Commissioner of Income Tax, Allahabad vs Deep Chand Ram

The Income Tax Appellate Tribunal, Allahabad has referred the following question of law u/s 256 (1) of the income tax Act (hereinafter referred to as the ''Act''), for opinion to this Court:- (i) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law to conclude that limitation applicable in the context of levy of penalty u/s 271B, was as per clause (b), as distinguished from clause (a) of section 275 of the income tax Act as it stood at the relevant point of time?

(ii) Whether the Appellate Tribunal, in the context of limitation u/s 275 of income tax Act, 1961 was correct in law to attach significance on the distinction of expression used in penalties u/s 271 with 271B while holding that penalty proceeding u/s 271B was independent of the assessment order?

Briefly stated the facts giving rise to the present reference are as follows:

The reference relates to the assessment year 1985-86. The assessment of the assessee for the assessment year under consideration was completed on 8-3-1988 in which it was recorded that penalty notice u/s 271B of the Income Tax Act had been issued separately. The penalty order u/s 271B was passed on 26-4-1990 and a penalty of Rs. 26,928 imposed. In appeal, the learned CIT (A) held that the limitation for imposing penalty u/s 271B was governed by section 275(1)(b) of the Act i.e., till the expiration of two years from the end of the financial year in which action for imposition of penalty was initiated, were completed. In the present case, penalty proceedings having been initiated on 8-3-1988 and the financial year having ended on 31-3-1988, it was held that the limitation was available till 31-3-1990 and since the penalty order was passed on 26-4-1990, it was barred by limitation. Accordingly, the penalty order was cancelled.

In appeal, the plea of the Department before the Tribunal was that the limitation was to be governed by section 275(1)(a)(ii) of the Act i.e., the time for imposition of penalty was available upto six months from the end of the month in which the order of the Commissioner (Appeals) was received by the Chief Commissioner or the Commissioner. It was contended that in the present case, the order of the Commissioner (Appeals) (in quantum appeal) having been received on 1-12-1989, limitation was available till 30-5-1990 and, therefore, the penalty order passed on 26-4-1990 was well within time. This contention of the Department was not accepted and the order of the learned Commissioner (Appeals) was confirmed by observing as under:-

After hearing rival submissions, we find ourselves in agreement with the order of the Commissioner (Appeals). Penalty proceedings under sections 271(1)(a), 271(1)(b) and 271(1)(c) of the Act can be initiated if the Assessing Officer has the necessary satisfaction "in the course of any proceedings under this Act." But this expression is significantly absent in section 271B of the act. The penalty proceedings were, therefore, independent of the assessment proceedings, though a remark might have been given in the assessment order. As such, we agree that the limitation will be governed by section 275(1)(b) of the Act and was available upto 31-3-1990 only. The penalty proceedings were, therefore, time barred.

We have heard Sri R.K. Upadhyay, learned Standing Counsel for the Revenue.

Sri Upadhyay has submitted that as the assessment order was the subject matter of appeal Sub clause (II) of clause a of section 275 of the Act would be applicable and the limitation would be six months from the end of the month in which the Appellate order was received by the Commissioner which in the present case would be 30-5-1990 as the Appellate order was received by the Commissioner on 1-12-1989 and, therefore, the penalty order passed on 26-4-1990 was well within limitation. The submission is not correct. The provisions of clause a of section 275 of the Act would be applicable in cases where penalty is imposed on the basis of the assessment orders or any other order which is subject matter of appeal, whereas provisions of clause b would be applicable in cases where penalty is de-hors, the assessment order or any other order which is subject matter of appeal. Both the clause operate in different field and, therefore separate limitations have been provided for passing the penalty order.

Penalty u/s 271B of the Act is livable where a person fails to get the books of account audited within the stipulated period or docs not file it along with return. It has nothing in do with the passing of the assessment order unlike cases of concealment of income or other matter. Thus in a case of penalty livable u/s 271B of the Act limitation as provided in clause b of section 275 as stood during the relevant period would be applicable. In our considered opinion the Tribunal has correctly applied the law. We, therefore, answer the question referred to us in the affirmative i.e., in favour of the assessee and against the department. The reference is accordingly answered. There shall be no order as to cost.