income or furnished inaccurate particulars of his income, he may direct that such person shall pay by way of penalty the amount mentioned therein. Therefore, the penalty proceedings have to be initiated by the person who is satisfied about the concealment of income or furnishing of inaccurate particulars of income in the course of any proceedings under this Act. In a given case if the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal or in revision, the authority is satisfied regarding concealment and furnishing of inaccurate particulars, then it is that authority which is satisfied about the said concealment or furnishing of inaccurate particulars has to initiate penalty proceedings and then pass orders in respect of the penalty to be imposed. The imposition of penalty may be done at the stage of assessment or at the stage of an appeal. At the assessment stage, the Assessing Officer has to issue a notice to the assessee to show cause why a penalty should not be imposed and this notice has to be issued in the course of the assessment proceedings. The imposition of the penalty has also to be done by the Assessing Officer but this can be done within the time prescribed in section 275.

55. In the case of initiation of penalty proceedings during the course of appeal or revision proceedings, the authority who has to be satisfied is the authority in whose proceedings the issue is examined and not any other authority. The levy of penalty has also to be done by the same officer as the language used in the later part of Section 271 is that: “ He may direct that such person shall pay by way of penalty”. The authority in which proceedings, there is satisfaction of concealment or furnishing inaccurate particulars of income alone can levy the penalty and not any other authority. If the Commissioner (Appeals) in the course of appeal proceedings is satisfied then it is the Commissioner (Appeals) who have to initiate the penalty proceedings and also complete the same by levying the penalty. He cannot permit the assessing authority to levy penalty.

56. Provisions of Section 274(3) makes it clear that if an authority other than the Assessing Officer passes an order under Chapter XXI which deals with matters of penalties then such authority has to forthwith send the copy of the order to the Assessing Officer. This fortifies that it is the authority who is satisfied in the course of the proceedings before it has the jurisdiction to initiate and levy of penalty. The Allahabad High Court in the case of MOTILAL SHAMSUNDAR reported in 84 ITR 183 held that when the amounts were discovered in the course of appellate proceedings before him, it was discovered by him. It was for him then to impose the penalty. If he was satisfied that the assessee had concealed the particulars of his income or had deliberately furnished inaccurate particulars of it.

57. The question of their recording satisfaction and then calling upon the Assessing Officer to initiate penalty proceedings would not arise. Penalty proceedings has to be initiated by the authority which is satisfied about the concealment of the particulars of the income or furnishing of inaccurate particulars of income.

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