Income Tax - No time limit for initiation of penalty proceedings
THE CAG in its report laid in Parliament on 18.02.2014 observed,
Section 275 of the Act prescribes certain time limits for completion of penalty proceedings to ensure that proceedings do not drag on indefinitely. However, the Act is silent on any time limit for initiation of penalties. Manual of Procedure (Vol-II) only prescribes that if the competent authority during the course of a proceeding under the Act is satisfied that the person is guilty of contravening the relevant statutory provisions, the penalty initiation should be carried out along with the assessment order. The initiation of penalty proceedings starts with issue of notice under section 274 of the Act .
Sustainability of Penalty: Penalties to be effective have to be used sparingly and decisively so that the required impact is achieved. Penalty proceedings have to be initiated only in deserving cases after due investigation so that levy of penalty becomes obvious.
CAG sought to examine whether the initiation and levy of penalty had been done in a routine manner or after due application of mind and found:-
1. There was hardly any appreciation of the cases attracting penalty. Proceedings were being initiated routinely in all cases where additions had been made in scrutiny assessments.
2. Penalty proceedings are being initiated in every alternate scrutiny proceedings. It is not clear whether the large number of penal proceedings indicate real tax evasion cases or is a pointer towards confusion in the interpretation of the Act by the assessees and the ITO.