Commissioner of Income Tax vs Rajeev Steel Corp.

Prakash Krishna and Abhinava Upadhya, JJ.—The Income Tax Appellate Tribunal, Delhi Bench ''C'' Delhi has referred the following question for opinion of this Court u/s 256(1) of the Income Tax Act:

Whether on the facts and in the circumstances of the case, the Tribunal was justified in deleting the penalty of Rs. 71,742/- imposed u/s 271-B of the Income Tax Act, observing that penalty proceedings are barred by limitation u/s 275 of the Act without deciding the basic issue?"

The dispute relates to the assessment year 1987-88 which arises out of penalty proceeding initiated against the assess u/s under Section 271-B of the Income Tax Act. The assessee is a registered firm engaged in the business of purchase and sale of iron and steel goods. During the relevant assessment year, it disclosed total sales of Rs. 1,43,48,401/- which exceeded Rs. 40 lakhs as prescribed u/s 44AB of the Income Tax Act. Therefore, the assessee was required to get his accounts audited before the specified date date i.e. 31-7-1987. The assessee got his account books audited on 28-9-1987 instead of 31-7-1987. This led to initiation of penalty proceedings u/s 271-B of the Act. After issuance of show cause notice, the penalty to the tune of Rs. 71,742/- was levied by the Income Tax Officer, Ward -1, Ghaziabad. The Tribunal by its judgment and order dated 2-2-1998 has held that the penalty proceedings are barred by limitation as prescribed by Section 275(1)(c) of the Act. It has been found that the penalty proceedings should be initiated by the end of the year i.e. 31-3-1988 or within six months from the date of the order. In the present case, the original assessment order was passed on 18-2-1988, therefore, the Tribunal held that the issuance of notice on 7-11-1990 is barred by time.

Sri A.N. Mahajan, learned Standing Counsel for the department submits that the Tribunal has misinterpreted and misconstrued Clause (c) of Sub-section (1) of Section 275 of the Act. He submits that on a true and correct interpretation of the said provision, the order of the Tribunal is unsustainable. On the other hand, Sri Shubham Agrawal, learned Counsel for the assessee supports the order of the Tribunal.

The only pointed mooted in the present reference is whether the initiation of the penalty proceedings on the facts of the present case is barred by time or not.

The controversy centres round to the interpretation of Clause (c) of Section 275(1) of the Act. For the sake of argument, the said provision is reproduced below:

(c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.

Section 275 prescribed a period of limitation for imposing penalty. In the present case, we are concerned with Clause (c) thereof which is residuary in nature. It says that where limitation for penalty order has been prescribed, no order imposing penalty under Chapter 21 shall be passed after expiry of the financial year? in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later. On a plain reading of the said provision, it is but obvious that it prescribes two periods of limitation. One to complete the penalty proceedings within the financial year in which it was initiated. Secondly, within six months from the end of month in which action of imposition of penalty is initiated. Out of the aforesaid two periods, the period of limitation which expires later has been prescribed. On a plain reading of the aforesaid section, it is obvious that the penalty proceeding should be completed either in the assessment year in which it was initiated or within six months whichever is later.?

We find that the assessment order was passed on 18-2-1988. Therefore, the penalty proceedings could have been completed upto 31-3-1988. In the present case, the notice for levying the penalty was issued on 7-11-1990, the very issuance of notice is also barred by time.

In view of the above discussions, we do not find any infirmity or illegality in the order of the Tribunal.

The question referred by the Tribunal is answered in affirmative i.e. in favour of the assessee and against the department with costs of Rs. 2,000/-.