2010 (11) TMI 101 - HC - Income Tax

Penalty - Substantial question of law - Whether the ITAT was correct in law and on facts in holding that the order of the AO imposing penalty is barred in view of the provisions of Section 275 (1) (a) of the Act - Rejecting the original return by AO some addition were made - While passing this assessment order, the Assessing Officer also directed initiation of penalty proceedings under Section 271 (1) (c) of the Act on the ground that the assessee had concealed particulars of income - The Tribunal has set aside this penalty order on the ground that it was time barred - Held that - In the facts and circumstances of the case, the assessment order dated 28th February, 2005 was a fresh and new assessment order - Though, on the direction of Tribunal, largely giving effect to the orders dated 2nd August, 2004 passed by the Tribunal. - Tribunal was not right in treating the order of the Assessing Officer imposing penalty as time barred - The order of the Tribunal is accordingly set aside

Summary

Issues Involved:
1. Whether the ITAT was correct in law and on facts in holding that the order of the AO imposing penalty is barred in view of the provisions of Section 275 (1) (a) of the Act.

Detailed Analysis:

Issue 1: Applicability of Section 275 (1) (a) of the Act

Factual Matrix and Initial Proceedings:
The appeal relates to the assessment year 1993-94. The respondent-assessee had declared a loss of Rs. 3,352/- in their return. The Assessing Officer (AO) assessed the income at Rs. 12,05,724/- under Section 143(3) of the Act, making additions on three counts:
1. Denial of depreciation on used gas cylinders invoking Explanation-3 to Section 43.
2. Taxation of certain rents deposited in court.
3. Disallowance of Rs. 3,68,374/- as business expenses.

The AO initiated penalty proceedings under Section 271(1)(c) for concealment of income.

Appeal and Tribunal Proceedings:
The CIT (Appeal) provided substantial relief, reducing the assessed income to Rs. 70,932/-. The Revenue appealed to the ITAT, which partially allowed the Revenue's appeal, restoring the AO's additions for depreciation and business expenses but maintaining the CIT (A)'s deletion of rent-related additions.

Penalty Proceedings and Tribunal's Decision:
The AO issued a notice and passed penalty orders on 26th August 2005, following the Tribunal's directions. The ITAT set aside the penalty order as time-barred under Section 275(1)(a), asserting that the order should have been passed within six months from the Tribunal's order dated 2nd August 2004, which expired in April 2005.

Legal Interpretation and Precedents:
The core issue is whether clause (a) or clause (c) of Section 275(1) applies. Clause (a) mandates a six-month period from the end of the month in which the Tribunal's order is received, while clause (c) relates to the date of the fresh assessment order.

Relevant Case Law:
1. N.A. Malbary and Bros. Vs. Commissioner of Income-Tax: The Supreme Court held that a second penalty order could be passed if the first was based on estimated income and the second on actual figures.
2. Seth Panchhi Ram and Co. Vs. Commissioner of Income Tax: The Himachal Pradesh High Court ruled that limitation starts from the fresh assessment order after remand, not the original order.
3. Caltex Oil Refining (India) Ltd. Vs. Commissioner of Income-Tax: The Bombay High Court held that an order passed to give effect to appellate directions is a fresh assessment order and subject to appeal.

Fresh Assessment Order Analysis:
The assessment order dated 28th February 2005 was considered a fresh order as it involved recalculating interest earned by the assessee, an exercise not done in the original assessment. This fresh calculation could be appealed if the assessee was aggrieved.

Conclusion:
The assessment order dated 28th February 2005 was a fresh and new assessment order. Thus, the limitation period should be counted from this date, making the penalty order dated 26th August 2005 within the limitation period under Section 275 of the Act. The Tribunal's decision to treat the penalty order as time-barred was incorrect.

Outcome:
The Tribunal's order is set aside. The Tribunal is directed to hear and decide the appeals on merits.