2015 (12) TMI 569 - HC - Income Tax

Validity of reassessment proceedings - whether barred by the period of limitation - Held that - Provisions of Section 149 of the Income Tax Act, 1961 prescribe a limitation of six years at the relevant time. Accordingly, it is not in dispute that the issuance of notice dated 12.1.1965 is within six years of assessment year 1959-60. But the question referred to is about the order of reassessment dated 18.3.1970. We find that the provisions of Section 153 ( 2) at the relevant time prescribed limitation of four years from the end of assessment year in which notice under Section 148 of the Income Tax Act, 1961 is served upon assessee. Here, though notice is dated 25.1.1965, admittedly, it is served on assessee in September 1965 i.e. in financial year 1965-66 which expired on 31.3.1966. The assessment year for the purposes of Section 153 (2) (a) in present facts , therefore, shall be 196566 only and the order has been passed on 18.3.1970 i.e. before 31.3.1970. It is, therefore, within the stipulated time limit of four years. As such, it cannot be said that it is barred by limitation. - Decided in favour of the Department. Penalty under Section 271(1)(c) - Held that - The order imposing penalty cannot be passed if the appeal against basic order of assessment is pending before the Competent superior Authority. Here, on 24.2.1972 though 1st Appellate Authority had disposed of the appeal, further appeal of assessee before the ITAT was very much pending. The order imposing penalty, therefore, appears to be premature and, therefore, illegal and without jurisdiction. The notices for initiation of those proceedings are, dated 12.1.1972, 3.2.1972 and 27.9.1972 i.e. during the pendency of appeal before the ITAT. Essential ingredients of Section 275 (1) are clearly not in contemplation of notice issuing authority on these dates. The form or language of these notices shows clear non-application of mind in this respect. It is obvious that such notices initiating the penalty proceedings could not have been issued before 26.3.1974. - Decided in favour of assessee

Summary

Issues:
1. Limitation period for reassessment order for assessment year 1959-60.
2. Legality of penalty order imposed by the Inspecting Assistant Commissioner.

Issue 1: Limitation period for reassessment order for assessment year 1959-60

The Income Tax Appellate Tribunal referred two questions to the High Court regarding the reassessment order for the assessment year 1959-60. The Tribunal found that the notice issued under Section 148 of the Income Tax Act, 1961, in 1965 was within the limitation period of four years, as the assessment order was passed in 1970. The Court analyzed the relevant provisions of the Act and concluded that the reassessment order was not barred by limitation, answering question 1 in favor of the Department.

Issue 2: Legality of penalty order imposed by the Inspecting Assistant Commissioner

The legality of the penalty order imposed by the Inspecting Assistant Commissioner was challenged based on the timing of the penalty proceedings. The Court examined Section 275(1)(a) of the Act, which prohibits passing a penalty order if an appeal against the assessment order is pending. The Court noted that the appeal against the assessment order was pending before the Income Tax Appellate Tribunal until 1974. Therefore, the penalty order passed in 1972 was premature and without jurisdiction. The Court found that the notices initiating the penalty proceedings were issued during the pendency of the appeal before the Tribunal, indicating a lack of application of mind. Consequently, the Court ruled in favor of the assessee, holding the penalty order to be illegal. The Court disposed of the reference proceedings, allowing the Income Tax Department to initiate penalty proceedings afresh if required and in accordance with the law.

This comprehensive analysis of the judgment addresses the issues involved in detail, providing a thorough understanding of the legal reasoning and conclusions reached by the High Court.