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Commissioner Of Income Tax v. Sardarilal Bhasin.
Structured Summary of the Opinion on Reference under Section 256(1) — Limitation under Section 275
Factual and Procedural Background
The Income-tax Appellate Tribunal, Jabalpur Bench, referred the following question under Section 256(1) of the Income-tax Act, 1961: "Whether, on the facts and circumstances of the case, the Tribunal was legally correct in holding that the order of penalty was barred by limitation or unnecessary delay?"
Relevant material facts as found by the Tribunal: The assessee (who earned income from forest contracts) filed a return for assessment year 1964-65 showing total income of Rs. 4,085; the Income-tax Officer determined total income at Rs. 19,000 and initiated penalty proceedings under Section 271(1)(c). Because the minimum penalty exceeded Rs. 1,000, the case was referred to the Inspecting Assistant Commissioner under Section 274(2).
On March 2, 1971 the Inspecting Assistant Commissioner imposed a penalty of Rs. 15,000. The assessee appealed to the Tribunal, which held that the assessee was not given proper opportunity of hearing, set aside the penalty order and remanded the matter to the Inspecting Assistant Commissioner for fresh consideration. Pursuant to the remand, the Inspecting Assistant Commissioner passed a fresh order imposing penalty on September 22, 1979. The assessee again appealed to the Tribunal, which held that the fresh penalty order was beyond the period of limitation (should have been passed within two years from March 7, 1969, the date of assessment) and set aside the penalty. The Revenue sought the present reference to the High Court challenging the Tribunal's conclusion that the penalty was barred by limitation or by unnecessary delay.
Legal Issues Presented
- Whether the period of limitation prescribed by Section 275 of the Income-tax Act applies only to the initial penalty order or also to a penalty order passed after the case is remanded by an appellate authority.
- Whether, on the facts of this case, the penalty order passed after remand was barred by limitation or vitiated by unreasonable delay.
Arguments of the Parties
Assessee's Arguments
- The assessee contended that Clause (a) of Section 275 applied to the case (i.e., that the limitation regime for cases where the assessment/order is the subject-matter of an appeal should govern).
- The assessee further argued that Clause (b) of Section 275 would be attracted when an order imposing penalty is passed subsequent to a remand — i.e., the limitation bar should apply to the penalty order made after remand.
- The assessee also argued that there was unnecessary delay in passing the penalty order after remand, and on that basis the subsequent penalty order should be set aside.
Revenue's Position
- The Revenue sought the reference to the High Court; the text records that the reference was at the instance of the Revenue. Specific detailed submissions by the Revenue are not spelled out in the provided opinion text.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. Dr. Manoranjan Mohanty [1988] 171 ITR 95 (MP) | Held that Clause (b) of Section 275 applies where no appeal has been preferred from the assessment order (i.e., Clause (a) not attracted). | The court relied on this decision to determine that Clause (b) applied in the instant facts because no appeal had been preferred by the assessee from the assessment order. |
| Vasani and Co. v. CIT [1978] 112 ITR 819 (Guj) | Interpreted the phrase "No order imposing a penalty under this Chapter shall be passed" as prima facie referring to the initial or first order; held that a literal reading would frustrate statutory scheme of appeals/revisions. | The court relied on this reasoning as supporting the proposition that the limitation in Section 275 applies to the initial penalty order and should not curtail appellate authorities from ordering fresh consideration after remand. |
| CIT v. Kishoresinh Kalyansinh Solanki [1960] 39 ITR 522 (Bom) | Concluded that a time bar provision should not be construed so as to curtail the appellate powers of the Tribunal; in context, Sub-section limiting time did not preclude the Tribunal from directing disposal afresh. | The Gujarat High Court (in Vasani) relied on this Bombay High Court decision; the present court treats the line of authority as supporting non-application of the limitation bar to defeat appellate powers. |
| CIT v. National Taj Traders [1980] 121 ITR 535 (SC) | Affirmed the Bombay High Court decision in Kishoresinh Kalyansinh Solanki. | The Supreme Court affirmation was used to bolster the proposition that limitation provisions should not be read to cut down appellate/revisional powers; this supports the view that Section 275's bar does not apply to orders made after remand. |
| Mohd. Shaft Khan v. CWT [1983] 144 ITR 489 (MP) | Division Bench of this court followed Vasani's approach on the limitation provision. | The present court cites this decision as a prior bench of the same court that followed Vasani, thereby supporting the court's conclusion. |
| CIT v. Shiv Das Sire Mat [1989] 175 ITR 546 (Raj) | Relied upon by the assessee to suggest reconsideration in light of amendments to Section 275 (Taxation Laws (Amendment) Act, 1970 and 1975). | The present court recorded counsel's reliance on this decision but held that the amendments relied upon did not affect the earlier view that the limitation applies only to the initial penalty order; thus this precedent did not persuade the court to alter its view. |
Court's Reasoning and Analysis
The court proceeded step-by-step from the facts found by the Tribunal: the initial penalty order (March 2, 1971) was passed within the statutory period prescribed by Section 275, whereas the fresh penalty order made after remand (September 22, 1979) was passed after the expiry of that period. Thus the narrow legal issue became whether Section 275's limitation applies only to the initial penalty order or also to a penalty order made after remand.
The court examined Section 275's text (including Clauses (a) and (b) and the Explanation) and considered the parties' contentions. The assessee's contention that Clause (a) applied was rejected because Clause (a) applies only where the relevant assessment or other order is the subject-matter of an appeal — and it was not disputed that the assessee had not preferred an appeal from the assessment order. Accordingly the court treated Clause (b) as the relevant provision for the facts.
The court then reviewed judicial authority. It relied on Vasani and Co. v. CIT (Gujarat High Court) which interpreted the phrase "No order imposing a penalty under this Chapter shall be passed" as prima facie referring to the initial or first order and warned against a literal construction that would nullify appellate powers. That decision had relied on a Bombay High Court decision (CIT v. Kishoresinh Kalyansinh Solanki) which was subsequently affirmed by the Supreme Court in CIT v. National Taj Traders. This line of authority supports the proposition that the limitation in the statutory clause is aimed at the initial imposition and does not have the effect of curtailing appellate or revisional powers to direct fresh consideration after remand.
The court noted that its own Division Benches had followed Vasani in Mohd. Shaft Khan v. CWT and in CIT v. Dr. Manoranjan Mohanty. The assessee's submission that subsequent amendments to Section 275 (Taxation Laws (Amendment) Act, 1970 and 1975) required reconsideration was rejected: the court held that those amendments did not affect the earlier view that Section 275's bar is attracted only to the initial penalty order and not to a penalty order passed after remand by an appellate authority.
With respect to the alternative ground of "unnecessary delay," the court observed that the Tribunal had not applied its mind to whether the delay in passing the post-remand penalty order was unreasonable. Because the Tribunal did not evaluate whether the delay was unreasonable, it was not open to the Tribunal to set aside the penalty on the ground of unnecessary delay without such consideration. Consequently, the Tribunal's conclusion that the penalty was barred by limitation or vitiated by unnecessary delay was held to be incorrect.
Holding and Implications
Core Holding: The answer to the question referred is in the negative and against the assessee.
Implications and immediate consequences:
- The court held that the limitation provision in Section 275, properly construed and in light of authoritative decisions, applies to the initial penalty order and does not operate so as to bar a fresh penalty order passed after remand by an appellate authority.
- The Tribunal was incorrect in setting aside the penalty solely on the grounds that the post-remand penalty order was barred by limitation or was the product of unnecessary delay; in particular, the Tribunal had not examined whether any delay was unreasonable.
- The opinion does not indicate that the court laid down a new rule of law beyond applying established precedents; it reached a decision adverse to the assessee on the reference. The court directed that parties shall bear their own costs of the reference.
This summary is confined to the material and reasoning contained in the provided opinion and does not add or infer facts or rulings beyond that text.
1. By this reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Income-tax Appellate Tribunal, Jabalpur Bench, Jabalpur, has referred the following question of law to this court for its opinion :
"Whether, on the facts and circumstances of the case, the Tribunal was legally correct in holding that the order of penalty was barred by limitation or unnecessary delay ?"
2. The material facts giving rise to this reference, briefly, are as follows : The assessee derives income from forest contracts. For the assessment year 1964-65, the assessee filed his return of income showing total income of Rs. 4,085. The Income-tax Officer, however, determined the total income of the assessee at Rs. 19,000. The Income-tax Officer also initiated penalty proceedings under Section 271(1)(c) of the Act and as the minimum penalty imposable exceeded Rs. 1,000, the Income-tax Officer referred the case to the Inspecting Assistant Commissioner under Section 274(2) of the Act. On March 2, 1971, the Inspecting Assistant Commissioner passed an order imposing penalty of Rs. 15,000 on the assessee under Section 271(1)(c) of the Act. Aggrieved by that order, the assessee preferred an appeal before the Tribunal. The Tribunal held that the assessee was not given proper opportunity of hearing. In this view of the matter, the Tribunal set aside the order passed by the Inspecting Assistant Commissioner and remanded the case to the Inspecting Assistant Commissioner for deciding the question of levy of penalty afresh on merits, in the light of the order passed by the Tribunal. In pursuance of that order, the Inspecting Assistant Commissioner passed a fresh order on September 22, 1979, imposing penalty on the assessee. Aggrieved by that order, the assessee preferred an appeal before the Tribunal. The Tribunal held that the order imposing penalty should have been passed within two years of March 7, 1969, the date of the assessment order, and that after the period of limitation, the Inspecting Assistant Commissioner was not justified in levying penalty under Section 271(1)(c) of the Act. The Tribunal, therefore, set aside the order imposing penalty and allowed the appeal filed by the assessee. Aggrieved by the order passed by the Tribunal, the Revenue sought reference and it is at the instance of the Revenue that the aforesaid question of law has been referred to this court for its opinion.
3. Now, from the facts found by the Tribunal, it is clear that though the initial order of penalty was passed within the period of limitation prescribed therefor by Section 275, the subsequent order by the Inspecting Assistant Commissioner after the case was remanded by the Tribunal, was undoubtedly passed after the expiry of the period of limitation prescribed by Section 275. The short question for consideration, therefore, is whether the period of limitation prescribed by Section 275 of the Act applies not only to the initial penalty order, but also to the penalty order passed after the case is remanded by the appellate authority.
4. Before we proceed to appreciate the contentions advanced on behalf of the parties, it would be useful to refer to the provisions of Section 275 of the Act which are as under :
"275. No order imposing a penalty under this Chapter shall be passed--,
(a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the Inspecting Assistant Commissioner or the Commissioner (Appeals) under Section 246 or an appeal to the Appellate Tribunal under Sub-section (2) of Section 253, after the expiration of a period of-
(i) two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or
(ii) six months from the end of the month in which the order of the Appellate Assistant Commissioner or the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Commissioner, whichever period expires later ;
(b) in any other case, after the expiration of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed.
Explanation.--In computing the period of limitation for the purposes of this section,--
(i) the time taken in giving an opportunity to the assessee to be reheard under the proviso to Section 129 ;
(ii) any period during which the immunity granted under Section 245H remained in force ; and
(iii) any period during which a proceeding under this Chapter for the levy of penalty is stayed by an order or injunction of any court."
5. On behalf of the assessee, it was contended that in the instant case, Clause (a) of Section 275 of the Act would be attracted. The contention cannot be upheld. Clause (a) is attracted in cases where the relevant assessment or other order which has given rise to imposition of a penalty, is the subject-matter of an appeal. In the instant case, it is not disputed that no appeal had been preferred by the assessee from the order of assessment passed by the Income-tax Officer. Therefore, as held by this court in CIT v. Dr. Manoranjan Mohanty [1988] 171 ITR 95, Clause (b) of Section 275 would be applicable in such a case. The initial order levying penalty was passed by the Inspecting Assistant Commissioner within the time prescribed therefor by Clause (b) of Section 275. It is, however, contended on behalf of the assessee that Clause (b) of Section 275 is attracted when an order imposing penalty, subsequent to remand, is passed.
6. The clause "No order imposing a penalty under this Chapter shall be passed" came up for consideration before the Gujarat High Court in Vasani and Co. v. CIT [1978] 112 ITR 819, where it was observed as follows (p. 822) :
On a plain reading of this provision where the Legislature had laid down a bar of limitation for imposition of penalty, it is obvious that the term 'no order imposing a penalty under Chapter XXI' would refer prima facie to the initial order or the first order, which would have to be passed by the competent authority. When the Legislature has enacted the provisions providing for appeal or revision where the appellate or revisional authority could interfere with the original imposition of penalty, the very scheme enacted by the Legislature for such appeal or revision would be frustrated if the provision in section 275 is literally read so that all these appeals, revision and even reference proceedings to this court and even an appeal to the Supreme Court would be governed by this period of two years' limitation.
7. In arriving at the aforesaid conclusion, reliance was placed on the decision of the Bombay High Court in CIT v. Kishoresinh Kalyansinh Solanki [ 1960] 39 ITR 522. It is true that this decision was in the context of section 33B(2)(b) of the Indian Income-tax Act 1922, but in that case also the question for consideration was as to the construction that should be placed on the clause : "No order shall be made under Sub-section (1) after the expiry of two years from the date of the order sought to be revised." The Bombay High Court was of the view that Sub-section (2)(b) of Section 33B of the Act would not have the effect of curtailing the appellate powers of the Tribunal under Sub-section (4) and hence it could not be held that a direction to dispose of the case afresh could not be given to the Commissioner by the Appellate Tribunal when the period of limitation prescribed under Sub-section (2)(b) of Section 33B had expired. This decision of the Bombay High Court was affirmed by the Supreme Court in CIT v. National Taj Traders [ 1980] 121 ITR 535. In view of this decision of the Supreme Court, the decisions of some High Courts relied upon by learned counsel for the assessee holding that the bar of limitation provided in Section 275 applies not only to the initial penalty order, but also to a penalty order passed after the case is remanded by the appellate authority cannot, with respect, be held to be the correct view. The decision in Vasani and Co. v. CIT [1978] 112 ITR 819 (Guj) was followed by two Division Benches of this court in Mohd. Shaft Khan v. CWT [ 1983] 144 ITR 489 and CIT v. Dr. Manoranjan Mohanty [1988] 171 ITR 95. Learned counsel for the assessee, however, contended that these decisions require reconsideration in the light of the amendments made in Section 275 by the Taxation Laws (Amendment) Act, 1970, and the Taxation Laws (Amendment) Act, 1975. Reliance was placed on the decision of the Rajasthan High Court in CIT v. Shiv Das Sire Mat [1989] 175 ITR 546. In our opinion, the amendments made in Section 275 of the Act by the Taxation Laws (Amendment) Act, 1970, or the Taxation Laws (Amendment) Act, 1975, would have no impact on the view taken by this court in CIT v. Dr. Manoranjan Mohanty [1988] 171 ITR 95 (MP) and Mohd. Shaft Khan v. CWT [1983] 144. ITR 489 (MP) that the clause "No order imposing a penalty under this Chapter shall be passed" occurring in Section 275, is attracted only to the initial penalty order and not to the penalty order passed after the case is remanded by an appellate authority.
8. Learned counsel for the assessee also contended that there was unnecessary delay in passing the order of penalty subsequent to the remand and hence the penalty order deserved to be set aside. The Tribunal, in the instant case, has not at all applied its mind to the question as to whether the delay was or was not unreasonable. Under the circumstances, it cannot be held that the order of penalty was unnecessarily delayed and hence deserved to be set aside. In our opinion, therefore, the Tribunal was not right in holding that the order of penalty deserved to be set aside stating that it was barred by limitation and was unnecessarily delayed.
9. For all these reasons, our answer to the question referred to this court is in the negative and against the assessee. In the circumstances of the case, parties shall bear their own costs of this reference.
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