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Lalta Prasad Goenka v. Commissioner Of Income-Tax, Central, Bombay.
Structured Summary of the Opinion (Chandurkar, J.)
Factual and Procedural Background
For the assessment year 1950–51 the assessee filed a return of income on 30 May 1951 (signed by his manager) and a fresh return on 30 March 1953. The assessment was completed in late March 1955 (the opinion records completion as both 30th March, 1955 and 31st March, 1955 in different passages). Notices under ss. 22(4) and 23(2) of the Indian I.T. Act, 1922 were issued after March 1953 when the ITO received no effective response to earlier notices. The assessee acknowledged receipt of those notices on 17 February 1955 and said he had filed returns with the ITO, Calcutta; he requested transfer of the case to Calcutta. The ITO, Gwalior, found no pending assessment with Calcutta and fixed a hearing for 21 March 1955; the assessee then said the file had gone to Delhi. The ITO, Gwalior, consulted Delhi, and was asked to complete time‑barred assessments and then consider transfer; the ITO completed the assessment (recorded in the opinion on 31 March 1955) and issued a notice under s. 28(3) for non‑compliance with ss. 22(4) and 23(2).
The quantum appeal was decided by the AAC on 30 July 1960. The case had been transferred to Delhi (April 1958) and later to Bombay. The ITO at Bombay noticed pending penalty proceedings. When penalty proceedings were proceeded with, two objections were raised by the assessee: (1) that the assessment and the s. 28(3) notice were in the name of “M/s. Agarwal & Co.” while the penalty order named Lalta Prasad Goenka; and (2) that proceedings were time‑barred, relying on Mohd. Atiq v. ITO. The ITO found the objections untenable, calculated a maximum possible penalty of Rs. 62,644 but imposed Rs. 25,000. The AAC and the Tribunal rejected the assessee’s appeals; the Tribunal referred to the assessee’s conduct as deliberate non‑compliance. The following question was referred to the Court: “Whether, on the facts and in the circumstances of the case, any penalty was leviable against the assessee under section 28(1)(b) of the Indian Income‑tax Act, 1922?”
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, any penalty was leviable against the assessee under section 28(1)(b) of the Indian Income‑tax Act, 1922?
Arguments of the Parties
Assessee's Arguments
- The penalty order is invalid because the assessment and the notice under s. 28(3) were issued in the name of M/s. Agarwal & Co., while the penalty order was in the name of Lalta Prasad Goenka (alleged mis‑naming or defect in the order).
- The penalty proceedings were barred by delay; reliance was placed on Mohd. Atiq v. ITO (1962) 46 ITR 452 (All), which was argued to show that proceedings for levy of penalty must be taken within a reasonable time and that there had been unreasonable delay.
Revenue / Respondent's Position (as reflected in the opinion)
- The ITO rejected the naming objection, treating the assessment, notice and penalty order as directed at the same person (Lalta Prasad Goenka, proprietor of M/s. Agarwal & Co.).
- The ITO rejected the objection of delay, proceeded with penalty calculations (maximum potential penalty stated and a lesser amount imposed), and the AAC and Tribunal upheld the penalty and found no justification for the assessee's claimed mistake or delay.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Mohd. Atiq v. ITO, [1962] 46 ITR 452 (All) | Held that proceedings for levy of penalty (where no limitation period is prescribed) must be taken within a reasonable time; in that case an inordinate delay (about 14 years) was held unreasonable on the facts. | The court considered the decision but distinguished its facts and rejected the view that Mohd. Atiq lays down a universal rule that every delayed penalty order is invalid. The opinion treats Mohd. Atiq as not establishing an absolute rule of invalidity by delay. |
| Ram Kishan Baldeo Prasad v. CIT, [1967] 65 ITR 491 (All) | Division Bench qualification: inordinate delay does not, as a matter of law in every case, invalidate a penalty order; delay is one factor among others, and where delay is not attributable to the assessee it may be relevant for the Tribunal to consider. | The court relied on this qualification to support the proposition that delay alone does not automatically invalidate penalty proceedings; it applied the principle to the facts (transfers, stay pending quantum appeal) to find delay not fatal. |
| CIT v. Rupsa Rice Mill, [1964] 54 ITR 328 (Orissa) | Held that where the 1922 Act prescribes no period for imposition of penalty, an order cannot be held bad in law merely because of inordinate delay. | The court cited this view as consistent with its conclusion that delay alone, without further prejudice or blame attributable to the assessee, does not render penalty proceedings invalid. |
Court's Reasoning and Analysis
The Court addressed, in turn, the two principal contentions raised by the assessee.
1) Naming / identity objection — The Court analysed the objection that assessment and the s. 28(3) notice were in the trade name “M/s. Agarwal & Co.” while the penalty order named Lalta Prasad Goenka. The Court held that there was no substantial difference so far as liability was concerned: the assessment and penalty related to the same person, Lalta Prasad Goenka (the proprietor). The Court rejected the contention that the use of the trade name created a fatal defect in the penalty order.
2) Delay / limitation objection — The Court observed that the Indian I.T. Act, 1922 contains no statutory limitation period for completion of penalty proceedings. The Court examined Mohd. Atiq v. ITO (1962), noting that that decision found an unreasonable delay on its particular facts (a long interval of inaction followed by notices many years later) but did not, in the Court’s view, establish a general rule that every delayed penalty order is invalid. The Court relied on the Division Bench decision in Ram Kishan Baldeo Prasad v. CIT which expressly stated that inordinate delay does not automatically invalidate a penalty order and that delay is one factor among others to be considered (particularly if the assessee is not to blame). The Orissa High Court decision in CIT v. Rupsa Rice Mill was cited as adopting a similar position.
Applying those principles to the facts before it, the Court recorded the circumstances that explained the delay: transfers of the case between jurisdictions (Gwalior, Calcutta, Delhi, Bombay), the stay of penalty proceedings pending the outcome of the quantum appeal (styed until 30 July 1960), and subsequent transfers. On these facts the Court concluded that delay alone did not render the penalty order invalid. The Court also noted as an admitted fact that the assessee had not complied with notices under ss. 22(4) and 23(2) and found no error in the Tribunal’s conclusion that the assessee’s conduct showed a deliberate attempt not to comply with those notices.
Holding and Implications
Holding: The question is answered in the affirmative — a penalty was leviable against the assessee under section 28(1)(b) of the Indian Income‑tax Act, 1922, and the appeal is dismissed in favour of the revenue.
Implications:
- The penalty order stands as valid on the facts of this case: the naming of the assessee in the assessment and the penalty order was treated as referring to the same person (the proprietor) and was not a fatal defect.
- Delay in instituting or completing penalty proceedings, in the absence of a statutory limitation and on these facts (transfers and a stay pending the quantum appeal), did not by itself render the penalty invalid. The Court emphasised existing authority that delay is a relevant factor but does not automatically invalidate a penalty order in every case.
- Direct consequence for the parties: the Tribunal’s decision upholding the penalty was affirmed and the assessee was ordered to pay the costs of the reference.
- No broader or novel legal principle was established by this opinion beyond the application of existing authorities: the decision applies settled principles that delay is not per se fatal and that identity/naming must be judged by substance rather than form in the circumstances described.
Order: The question is answered in favour of the revenue and the assessee is to pay the costs of the reference.
Chandurkar, J.:— In respect of the assessment year 1950–51, the assessee had filed a return of income on May 30, 1951, which was signed by his manager. A fresh return, however, came to be filed on 30th March, 1953. The assessment was completed on 30th March, 1955. The conduct of the assessee prior to the completion of the assessment has been adversely commented upon by the ITO, the AAC and the Tribunal. Notices under ss. 22(4) and 23(2) of the Indian I.T Act, 1922, were issued to the assessee after March, 1953, after no effective response was received by the ITO in respect of his earlier notices. It was only on 17th of February, 1955, that the assessee admitted receipt of notices under ss. 22(4) and 23(2) of the Act and by that letter he informed the ITO that he had filed returns with the ITO, Calcutta. The ITO, Gwalior, who was in charge of the assessment was requested by the assessee to transfer his case to the ITO, Calcutta. However, on inquiry the ITO, Gwalior, did not find that there was any assessment case pending with the ITO, Calcutta, and the ITO, Gwalior, therefore, fixed the case for hearing on 21st March, 1955, and sent a telegram to the assessee communicating the date. On this, the assessee informed the ITO, Gwalior, that his file has been transferred to the ITO, Delhi. The ITO, Gwalior, made inquiries with the ITO, Delhi, who requested him to complete the assessments, which were getting barred by time, and then to consider the question of transferring the files of the assessee to Delhi in April of 1955. The ITO, Gwalior, then completed the assessment of the assessee on 31st March, 1955, and also issued notice under s. 28(3) for the assessee's failure to comply with the notices under ss. 22(4) and 23(2) of the Act.
2. The assessee's quantum appeal came to be decided by the AAC on 30th July, 1960. In the meantime, the case of the assessee had been transferred to Delhi in April, 1958. From there the case was subsequently transferred to Bombay and it was the ITO at Bombay who noticed that penalty proceedings were still pending against the assessee. When the ITO took up the penalty proceedings, two objections were taken before him. One was that the assessment order dated 31st March, 1955, was in the name of M/s. Agarwal and Co. (proprietor, Shri Lalta Prasad Goenka, Naya Bazar, Laskar) while the penalty order was made in the name of Lalta Prasad Goenka.
3. The other objection was that the notice under s. 28(3) was issued as far back as on 31st March, 1955, and in view of the decision of the Allahabad High Court in Mohd. Atiq v. ITO, [1962] 46 ITR 452, the proceedings must be held to be barred by time. Both these contentions were negatived by the ITO who found that the maximum penalty under s. 28(1)(b) worked out to Rs. 62,644. He, however, imposed a penalty of Rs. 25,000 only.
4. In appeal the same contentions were raised by the assessee and were rejected by the AAC. The assessee took the matter in appeal to the Tribunal where also the same contentions were agitated. The Tribunal confirmed the decision of the AAC. The Tribunal held that the penalty order was not defective and that the explanation which was sought to be given by the assessee at that stage that the assessee was under a genuine mistake for not complying with the notices under ss. 22(4) and 23(2) was not justified. The order of the Tribunal, however, does not disclose as to what was the mistake which was canvassed before the Tribunal. The Tribunal has, however, referred to the conduct of the assessee and found that his conduct showed that there was a deliberate attempt not to comply with the notices under ss. 22(4) and 23(2) of the Act. From this order of the Tribunal, at the instance of the assessee, the following question has been referred to this court for opinion:
“Whether, on the facts and in the circumstances of the case, any penalty was leviable against the assessee under section 28(1)(b) of the Indian Income-tax Act, 1922?”
5. The first contention raised on behalf of the assessee by Mr. Dwarkadas is with regard to the validity of the order of penalty. It is contended that the assessment is made in the name of M/s. Agarwal & Co., the notice under s. 28(3) was also issued in the name of M/s. Agarwal & Co. while the order of penalty is made in the name of Lalta Prasad Goenka, proprietor, M/s. Agarwal & Co. It is difficult for us to entertain such a submission because there is no difference so far as the assessee is concerned, as he is named in the order of assessment and in the order of penalty the assessee who has been assessed to tax is Lalta Prasad Goenka, who is the proprietor of M/s. Agarwal & Co. The penalty order is also against the same person. Merely because in the assessment order the trade name of Lalta Prasad Goenka is given, the trade name does not become the assessee and in fact the assessee was only Lalta Prasad Goenka.
6. The second contention raised is that the proceedings have been delayed. Now, it is obvious that there is no provision anywhere in the Indian I.T Act, 1922, which prescribes any limitation for completing the penalty proceedings. In the case of Mohd. Atiq, [1962] 46 ITR 452 (All), on which the assessee has relied, it was held that no period of limitation has been prescribed for imposing penalty; proceedings for levy of penalty, but the proceedings must be taken within a reasonable time. The proceedings in that case were for levy of penalty for non-compliance with notices issued under the law and were taken after the expiry of about 14 years, and it was held that there was unreasonable delay in commencing the proceedings. It appears from the facts of that case that the learned judge in that case was concerned with a grievance that the proceedings were commenced after a long time and the decision was given in the writ jurisdiction when the assessee had approached the High Court for quashing the notices on the ground of delay. The facts show that two days after the assessment was completed, on 29th January, 1945, notice under s. 28(1)(b) was issued to the firm proposing to impose a penalty and the petitioner in that case was a partner of that firm. The assessment was an ex parte assessment. Application under s. 27 for setting aside the ex parte assessment was rejected and the appeal was also dismissed on 7th May, 1946. The firm itself was dissolved in June, 1945. The last assessment of the firm was made for the assessment year 1946–47 and was completed on the 12th September, 1950. The court had found that from 29th January, 1945, to 12th September, 1950, nothing was done in respect of the notice under s. 28(1)(b) until the completion of the last assessment of the firm on 12th September, 1950. Thereafter, again nothing was done till 25th May, 1957, when a notice was issued in the name of the firm that penalty proceedings against it initiated by the notice dated 29th January, 1945, were still pending. The last of the notice issued to the firm was dated 18th August, 1958, and it was in this notice dated 18th August, 1958, that the name of the petitioner was mentioned in addition to the name of the firm. The petitioner apprehending that the penalty order would be passed against him without considering his written reply, which was filed by him on 4th December, 1958, approached the High Court for the issue of a writ of prohibition, restraining the ITO from proceeding further in the matter of imposing penalty. This petition was withdrawn by the petitioner but after the withdrawal of the petition, an order of penalty was served on him on 17th January, 1959. The petitioner then filed a second petition which was disposed of by the learned judge in which certain observations in regard to the delay have been made. The decision shows that the learned judge took the view that the proceedings should be taken within a reasonable time and that a period of 14 years could not be said to be unreasonable. The decision cannot, in our view, be said to lay down any general proposition that every delayed order of penalty must become invalid merely on the ground of delay. The question of delay had not been raised before the Tribunal. The decision in Mohd. Atiq's case, [1962] 46 ITR 452 (All) was considered by a Division Bench of the same court in Ram Kishan Baldeo Prasad v. CIT, [1967] 65 ITR 491. Before the Division Bench, the decision in Mohd. Atiq's case, [1962] 46 ITR 452 (All) was relied upon by the assessee for the proposition that though no period of limitation was prescribed for the imposition of a penalty, the proceedings must be taken within a reasonable time and if there is an inordinate delay, then the order of penalty, if levied, should be quashed. Dealing with this argument, the Division Bench observed as follows (p. 494):
“If the learned single judge intended to lay down that inordinate delay in every case, as a matter of law, would lead to the invalidity of the penalty order then we cannot, with respect, subscribe to it.”
7. The Division Bench further pointed out that where the assessee is not to blame for the inordinate delay in completing penalty proceedings and the sword of Democles has been kept hanging over his head for many a year without any rhyme or reason, it will certainly be a factor, amongst others, for the Tribunal to consider whether the order passed by the ITO was a proper one. It is clear, therefore, that even the Division Bench of the Allahabad High Court was not inclined to read the decision in Mohd. Atiq's case, [1962] 46 ITR 452 (All) as laying down a proposition that a delay invalidates an order of penalty.
8. The Orissa High Court has also taken a similar view that since the Indian I.T Act of 1922 does not contain any provision prescribing the period within which an order of penalty should be made, no such order can be held to be bad in law merely because of inordinate delay (See CIT v. Rupsa Rice Mill, [1964] 54 ITR 328 (Orissa)).
9. The facts in the instant case, to which we have adverted earlier, indicate the circumstances under which the delay has occurred. The case of the petitioner was being transferred from place to place. Till 30th July, 1960, the penalty proceedings were styed at the instance of the assessee pending the decision of the quantum appeal. Then the case was transferred to Delhi in April, 1958. The papers then came to be transferred to Bombay and there after these proceedings were taken. In bur view, since no limitation has been prescribed in the Indian I.T Act, 1922, for completion of the penalty proceedings it will not be possible to hold that the order of penalty becomes vulnerable merely on the ground of delay. These are the only two points raised before us.
10. The non-compliance with the notices under ss. 22(4) and 23(2) of the Act is an admitted position and we do not find any error in the order of the Tribunal dismissing the appeal filed by the assessee. The question referred to us must be answered in the affirmative and in favour of the revenue.
11. The assessee to pay the costs of the reference.
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