1987 (8) TMI 37 - HC - Income Tax

Summary

Issues:
1. Validity of penalty order under section 271(1)(c) of the Income-tax Act, 1961.
2. Service of demand notice in relation to the penalty order.
3. Cancelling the order of the Appellate Assistant Commissioner deleting the penalty.
4. Commission paid to individuals being a fictitious claim.
5. Statements of individuals made to accommodate the assessee.

Analysis:

The case involved an application under section 256(2) of the Income-tax Act, 1961, where the assessee sought to refer five questions arising from the appellate order of the Income-tax Appellate Tribunal regarding its assessment for the year 1972-73. The main contention revolved around the validity of the penalty order under section 271(1)(c) of the Act and the service of the demand notice in relation to the penalty order. The Income-tax Officer disallowed the claimed commission paid to individuals, leading to the imposition of a penalty. The Appellate Assistant Commissioner canceled the penalty order due to a delayed and unsigned demand notice, which was upheld by the Tribunal. However, the Tribunal held that the penalty order made within the limitation period was valid, even if the demand notice was served after the prescribed time limit under section 275.

The Tribunal rejected the assessee's application to refer the questions, stating that issues regarding the validity of the demand notice fell outside the purview of the appellate orders. The court emphasized that the penalty order's validity was not affected by defects in the demand notice and cited precedents to support this position. The court clarified that questions regarding the notice of demand could not be raised in appeals against the penalty order. The court concluded that the questions related to the demand notice's validity were not referable and dismissed the application under section 256(2) of the Act.

In summary, the judgment addressed the validity of the penalty order under section 271(1)(c) of the Income-tax Act, focusing on the service of the demand notice in relation to the penalty order. The court clarified that defects in the demand notice did not invalidate the penalty order made within the prescribed limitation period. The court rejected the application to refer questions regarding the demand notice's validity, emphasizing that such issues were not within the scope of appellate orders. The judgment highlighted the distinction between challenging the penalty order and questioning the demand notice's enforceability, ultimately dismissing the application.