1982 (1) TMI 25 - HC - Income Tax

Summary

Issues Involved:
1. Whether the penalty orders were liable to be quashed due to the period between the dates of the assessment orders and the dates of the orders imposing penalty.
2. Whether the delay in penalty proceedings constituted an abuse of power by the Income Tax Officer (ITO).

Issue-Wise Detailed Analysis:

1. Whether the penalty orders were liable to be quashed due to the period between the dates of the assessment orders and the dates of the orders imposing penalty:
The court examined the timeline of events, noting that the assessments for the years 1949-50, 1950-51, and 1951-52 were completed on November 30, 1951. Notices under section 28 of the Indian Income Tax Act, 1922, were issued on the same day, and served on January 4, 1952. There was a significant delay in the penalty proceedings, with no progress between January 30, 1952, and July 19, 1961, when fresh notices were issued. The final penalty orders were passed on May 31, 1967.

The assessee argued that the penalties should be canceled due to the inordinate delay of 16 years. The Tribunal acknowledged the delay but found it reasonably explained up to July 1961, attributing it to the ITO awaiting the decision of the Appellate Assistant Commissioner (AAC) due to large additions involved. However, the Tribunal noted no explanation for the delay from July 1961 to May 1967 but did not find the delay sufficient to cancel the penalty orders.

2. Whether the delay in penalty proceedings constituted an abuse of power by the Income Tax Officer (ITO):
The court discussed various precedents, including the Allahabad High Court's decisions in *Mohd. Atiq v. ITO* and *ITO v. Bisheshwar Lal*, which established that inordinate delay, unexplained to the satisfaction of the appellate authority, could result in the conclusion that the proceedings amounted to an abuse of power. However, the court noted that no specific limitation period was prescribed for penalty proceedings under the Indian Income Tax Act, 1922.

The court referenced its own decision in *Lalta Prasad Goenka v. CIT*, which held that penalty orders do not become invalid merely due to delay. It emphasized that whether the delay is inordinate and whether it has been properly explained are questions of fact to be determined by the appropriate authorities. The Tribunal had considered the delay and found it reasonably explained up to July 1961. For the period from July 1961 to May 1967, the Tribunal noted the lack of explanation but did not find the delay sufficient to quash the penalty orders.

The court concluded that the Tribunal did not act illegally or contrary to law in deciding not to set aside the penalty orders based on the delay. Consequently, the question referred was answered in the negative and against the assessee, with costs of the reference to be paid by the assessee.