COMMISSIONER OF INCOME TAX Vs. ASHOK CONSTRUCTION CO

JUDGEMENT

(1.) The Income-tax Appellate Tribunal, Allahabad, has referred the following question of law under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for opinion to this Court : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the order under Section 263 of the Income-tax Act when the order of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue on account of his failure to initiate penalty proceedings under Section 271B which attracted in the assessee's case due to contravention of the provisions of Section 44AB ?

(2.) The reference relates to the assessment year 1986-87. Briefly stated the facts giving rise to the present reference are as follows : The respondent/assessee is a firm engaged in the execution of contract work. It was required to obtain audit report in terms of Section 44AB of the Act by June 30, 1986. The respondent did not obtain the report and the same was enclosed with the return for the assessment year, which we find was filed on September 15, 1986. The assessment was completed by the Assessing Officer. He failed to initiate penalty proceedings as envisaged under Section 271B of the Act for the failure to obtain the audit report within the specified period. The Commissioner of Income-tax examined the assessment record and other materials and being of the opinion that the failure to initiate penalty proceedings under Section 271B of the Act by the assessing authority while passing the assessment order had caused the assessment order to be erroneous as also prejudicial to the interests of the Revenue warranting action under Section 263 of the Act, he issued notice and after giving an opportunity of hearing set aside the assessment order with a direction that the feasibility of initiation of proceedings under Section 271B of the Act be examined and after providing necessary opportunity of hearing to the respondent/assessee the issue decided be in accordance with law. He was also of the opinion that the wrong credit for tax deducted at source be also looked into and necessary relief be granted after examining as to whether the tax deducted at source was deposited for the assessment year in question or not and credit should be given accordingly. Feeling aggrieved the respondent/assessee preferred an appeal before the Tribunal. The Tribunal had set aside the order of the Commissioner of Income-tax under Section 263 of the Act on the following grounds : Coming to the substantiality of the Commissioner's order under Section 263 of the Income-tax Act, we notice that the same cannot be sustained by us. There are definite parameters within which alone the provisions of Section 263 can be invoked. Unless the order of the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue, in clear terms the provisions of Section 263 cannot be invoked. Applying this test we notice that this primary condition for invoking and sustaining the provisions of Section 263 is not fulfilled. Judicial courts even otherwise are very slow in allowing the executive a free hand in initiating penalty proceedings in such matters. Therefore, it will be a travesty of justice if we agree with the Revenue in invoking the provisions of Section 263 for initiating penalty proceedings. For this reason we annul the order of the Commissioner of Income-tax and cancel the order dated March 28, under Section 263 of the Income-tax Act, 1961.

(3.) So far as the credit for tax deducted at source certificate was concerned it had recorded the statement of the respondent that necessary action under Section 154 of the Act be taken and the respondent would not raise any objection.