1980 (2) TMI 112 - AT - Income Tax

Summary

Issues Involved:
1. Whether the penalties imposed were within the statutory period in terms of Section 275(b) of the Income Tax Act.
2. Whether the jurisdiction of the Inspecting Assistant Commissioner (IAC) was ousted for passing orders under Section 271(1)(c) read with Section 274(2) after the amendment of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Whether the penalties imposed were within the statutory period in terms of Section 275(b) of the Income Tax Act:
The first legal issue raised was whether the penalties imposed were within the statutory period as per Section 275(b) of the Income Tax Act. The contention was whether the limitation period should be considered from 29th March 1975 or from 28th February 1976. The assessee argued that the assessments completed on 28th February 1976 were merely a continuation of earlier proceedings initiated with the notice under Section 148. The advocate for the assessee contended that the order dated 31st March 1975, which dropped the penalty proceedings, was without jurisdiction and thus a nullity. It was also argued that the Income Tax Officer (ITO) exercised his discretion by dropping the penalty proceedings and could not review his own order. The assessee relied on the judgment of the Andhra Pradesh High Court in Addl. CIT vs. N.V. Ganapathi Rao, arguing that the two-year limitation period prescribed under Section 275 is mandatory and applies to all proceedings, including those following the cancellation of ex parte orders.

The Revenue opposed these contentions, arguing that the limitation period should start from 28th February 1976, making the penalties imposed on 18th March 1978 within the statutory period. The Tribunal rejected the assessee's contention, stating that once an assessment is set aside, the assessment is at large, and the rights of the parties are the same as if the ITO were making the assessment from the beginning. The Tribunal emphasized that Section 275 links the period of limitation with the assessment, and the limitation for imposing penalties becomes referable to that assessment.

The Tribunal concluded that the penalties imposed were within the statutory period as per Section 275(b) of the Income Tax Act, rejecting the assessee's argument that the penalties were beyond the statutory period.

2. Whether the jurisdiction of the IAC was ousted for passing orders under Section 271(1)(c) read with Section 274(2) after the amendment of the Income Tax Act:
The second issue was whether the jurisdiction of the IAC was ousted for passing orders under Section 271(1)(c) read with Section 274(2) after the amendment of the Income Tax Act by the Taxation Laws (Amendment) Act, 1975, effective from 1st April 1976. The case fell under the category where the reference to the IAC was made after 1st April 1976. Before its omission, Section 274(2) required the ITO to refer cases involving concealment of income exceeding Rs. 25,000 to the IAC. The amendment also changed Section 253(1)(b), removing the provision for an appeal against the IAC's order under Section 274(2) read with Section 271(1)(c).

The assessee argued that Section 274(2) was in the nature of a proviso to Section 271(1)(c)(iii), and with its omission, the IAC's jurisdiction to levy penalties ceased to exist. The Revenue contended that the omission of Section 274(2) did not divest the IAC of jurisdiction in pending cases and relied on Section 6 of the General Clauses Act.

The Tribunal referred to the judgment of the Punjab & Haryana High Court in CIT vs. Raman Industries, which held that a vested right to levy penalties by the IAC continued even after the amendment, provided the reference was made before the amendment date. However, in the present case, the reference was made after the amendment date, and the Tribunal concluded that the IAC could not assume jurisdiction to levy penalties after the omission of Section 274(2).

The Tribunal rejected the Revenue's argument that the act of referral was a ministerial function and that the IAC's jurisdiction was vested by statute. The Tribunal held that the omission of Section 274(2) meant that the machinery for the IAC to assume powers to levy penalties did not exist after 1st April 1976.

The Tribunal concluded that the IAC's orders imposing penalties were illegal as he had no jurisdiction to levy penalties after the omission of Section 274(2). The Tribunal canceled the penalties imposed by the IAC for both assessment years under appeal.

Conclusion:
The Tribunal allowed the appeals, holding that the penalties imposed were within the statutory period as per Section 275(b) of the Income Tax Act but were invalid as the IAC had no jurisdiction to levy penalties after the omission of Section 274(2) from the statute book effective from 1st April 1976.