1985 (8) TMI 385 - AT - Income Tax

Summary

Issues Involved:
1. Justification of the Tribunal in vacating the WTO's penalty order.
2. Validity of the show-cause notice issued by the WTO.
3. Applicability of Section 42C of the Wealth-tax Act, 1957.
4. Admissibility of additional grounds raised by the assessee.
5. Whether the Tribunal's order raises a question of law warranting reference to the High Court.

Detailed Analysis:

1. Justification of the Tribunal in Vacating the WTO's Penalty Order:
The Tribunal vacated the penalty imposed by the Wealth-tax Officer (WTO) under Section 18(1)(a) of the Wealth-tax Act, 1957, amounting to Rs. 9,030 for the assessment year 1971-72. The penalty was initially confirmed by the Appellate Assistant Commissioner (AAC) due to the assessee's failure to provide a reason for the delayed filing of the wealth-tax return. However, the Tribunal found the penalty order unsustainable based on the invalidity of the show-cause notice, which was issued on 26-3-1980 but required compliance by 13-3-1980, rendering it "ab initio void." The Tribunal cited various judicial precedents, including CIT v. Bhudhar Singh & Sons, to support its decision, emphasizing that there is no estoppel against law and the assessee could challenge the validity of the notice at any stage.

2. Validity of the Show-Cause Notice Issued by the WTO:
The Tribunal determined that the show-cause notice dated 26-3-1980 was invalid because it called for compliance on a date prior to its issuance, specifically 13-3-1980. This procedural defect rendered the notice "ab initio void," and therefore, all subsequent proceedings based on this notice were considered null and void. The Tribunal concluded that the penalty could not be upheld due to this fundamental flaw in the notice.

3. Applicability of Section 42C of the Wealth-tax Act, 1957:
The revenue raised a question regarding the applicability of Section 42C of the Wealth-tax Act, 1957, which was introduced from 1-10-1975. However, the Tribunal noted that this section was not applicable to the present case as the return in question was filed before the introduction of Section 42C. Additionally, the Tribunal referred to a Board's circular clarifying that Section 42C does not have retrospective effect. Consequently, the Tribunal found that the question raised by the revenue did not relate to the order and was not examined by the authorities below or the Tribunal.

4. Admissibility of Additional Grounds Raised by the Assessee:
During the appeal before the Tribunal, the assessee raised an additional ground challenging the validity of the penalty notice. The Tribunal admitted this additional ground, considering it a pure question of law that went to the root of the matter. The Tribunal held that the penalty notice was invalid, and the proceedings based on it were non est in law. The Tribunal's decision to admit and rule on this additional ground was based on judicial precedents and the principle that there is no estoppel against law.

5. Whether the Tribunal's Order Raises a Question of Law Warranting Reference to the High Court:
The Tribunal members disagreed on whether the order raised a question of law warranting reference to the High Court. The Judicial Member opined that no referable question of law arose from the Tribunal's order, as the issue of Section 42C was not raised or examined. In contrast, the Accountant Member believed that a question of law did arise, specifically regarding the Tribunal's cancellation of the penalty based on the invalidity of the show-cause notice. The matter was referred to a Third Member, who concluded that the Tribunal's order did not give rise to a question of law. The Third Member emphasized that the Tribunal's finding was based on a pure finding of fact regarding the invalidity of the notice, and thus, no question of law arose from the order.

Conclusion:
The application by the revenue was ultimately dismissed, and the Tribunal's decision to vacate the penalty order stood, as it was based on the procedural invalidity of the show-cause notice and did not raise a referable question of law.