1996 (3) TMI 71 - HC - Income Tax

Summary

Issues involved:
The judgment addresses the issues of whether the Appellate Tribunal was justified in canceling the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, and whether the limitation under section 275 of the Act affects the Commissioner's powers under section 263.

Issue 1 - Appellate Tribunal's Decision:
The assessee, a firm with five partners, had penalty proceedings initiated under section 271(1)(c) of the Income-tax Act, which were later dropped by the Income-tax Officer. The Commissioner of Income-tax found the dropping of penalty proceedings erroneous and prejudicial to Revenue, initiating proceedings under section 263. The Appellate Tribunal held that the Commissioner's order extending the time to impose penalty was against the Act's provisions, canceling the order under section 263.

Issue 2 - Limitation under Section 275:
The Commissioner invoked jurisdiction under section 263 within two years of the Income-tax Officer dropping penalty proceedings. The question arose whether completing penalty proceedings beyond the two-year limit under section 275(1) would render the order invalid. Citing legal precedents, the court determined that orders passed by the Commissioner under section 263, directing penalty proceedings, are valid even if completed after the two-year limit under section 275(1).

The court emphasized that the bar of limitation under section 275 applies only to the initial penalty order and not to subsequent orders directed by higher authorities. Relying on judicial pronouncements, the court clarified that the Commissioner's order under section 263 empowering the Income-tax Officer to complete penalty proceedings beyond the two-year limit is legally valid. Consequently, the Tribunal's decision to cancel the Commissioner's order under section 263 was deemed incorrect, and the first question was answered in favor of the Department.

Therefore, the assessee can challenge the Commissioner's order under section 263 on its merits, while the Tribunal proceeds with the consequential order based on the court's decision.