1. The question which has been referred at the instance of the assessee under s. 256(1) of the I.T. Act, 1961, reads as follows:
'whether, on the facts and in the circumstances of the case, the orders of penalty were liable to be quashed on account of the period between the dates of the assessment orders and the dates of the orders imposing penalty ?'
2. The assessment year 1949-50 was the first assessment year of the assessee-company which was incorporated in July, 1947, with the object of carrying on speculation business, the assessments for the assessment years 1949-50, 1950-51 and 1951-52, were completed on November 30, 1951. In appeals preferred by the assessee the concealment of certain income was admitted and the AAC reduced the total income but the total income as determined by him was far higher than that returned by the company. The appeal for the assessment year 1949-50 was decided on January 13, 1959, and the appeals for the two remaining years were decided on November 23, 1959.
3. After the ITO had completed the assessment by order dated November 30, 1952, on the same day he issued notices under s. s28 of the Indian I.T. Act, 1922, hereinafter referred to as 'the Act' to show cause why penalty should not be imposed for concealment of income in all the three years. The notices were served on the assessee-company on January 4, 1952, there is some dispute as to whether anybody had appeared on behalf of the assessee-company on January 30, 1952, on which day the hearing of the penalty proceedings was fixed. According to the assessee-company it appeared before the ITO on that day and had contended that there was no justification for imposing penalty. According to the Revenue, nobody had appeared on January 30, 1952. The Tribunal found none of these stands established.
4. No progress was, however, made in the penalty proceedings between January 30, 1952, and July 19, 1961. On July 19, 1961, the ITO issued fresh notices to the assessee to show cause why penalty should not be imposed against it for concealment of income in the three assessment years in question.
5. The assessee-company by reply dated July 27, 1961, contended that there were double assessments of the same income inasmuch as the same income was assessed in its hands as well as in the hands of M/s Chimanram Motilal (C & W) or Chimanram Motilal (G & S). It was also contended that the assessee-company had fully co-operated with the Department and has made a clean breast of everything and as the proceedings before the AAC were in the nature of compromise or settlement, penalty should not be imposed on the assessee. Financial inability to pay arrears of taxes and penalty, if any, that might be levied, was canvassed. Nothing seems to have happened till May 31, 1967, on which day the ITO passed orders levying penalties of Rs. 4,31,274, Rs. 1,99,446 and Rs. 84,609, respectively, for the three years.
6. In appeal, against the orders of penalty, one of the grounds raised before the AAc was that the penalties were liable to be cancelled for the simple reason that they were passed after an inordinate delay of 16 years. It was also argued that the penalties were excessive. The AAC reduced the penalties to Rs. 3,27,274, Rs. 1,49,446 and Rs. 63,609, respectively, which were 75% of the tax sought to be evaded.
7. The assessee took the matter in appeal to the Tribunal and the main ground urged before the Tribunal was that the orders of penalty were liable to be set aside on account of the unexplained inordinate delay by the ITO in passing the orders of penalty. The Tribunal took the view that it was very much likely that the ITO must have on his own accord considered it proper to abide by the decision of the AAC as huge additions were involved and, therefore, the delay up to July, 1961, when the second show-cause notice was issued to the assessee. Could be said to have been given no explanation to explain the delay from July, 1961, till May, 1967, but it further took the view that as the additions were very large and as the assessee had not raised the ground of delay before the ITO, the delay was not of such magnitude as to justify the cancellation of the orders of penalty on the principles laid down by the Allahabad High Court on Bisheshwar Lal v. ITO : 75ITR698(All) . The assessee's appeal having been dismissed by the Tribunal the question reproduced above has been referred at the instance of the assessee.
8. Mr. Dastur, appearing on behalf of the assesse has contended that the assessee had never made an application to keep the penalty proceedings in abeyance and there was no explanation for the delay between November, 1951, and July, 1961, and it was merely the surmise of the Tribunal that the ITO might have kept the proceedings in abeyance as the concealments were large and the appeals were pending. Further, it is contended that there was no explanation whatsoever on the part of the Revenue in respect of the delay between November, 1959, and July, 1961, and then between July, 1961, and May, 1967. Thus, according to the learned counsel, on a proper perusal of the facts, the delay was of 16 years from November, 1951, to 1967, and not of 6 years as assumed by the Tribunal. On this premise it is argued that this was an inordinate delay and the Tribunal should have held that taking penalty proceedings against the assessee would amount to an abuse of the powers under the Act by the ITO and the orders of penalty should, therefore, have been set aside by the Tribunal. Heavy reliance is placed by the learned counsel on the two decisions of the Allahabad High Court in Mohd. Atiq. v. ITO : 46ITR452(All) and ITO v. Bisheshwar Lal : 76ITR653(All) , as well as the decision of the Andhra Pradesh High court in K. P. Narayanappa Setty & Co. v. CIT : 100ITR17(AP) and the decision of the Kerala High court in Krishna Bhatta v. Agrl. ITO : 132ITR21(Ker) . Relying on these decisions it is urged that the orders in penalty proceedings in the instant case were liable to be set aside on the ground of inordinate delay.
9. Now, It is not in dispute that so far as the institution and completion of penalty proceedings under s. 28(1)(c) of the Act are concerned, no limitation was prescribed under the Act. Therefore, even proceedings which have been taken after a delay which may spread over a certain number of years could not be said to be bad on the ground of want of jurisdiction or power. Such proceedings cannot, therefore, be set aside or held illegal merely on the ground that they have been taken by a Division Bench of this court, to which one of us was a party, in Lalta Prasad Goenka v. CIT  122 ITR 399. The division Bench in that case considered the scope of the decision of the learned single judge of the Allahabad High Court in Mohd.Atiq case : 46ITR452(All) . In Mohd. Atiq's case. An order or penalty made under s. 28(1)(b) of the Act was challenged by a writ of certiorari. These proceedings were founded on a notice dated January 27, 1945, and for a long time the matter was not pursued. Thereafter, subsequent notices were issued and the order of penalty was passed only on January 15, 1959. The learned single judge of the Allahabad High Court has held that though no period of limitation was provided for imposing penalty, it was well settled that where no period of limitation is provided, proceedings should be taken within a reasonable time, and a long lapse of 14 years could not be said to be a reasonable time. It appears, on the facts, that the penalty notice issued to Mohd. Atiq was issued only on August 18, 1957. The petitioner, Mohd. Atiq was a partner of the firm out of whose assessment the penalty proceedings arose.
10. The decision in Mohd. Atiq's case : 46ITR452(All) was considered by a division Bench of the same court in Ram Kishan Baldeo Prasad v. CIT : 65ITR491(All) and in Ram Kishan's case it was contended on behalf of the assessee on the basis of the decision in Mohd. Atiq's case that if there is an inordinate delay, then the order of penalty, if levied, should be quashed. Dealing with this argument, the Division bench in Ram Kishan's case has observed (p. 494):
'If the learned single judge intended to lay down that inordinate delay in every case, as a matter of law, would lead to the invalidity of the penalty order then we cannot. With respect, subscribe to it.'
11. In Lalta Prasad Goenka's case : 122ITR399(Bom) , this court has taken the view that since no limitation has been prescribed in the Indian I.T. Act, 1922, for completion of the penalty proceedings. It will not be possible top hold that the order of penalty becomes vulnerable merely on the ground of delay.
12. Mr. Dastur has with reference to this decision contended that this decision does not have the effect of holding that even where the inordinate delay has not been properly explained, the observations made by the division Bench in Lalta Prasad's case : 122ITR399(Bom) , must be read in the light of the fact that penalty proceedings which were initiated by a notice dated January 29, 1946, were kept pending at the instance of the assessee till July 30, 1960, and the penalty order was passed some time after July, 1960. The contention advanced in Lalta Prasad Goenka's case was that the delay between 1945 to 1960 should be treated as inordinate delay with the result that the penalty order should, be vacated. It was this contention which was rejected with the observation that the order of penalty did not become vulnerable merely on the ground of delay.
13. Now, it is no doubt true that no limitation is prescribed for either initiating or completing the penalty proceedings under the Act. But because of the absence of any limitation it will not, however, follow that penalty proceedings can be taken against the assessee after any length of time. Courts have now taken the view that such delayed proceeding may amount to abuse of power and have formulated a test in order to decide whether penalty proceedings taken after inordinate delay should be allowed to be continued or not and whether orders in such proceedings become infirm on the ground that the proceedings have been taken after an inordinate delay. The decisions relied upon by Mr. Dastur seem to establish the proposition that inordinate delay, unexplained to the satisfaction of the appellate authority, would result in the conclusion that the proceedings amount to an abuse of the power of the ITO to levy penalty. However, whether delay in a given case is inordinate or not and whether the delay has been properly explained, or not will be questions of fact to be determined by the appropriate authorities before whom the controversy falls for consideration.
14. We may refer to the decision of the Allahabad High Court in Bisheshwar Lal's case in : 76ITR653(All) . That was, no doubt, a case which was dealt with in the writ in the writ jurisdiction of the high court and the matter before the division Bench was an appeal against the order of the learned single judge by which he had issued a direction to the I.T. authorities not to impose penalty on the petitioner in respect of the assessment years between 1943 and 1944. The assessment in that case was completed on July 24, 1945, and a notice under s. 28 of the Indian I.T. Act, 1922, was issued on the same day calling upon the assessee to show cause why a penalty should not be imposed upon him for concealment of income in respect of his partnership firm. Though the reply was field by the assessee on October 12, 1944, nothing further was done by the department for a period of 12 years till April 16, 1956, when another notice was issued. Thereafter, nothing was done for another three years till September, 1959, when a third notice was issued to the petitioner to show cause against the imposition of penalty. This was followed by a fourth notice of February 5, 1961, and a fifth notice of August 10, 1961. These notices were challenged by the petitioner. It was held by the division Bench that when a notice regarding penalty is issued under s. 28 of the Indian I.T. Act, 1922, after an unreasonable lapse of time, it amounts to an abuse of power and the proceedings could be quashed by a writ issued by the court. The division Bench pointed out that the answer to the question as to what is a reasonable time would depend on the peculiar facts and circumstances of each case.
15. We may point out that the decision in Bisheshwar Lal's case  76 ITR 653, does not make any preference to the decision of the same court in Ram Kishan Baldeo Prasad v. CIT : 65ITR491(All) , on which reliance has been placed by Mr. Joshi. That decision does not, however, lay down any proposition of law that penalty proceedings taken after inordinate delay cannot be quashed or set aside. As a matter of fact, the judgment indicated that the view of the division Bench was that (p. 495 of 65 ITR) 'where the assessee is not to blame for the inordinate delay in completing the penalty proceedings and the sword of Damocles has been kept hanging over his head for many a year without any rhyme or reason, it will certainly be a factor, amongst others, for the Tribunal to consider whether the order passed by the Income-tax Officer was a proper one.' This decision does not lay down, as is contended before us by the learned counsel for the Revenue, that an order of penalty cannot be set aside on the ground of delay. As a matter of fact, as already pointed out by us, in the decision of this court in Lalta prasad Goenka v. CIT : 122ITR399(Bom) , the ratio of the decision in Mohd Atiq's case : 46ITR452(All) , has been considered by the Division Bench in Ram Kishan Baldeo Prasad's case : 65ITR491(All) when it observed (p. 403 of 122 ITR):
'If the learned single judge intended to lay down that inordinate delay in every case, as a matter of law, would lead to the invalidity of the penalty order than we cannot, with respect, subscribe to it.'
16. It appears to be well established that even though there is no prescribed period of limitation, the delay can only be a very relevant factor to be taken into consideration when the propriety of the order of penalty is called in question.
17. The proposition that there should not be any inordinate delay and penalty should be levied within a reasonable time, though no specific period within which the penalty may be levied is fixed by the Indian I.T. Act, 1922, has also been recognised by the Andhra Pradesh High court in K. P. Narayanappa Setty & Co. v. CIT : 100ITR17(AP) . We are inclined to take the view that in such a case the proper approach should be the one adopted by the Kerala High court in Krishna Bhatta v. Agrl. ITO : 132ITR21(Ker) . That was no doubt a case dealing with the kerala Agrl. I.T. Act, 1950 and in the context of the power to be exercised under s. 41(1) of the said Act, the division Bench of the Kerala High Court laid down that though there is no time-limit prescribed in s. 41(1) of the said act for passing an order imposing penalty, the power conferred by the statute cannot be exercised at any point of time but should be exercised within a reasonable time. The following observations may usefully be referred to (headnote):
'If it could be found. On the facts and circumstances of the case, that there is unreasonable delay in initiating proceedings for the imposition of penalty, such proceedings would be bad in law. The long delay be itself may prima facie be unreasonable but if, in such a case, there is an explanation for the delay, that explanation has to be considered. But if there be no explanation at all and the authority acts under the impression that, in the absence of a period of limitation in the Act, it is open to it to exercise its power after any number of years, that would be an unsustainable approach. If in such a case the court finds that such exercise has been beyond reasonable time and there is no scope for an examination of the explanation, the action would be bad.'
18. These observations have our respectful concurrence.
19. The question which, therefore, will have to be decided when the penalty proceedings are challenged on the ground of inordinate delay are, firstly whether the delay is inordinate, and, secondly, whether there is any explanation tendered by the Revenue explaining the inordinate delay. The question as to whether there is inordinate delay or not would essentially become a question of fact. Similarly, whether in given circumstances the delay has been satisfactorily explained or not would also be a question of fact to be determined by the authority which is untitled to consider the relevant circumstances.
20. Now, what is argued before us by Mr. Dastur is that there is no explanation whatsoever for the delay up to July 19, 1961, when fresh notice under s. 28 was issued and thereafter also for the period up to 1967 there is no explanation as to why the proceedings were not commenced. Now, unfortunately for the assessee, both the questions have been considered by the Tribunal, as will be clear from para. 7 of the appellate order. The Tribunal has taken the view that appeals against the assessee were pending before the AAC upto November, 1959. The Tribunal has further noticed the fact that the assessee did not pray for any stay of the penalty proceedings till the AAC decided the appeals. But the Tribunal has further taken the view that 'it is, however, very much likely that the ITO must have of his own accord considered it proper to await the decisions of the AAC, as huge additions were involved' and, therefore, according to the Tribunal, delay up to July, 1961, when the ITO addressed a second show-cause notice could be reasonably explained. The view taken by the Tribunal that the penalty proceedings must have been stayed because the appeals were pending before the AAC cannot be said to be improper or uncalled for. It was not improbable that the ITO had stayed his hands on his own as the appeals involved large additions. Now, in respect of the period thereafter, the Tribunal has noticed that for the period from July, 1961, to May, 1967, the Revenue had made no attempt to account for the delay, but the Tribunal did not feel inclined to interfere with the order of penalty on the ground of delay before the ITO. The Tribunal then expressly recorded a finding that 'the delay was not of such a magnitude as to justify the cancellation of the orders of penalty on the principals laid down by the Allahabad High Court in the aforesaid rulings.'
21. Now, if the assessment proceedings did not become illegal merely on the ground of inordinate delay, because there is no statutory bar of limitation, then the question as to whether on the ground of delay the proceedings for penalty should be quashed or the orders of penalty should be set aside, will be a matter which it was open to the Tribunal to decide and the matter will have to be decided by the Tribunal on the circumstances of each case. If, on a consideration of the circumstances, the Tribunal did not think it fit to exercise its desecration to set aside the order of penalty on the ground of inordinate delay, it cannot be said that the tribunal has acted, in any way, illegally or contrary to law. The assessee could not as a matter of right claim that the penalty proceedings should be set aside and the Tribunal was entitled to take the view that on the facts and circumstances of the case, the penalty order should not be set aside.
22. We, therefore, find no error of law in the order of the Tribunal and, consequently, the question referred has to be answered in the negative and against the assessee. The question is accordingly answered in the negative and against the assessee. Assessee to pay costs of the reference.