1987 (7) TMI 182 - AT - Income Tax

Summary

Issues:
1. Validity of penalty orders and jurisdiction of the ITO.
2. Limitation period for imposing penalties.

Detailed Analysis:

1. Validity of penalty orders and jurisdiction of the ITO:
The judgment involves appeals by the Revenue against the CIT (Appeals) holding that penalty orders were ab initio void and barred by limitation. The assessment orders for various years were initially made in 1977 but were set aside by the Commissioner of Income-tax under section 263. The Income-tax Appellate Tribunal later set aside the 263 orders, leading to a fresh review by the CIT. The ITO then imposed penalties under sections 271(1)(c) and 273 for all assessment years. The assessee contended that these penalties were without jurisdiction and time-barred. The CIT (Appeals) agreed, stating that until the fresh disposal of the 263 proceedings, there were no enforceable assessment orders or penalty notices. However, the Revenue argued that the Tribunal order revived the assessments, giving the ITO jurisdiction to levy penalties. The Tribunal held that the assessment orders were revived after the 263 proceedings were set aside, allowing for the imposition of penalties. It concluded that the penalty orders were validly initiated under existing assessment proceedings.

2. Limitation period for imposing penalties:
The second issue revolved around the limitation period for imposing penalties. The Revenue contended that the limitation period was two years from the end of the financial year in which the assessment proceedings were completed. They argued that the assessments were completed when the Tribunal set aside the 263 orders. However, the assessee claimed that the penalty orders were out of time, as the assessments were completed earlier. The Tribunal rejected the Revenue's argument, stating that the assessments were completed when initially passed, not when revived. It noted that the period of limitation should exclude the time when the assessment orders were cancelled and later revived. Ultimately, the Tribunal found that the penalty orders made on 31-3-1984 were beyond the prescribed time limit and upheld the CIT (Appeals) decision to cancel them. Consequently, the appeals were dismissed, affirming the cancellation of the penalty orders due to being time-barred.