2005 (5) TMI 261 - AT - Income Tax

Penalty passed u/s 271(1)(c) - For Concealment Of Income - validity of assessment - initiation of the reassessment proceedings - statutory period prescribed u/s 149(3) - HELD THAT - The proceedings u/s 147 was initiated in the case of the assessee vide notice dated 13th February, 2001 issued u/s 148 of the Act in the name of Tidewater Marine International Inc. treating it as agent of the nonresident. Section 149(3) of the Act provides that no notice under section 148 shall be served on a person treating as agent of a non-resident under section 163 of the Act after expiry of the period of two years from the end of the relevant assessment year. In the present case, notice under section 148 of the Act was issued on13th February, 2001i.e. beyond the period of two years from the end of the assessment year 1996-97 in the name of Tidewater Marine International Inc. treating it as agent of non-resident assessee of Mr. Greer Robert. Thus, it would appear that a valid and proper notice under section 148 was not issued and served on the assessee. It is a condition precedent for assumption of valid jurisdiction for initiating proceedings under section 147 of the Act. In the instant case, since initiation of the reassessment proceedings are vitiated as the notice u/s 148 has been issued beyond the statutory period prescribed u/s 149(3) of the Act, consequently, assessment made on the basis of such notice would be null and void. In the case of CIT v. Madanlal Sohanlal 1988 (12) TMI 103 - CALCUTTA HIGH COURT , the Hon'ble High Court has held that, penalty cannot stand on its own independently of assessment . Since in the instant case, the very basis of imposition of penalty since ceased to exist by virtue of void assessment order, the penalty imposed u/s 271 (1)(c) of the Act is liable to be cancelled. Thus, we direct to cancel the penalty levied u/s 271(1)(c) of the Act in the aforesaid appeals. In the result, the appeals of the abovenamed assessees are allowed.

Summary

Issues Involved: Jurisdiction of penalty order, validity of reassessment proceedings, issuance of notice under section 148, and imposition of penalty under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Jurisdiction of Penalty Order:
The appellant-assessees challenged the penalty orders passed under section 271(1)(c) of the Income-tax Act, 1961, claiming they were without jurisdiction, illegal, bad in law, and void ab initio. The Tribunal admitted the additional ground raised by the assessee, citing that the question of law arising from facts on record should be considered to correctly assess the tax liability.

2. Validity of Reassessment Proceedings:
The Tribunal examined whether the reassessment proceedings initiated under section 147 were valid. It was noted that the notice under section 148 was issued beyond the statutory period prescribed under section 149(3). The notice dated 13th February 2001 was issued beyond two years from the end of the relevant assessment year 1996-97. This invalidated the notice and consequently, the reassessment proceedings.

3. Issuance of Notice under Section 148:
The Tribunal found that the notice under section 148 was issued to 'Tidewater Marine International Inc.' as the agent of the non-resident assessee, Mr. Greer Robert, beyond the statutory period. Section 149(3) mandates that such notice must be served within two years from the end of the relevant assessment year. The failure to issue a valid notice within this period rendered the reassessment proceedings void.

4. Imposition of Penalty under Section 271(1)(c):
The Tribunal held that since the reassessment proceedings were invalid, the basis for the imposition of penalty under section 271(1)(c) ceased to exist. It was emphasized that penalty proceedings are distinct from assessment proceedings and that an invalid assessment order cannot justify the imposition of penalty. The Tribunal referred to several case laws, including CIT v. Anwar Ali and CIT v. J.K. Synthetics Ltd., to support the position that penalty cannot stand independently of a valid assessment.

Conclusion:
The Tribunal concluded that the reassessment proceedings were invalid due to the issuance of notice under section 148 beyond the prescribed period. Consequently, the penalty imposed under section 271(1)(c) was annulled. The appeals of the appellant-assessees were allowed, and the penalties were directed to be canceled.