1977 (7) TMI 42 - HC - Income Tax

Summary

Issues Involved:
1. Justification of the Tribunal's remand order in light of the limitation period prescribed under section 275 of the Income-tax Act.
2. Compliance with procedural requirements for penalty imposition under section 274.
3. Interpretation of section 275 regarding the limitation period for imposing penalties.

Detailed Analysis:

1. Justification of the Tribunal's Remand Order:
The Tribunal had remanded the matter back to the Inspecting Assistant Commissioner (IAC) for passing fresh orders under section 271(1)(c) of the Income-tax Act, 1961. The core issue was whether this remand was justified given the limitation period prescribed under section 275. The Tribunal found that the assessee had not been served with a show-cause notice, thereby violating the mandatory provision of section 274, which requires that no order imposing a penalty shall be made unless the assessee has been heard or given a reasonable opportunity of being heard. The Tribunal, therefore, set aside the penalty order and remanded the matter to the IAC for a fresh order after giving the assessee an opportunity to show cause.

2. Compliance with Procedural Requirements:
The Tribunal upheld the assessee's contention that no show-cause notice had been served, as indicated by the remark "party not traceable" on the envelope. This non-compliance with section 274's requirement for a hearing or reasonable opportunity rendered the initial penalty orders invalid. The Tribunal's decision to remand the case was based on the need to rectify this procedural lapse and ensure compliance with the principles of natural justice.

3. Interpretation of Section 275:
The bar of limitation under section 275 states that no penalty order shall be passed after the expiration of two years from the date of the completion of the proceedings in which the penalty proceedings were initiated. Mr. Patel argued that since the penalty proceedings were initiated on January 25, 1969, and March 10, 1969, the final orders should have been passed before January 25, 1971, and March 10, 1971, respectively. However, the court interpreted that the limitation period in section 275 applies only to the initial order of penalty by the competent authority and not to orders passed after a remand by higher authorities. The court emphasized that a literal interpretation of section 275 would frustrate the legislative intent and the hierarchical scheme of appeals and revisions.

The court referred to analogous provisions and judicial principles, noting that the limitation period should not apply to fresh orders passed pursuant to a remand. The decision in the case of Kishoresinh Kalyansinh Solanki [1960] 39 ITR 522 (Bom) was cited, which held that the limitation period applies only to the original order and not to subsequent orders following a remand. The court also referred to the Supreme Court's decision in Director of Inspection of Income-tax (Investigation) v. Pooran Mall & Sons [1974] 96 ITR 390, which supported the view that limitation periods do not apply to fresh orders made after a remand.

Conclusion:
The court concluded that the Tribunal was justified in remanding the matter back to the IAC for passing fresh orders under section 271(1)(c) despite the limitation period prescribed under section 275. The bar of limitation applies only to the initial penalty order and not to fresh orders passed after a remand. The reference was answered in the affirmative, against the assessee and in favor of the revenue. The court also issued a certificate for appeal to the Supreme Court under section 261, acknowledging the conflict of decisions on the interpretation of section 275.