- (1.) In these appeals, we are concerned with the question as to whether penalty proceeding Under Sec. 271D of the Income -tax Act (hereinafter referred to as "the Act") is independent of the assessment proceeding and this question arises for consideration in respect of the assessment years 1991 -92 and 1992 -93 under the following circumstances: In respect of the assessment year 1992 -93, assessment order was passed on February 26, 1996, on the basis of the OB information informing the Department that the Assessee is engaged in a large scale purchase and sale of wheat but it is not filing income -tax return. Ex parte proceedings were initiated, which resulted in the aforesaid order, as per which the net taxable income of the Assessee was assessed at Rs. 18,34,584. While framing the assessment, the Assessing Officer also observed that the Assessee had contravened the provisions of Sec. 269SS of the Act and because of this the Assessing Officer was satisfied that penalty proceedings Under Sec. 271E of the Act were to be initiated. The Assessee carried out this order in appeal. The Commissioner of Income -tax (Appeals) allowed the appeal and set aside the assessment order with a direction to frame the assessment de novo after affording adequate opportunity to the Assessee.
(2.) After remand, the Assessing Officer passed a fresh assessment order. In this assessment order, however, no satisfaction regarding initiation of penalty proceedings Under Sec. 271E of the Act was recorded. It so happened that on the basis of the original assessment order dated February 26, 1996, show -cause notice was given to the Assessee and it resulted in passing the penalty order dated September 23, 1996. Thus, this penalty order was passed before the appeal of the Assessee against the original assessment order was heard and allowed thereby setting aside the assessment order itself. It is in this backdrop, a question has arisen as to whether the penalty order, which was passed on the basis of the original assessment order and when that assessment order had been set aside, could still survive.
(3.) The Tribunal as well as the High Court has held that it could not be so for the simple reason that when the original assessment order itself was set aside, the satisfaction recorded therein for the purpose of initiation of the penalty proceeding Under Sec. 271E would also not survive. This, according to us, is the correct proposition of law stated by the High Court in the impugned order.;