1. This is a case stated under Section 66(2) of the Income-tax Act 1922 (hereinafter referred to as the Act). The question which has been referred is:
''Whether for the assessment year 1945-46, the assessment of which was made in March 1950 could a penalty be imposed in August 1957?'
2. The material facts are these: The assessee is a firm The relevant assessment year is 1945-46, for which a notice under Section 22(2) of the Act was served in June 1945. Before the expiry of the period given therein for filing the return an application was moved praying for 12 weeks' further time. This application, however, was rejected. Thereafter notices under Section 22(4) were issued tc the assesses. The notices were not complied with for one reason or the other. On the 24th of June 1949, a notice under Section 28(3) was issued to show cause why a penalty be not levied in respect of the default in filing the return. Thereafter, a return was filed on the 20th of July, 1949.
The assessee in reply to the said penalty notice pleaded that he could not file the return earlier since his books of accounts were with the Enforcement Branch of the Police. The Income-tax Officer, however ascertained that the books had been returned by the Police in February 1946. As there was no valid explanation for the delay in filing the return, a penalty of Rs. 2500 was imposed against the maximum penalty which could have been levied at Rs 25,143. This order under Section 28(1)(a) was passed on the 20th of August 1957. There is not a word mentioned as to why it took the Income-tax Officer more than 8 years after the penalty notice was issued and 11 years since the end of the relevant assessment year to impose the penalty
3. Before the Appellate Assistant Commissioner the question of inordinate delay in imposing the penalty on the 20th of August, 1957, when the notice under Section 28(3) was issued on the 24th of June 1949, was disposed of bv merely saving:
'There has been no doubt an inordinate delay on the part of the Department in finalising the penalty proceedings but against the maximum penalty of Rs. 25,143 which could be imposed in this case the penaltyimposed is Rs. 2,500 only, which is neither excessive nor unreasonable.'
In other words, it was considered that so long a the penalty imposed is less than the maximum leviable, that per se would be sufficient explanation for the inordinate delay in completing the penalty proceedings.
4. Though, in the statement of the case it is stated:
'Among other grounds the assessee urged that there was inordinate delay in levying the penalty. The Tribunal dismissed the appeal by a short order dated 23-10-1959. The ground relating to the delay in imposing penalty is not discussed in the Tribunal's order.'
Yet, the Tribunal, in its order on appeal, did not notice any such ground and disposed of the appeal merely observing:
'It was only when a notice under Section 28(3) had been issued that the return was filed. There is absolutely no reason for the failure to comply with the notice under Section 22(2). We, therefore, confirm that the penalty was rightly levied.'
The application under Section 66(1) having been dismissed this Court under Section 66(2) directed the Tribunal to refer the question stated herein above.
5. There cannot be much doubt that there was inordinate delay in completing the penalty proceedings in this case. The penalty notice was issued on the 24th of June 1949. The assessment under Section 23(3) was made on the 1st of March 1950 and the penalty was not levied till the 20th of August 1957. There is no explanation whatsoever for the delay. It may have been the result of nothing more serious than procrastination or negligence on the part of the Income-tax Officer or it may even be that that particular Income-tax Officer who had issued the notice was intending to stay his hands, drop the proceedings and not levy any penalty.
These are, however, all matters which required to be looked into by the Tribunal when considering the propriety of the order of penalty passed by the Income-tax Officer. This was necessary even though there may be no period of limitation prescribed for completing such proceedings and the only limitation is that the penalty notice should be issued, 'during the course of the assessment proceedings'. It is true that once pen-nalty proceedings have been initiated before assessment is completed there is no provision in the Act prescribing a period of limitation within which those proceedings have to be completed. Therefore, though as a matter of strict law, when there is no period of limitation prescribed, it may not be possible to say that the order passed was one which was invalid, nevertheless, the question of inordinate delay is certainly one which does affect the propriety of the penalty order and it is for the final court of fact to determine in the circumstances of eachcase what effect the inordinate delay will have upon the order passed by the Income-tax Officer. This aspect, the Tribunal with all respect, appears to have completely lost sight of.
6. Mr. V. P. Tewari, learned counsel for the assessee, relied upon the decision of a Single Judge of this Court in Mohd. Atiq v. Income-Tax Officer, District II (V), Kan-pur, : 46ITR452(All) for the proposition that though no period of limitation is prescribed for imposing a penalty the proceedings must be taken within a reasonable time, and if there is inordinate delay then the order of penalty if levied should be quashed. That was a case where a writ petition was filed under Article 226 of the Constitution challenging the penalty order which was passed after 14 years from the end of the relevant assessment year and the learned Single Judge in quashing the penalty order observed:
'It is true that no period of limitation is provided for imposing a penalty, but it is equally well settled that where no period of limitation is provided, proceedings should be taken within a reasonable time. I do not see how it can be said that this long lapse of. fourteen years is reasonable time. To my mind, it is not merely unreasonable; it is fantastic .....it is well settled that proceedings for imposition of penalty are in the nature of criminal or quasi-criminal proceedings ..... I am not satisfied that, inthis particular case, the income-tax department proved it beyond doubt, that a default had necessarily been committed by the petitioner in regard to the filing of a return. For these reasons I am of the view that the impugned order of penalty is bad and must be set aside.'
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.
When there is no prescribed period of limitation, as already observed, delay can only be a factor, albeit a very relevant factor, to be taken into consideration, in determining the propriety of the order. For a Revision application though there was no period of limitation prescribed, nevertheless, this Court, till the rules were amended, as a matter of practice, insisted on these applications being filed within a period of 90 days. This again was a rule of propriety. Similarly, this Court in petition under Article 226/227 of the Constitution requires, ordinarily, the application to be filed within 90 days. Therefore, where the assessee is not to blame for the inordinate delay in completing penalty proceedings and the sword of Democles 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 toconsider whether the order passed by th' Income-tax Officer was a proper one.
7. The view that we are taking would appear to be supported by a decision of the Orissa High Court in Commr. of Income-tax, Bihar and Orissa v. Rupsa Rice Mill : 54ITR328(Orissa) . It may also be observed that a matter such as this should not be left vague and the Legislature should prescribe a reasonable time limit for completion of all penalty proceedings. The Lahore High Court, in Vir Bhan Bansi Lal v. Commr. of Income-tax , nearly three decades ago, drew the attention of the Commissioner of Income-Tax to the desirability of removing the ambiguity that exists in the language of Section 28.
8. For the reasons given above we would,answer the question referred by saying thata penalty in respect of the assessment year1945-46 as a matter of strict law could havebeen imposed in August 1957 even thoughthe assessment was completed in March1950, but propriety required the changedcircumstances to be taken into considerationand the responsibility for the inordinatedelay to be fastened before levying thepenalty and upholding it. The reference isanswered accordingly In the circumstancesof the case the parties are, however, left tobear their own costs. Counsel's fee is assessed at Rs 250.