1991 (9) TMI 25 - HC - Income Tax

Summary

Issues:
1. Validity of penalty proceedings initiated by Income-tax Officer under section 271(1)(c) of the Income-tax Act for assessment years 1959-60 to 1964-65.
2. Determination of whether the assessment orders drafted by the Income-tax Officer on February 20, 1965, were final orders for the purpose of commencing the limitation period for penalty proceedings.

Analysis:
1. The judgment pertains to penalty proceedings initiated by the Income-tax Officer under section 271(1)(c) of the Income-tax Act for the assessment years 1959-60 to 1964-65. The Income-tax Officer referred the cases to the Inspecting Assistant Commissioner under section 274(2) of the Act, who passed penalty orders for the respective assessment years. The amounts levied as penalties were specified in the judgment. The assessee appealed before the appellate authorities, including the Income-tax Appellate Tribunal, which upheld the penalties imposed by the Income-tax Officer. One of the issues raised by the assessee was regarding the limitation for initiating penalty proceedings for the six years in question.

2. The main issue addressed in the judgment was whether the assessment orders drafted by the Income-tax Officer on February 20, 1965, constituted final orders, thereby triggering the commencement of the limitation period for penalty proceedings. The Income-tax Appellate Tribunal, after considering the facts and contentions, held that the draft orders of February 20, 1965, were not final orders. The Tribunal found that the Income-tax Officer had not conclusively determined the total income of the assessee on that date and had forwarded the draft orders for further review and approval. The Tribunal also noted that the Commissioner had directed the Income-tax Officer to conduct additional inquiries, leading to higher assessments than initially proposed.

3. The judgment highlighted that the draft assessment orders of February 20, 1965, were not communicated as final orders to the assessee. The Income-tax Appellate Tribunal relied on a decision of the Calcutta High Court emphasizing the necessity of communicating an order to the affected party for it to be considered effective. The Tribunal found no evidence that the assessee had actual notice of the draft orders on the date they were prepared. Consequently, the Tribunal concluded that the draft orders were not final orders within the meaning of section 275 of the Income-tax Act, as they were subject to further review and had not been communicated as final determinations to the assessee.

4. Ultimately, the High Court concurred with the view of the Income-tax Appellate Tribunal that the draft assessment orders of February 20, 1965, were not final orders. The Court emphasized that an order becomes final only when the authority making the decision has conclusively determined the matter. As the Income-tax Officer had not definitively settled the assessments on the date of drafting the orders and further inquiries were conducted leading to revised assessments, the Court held that the draft orders were not final. Therefore, the limitation period for initiating penalty proceedings did not commence from the date of the draft orders. The Court answered the referred question in the negative and directed the assessee to pay costs to the Department.