2004 (12) TMI 15 - HC - Income Tax

1. Whether, the penalty under section 28(1)(c) has rightly been cancelled by the Tribunal? 2. Whether, Tribunal is justified in ignoring the reasonable cause for inordinate delay in imposing penalty under section 28(1)(c) and in holding that the case of the assessee falls within the purview of the decisions of the hon ble High Court in the case of Ram Kishan Baldeo Prasad v. CIT and in the case of Bisheshwar Lal v. ITO ? - we answer both the questions referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue

Summary

Issues:
1. Cancellation of penalty under section 28(1)(c)
2. Justification for inordinate delay in imposing penalty

Analysis:
1. Cancellation of penalty under section 28(1)(c): The case involved the imposition of a penalty under section 28(1)(c) of the Income-tax Act, 1961. The Tribunal had to decide whether the penalty was rightly cancelled. The dispute arose from an assessment for the year 1947-48, where an addition to the total income led to penalty proceedings. The Income-tax Officer imposed a penalty of Rs. 50,000 in 1976, causing the respondent to appeal. The Appellate Assistant Commissioner cancelled the penalty citing an inordinate delay of over 20 years. The Tribunal, with differing views among members, eventually upheld the cancellation based on the unreasonable delay by the Income-tax Officer. The Third Member agreed that the delay lacked explanation, justifying the penalty cancellation.

2. Justification for inordinate delay in imposing penalty: The core issue revolved around whether the delay of over 20 years in imposing the penalty was reasonable. The Revenue argued that the delay was justified due to various proceedings related to income tax and super tax calculations. They contended that the penalty amount depended on the final total income determination, which concluded in 1975. However, the respondent maintained that the prolonged delay without a valid explanation warranted penalty cancellation. The court referred to past judgments emphasizing the importance of reasonable time frames for penalty imposition. Citing cases like Mohd. Atiq v. ITO and Bharat Steel Tubes Ltd. v. State of Haryana, the court highlighted the need for timely actions in penalty proceedings. Drawing from precedents like Ram Kishan Baldeo Prasad v. CIT and Bisheshwar Lal v. ITO, the court concluded that the 20-year delay was unjustifiable, leading to the cancellation of the penalty under section 28(1)(c).

In conclusion, the court upheld the Tribunal's decision to cancel the penalty, emphasizing the lack of a reasonable cause for the prolonged delay in imposing the penalty. The judgment favored the assessee, ruling in their favor against the Revenue. The court's analysis highlighted the significance of timely penalty proceedings and the consequences of unreasonable delays in such matters, aligning with established legal principles and precedents.