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Commissioner of Income-tax, Delhi-iv Vs. Pratap Singh of Nabha - Court Judgment

LegalCrystal Citation
Subject Direct Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax Reference No. 33 of 1976
Judge
Reported inILR1982Delhi145
ActsIncome Tax Act, 1961 - Sections 2(8), 2(40), 34, 143, 144, 147, 148, 256, 273, 274 and 275
AppellantCommissioner of Income-tax, Delhi-iv
RespondentPratap Singh of Nabha
Cases ReferredMarketing Federation v. Union of India
Excerpt:
income-tax act, (1961) - section 273--proceedings under the section--period of limitation for penalty proceedings 'regular proceedings', discussed--proceedings under section 147 of the act whether 'regular assessment'.; in this case, the respondent assessed was sought to be penalised for filing an under estimate of advance tax which the assessed knew or had reason to belive to be untrue, and a notice was issued to him at the time of regular assessment. subsequently, the assessment was re-opened in order to disallow a business loss claimed by the assessed and wrongly allowed at the time of original assessment. at this time a fresh notice was issued for imposing penalty. the orders for imposing penalty were passed after more than two years of the issue of notice at the time of reassessment..........is only the assessment order dated february 28, 1969, and not the revised assessment order dated april 28, 1970. 15. in the view we have taken on the first contention put forward by the learned counsel for the assessed, it is really unnecessary for us to consider the second contention. however, it seems to us that on the second contention the learned counsel for the assessed cannot succeed in view of the principles laid down by the unanimous rulings of several high courts which haves been relied upon by the learned counsel for the department. the learned counsel for the assessed sought to meet these judgments by relying on the decision of the supreme court in the case of brij mohan [1980] 120 itr 1. it is true that in the said case the supreme court laid down that so far as.....
Judgment:

Ranganathan, J.

1. Two questions have been referred to this court under s. 256 of the I.T. Act, 1961. They read as follows :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally right in cancelling the penalty of Rs. 3,521 levied u/s. 273 of the Income-tax Act, 1961

2. It not the Tribunal's order vitiated in view of the amendment to section 275 brought by the Act 42 of 1970, with effect from April 1, 1971 ?'

2. The questions referred to us arise out of the assessment of Pratap Singh of Nabha for the assessment year 1965-66. The assessed had been served with a notice under s. 210 of the Act, raising a demand of advance tax of Rs. 1,09,122 payable in Installments as provided for in the section. The assessed, however, filed on March 15, 1965, an estimate under s. 212(3) estimating his income at Rs. 36,000 and stating that since the tax deducted at source was more than the tax payable on the total income as estimated, there was no liability to pay advance tax. Eventually the assessed filed a return showing an income of Rs. 1,04,098 and the assessment was completed on a total income of Rs. 1,23,981 giving rise to a net tax demand of Rs. 41,846 and a demand of interest of Rs. 8,447. This assessment was completed on 28th February, 1969. Simultaneously the ITO issued a notice under s. 273 read with s. 274 seeking to penalise the assessed for having filed an under-estimate of advance tax which the assessed knew or had reason to believe to be untrue.

3. Subsequently the assessment was reopened under s. 147(b) in April, 1969, in order to disallow a business loss in dairy farming which has been claimed by the assessed and wrongly allowed at the time of original assessment. The reassessment was completed on April 28, 1970, disallowing this loss of Rs. 7,176 and raising the total income to Rs. 1,31,157. Again, at the time of completion of this reassessment, the ITO issued a fresh notice under s. 273 read with s. 274 on 27th April, 1970.

4. On 2nd August, 1972, the ITO passed an order under s. 273 imposing a penalty of Rs. 3,521 on the assessed. He pointed out that according to the estimate filed by the assessed there was no advance tax payable at all whereas the assessed had filed a return of income on the basis of which a net tax of Rs. 26,275 was payable by the assessed.

5. The assessed preferred an appeal to the AAC contending that the penalty order passed on 2nd August, 1972, was illegal because it had been passed beyond the statutory time-limit prescribed under s. 275. It was submitted that the assessment having been completed originally of February 28, 1969, the penalty order should have been passed on or before 28th February, 1971. The AAC, however, rejected this contention. He pointed out that penalty proceedings had been initiated in the course of proceedings under s. 148 on April 27, 1970, and that the period of limitation had to be counted from the date of completion of the reassessment as the starting point. That apart, s. 275 which had originally prescribed a limitation of two years from the date of the assessment order, had been amended with effect from April 1, 1971, substituting a period of two years from the end of the financial year in which the assessment had been completed. According to the AAC, this amendment was applicable to the present case since the original two-year period, counted from April 28, 1970, had not expired by the 1st April, 1971, on which date the amendment came into effect. thereforee, according to him, the ITO could pass the penalty order within a period of two years from the end of the financial year in which the reassessment had been completed, i.e., at any time on or before March 31, 1973. The penalty order was, thereforee, within time. In this view of the matter the assessed's appeal was dismissed.

6. However, on further appeal the assessed was successful before the Tribunal. The Tribunal pointed out that the original assessment having been completed on February 28, 1969, the order of penalty should have been passed on or before February 28, 1971. The Tribunal did not accept the plea of the department that the amendment of s. 275 would be applicable in the present case. The Tribunal did not accept the plea that the limitation should be counted from the date of the close of the financial year and not from the point of initiation of penalty proceedings. This was particularly so because even if the reassessment proceedings were also to be taken into account they had been completed on April 28, 1970, and the penalty order should have been passed within two years from that date. According to the Tribunal, thereforee, the penalty order was beyond time and hence without jurisdiction. In the view taken by it the Tribunal did not consider the merits of the assessed's case regarding the levy of penalty. It cancelled the penalty imposed and allowed the assessed's appeal.

7. Aggrieved by the order of the Tribunal the Commissioner has sought a reference to this court on the two questions which have been set out earlier.

8. Learned counsel for the Department, Shri Lalwani, pointed out that the ITO had issued notice under s. 273 not merely at the time of the completion of the original assessment on February 28, 1969, but also at the time of completion of the reassessment on 28th April, 1970. On the law as it then stood the penalty proceedings initiated on April 28, 1970, had to be completed within two years from the reassessment, namely, on or before 28th April, 1972. However, in the meantime, s. 275 had been amended extending the period of limitation available to the department in such cases. This, learned counsel contended, was a purely procedural amendment and it could be availed of by the department in all cases even though the penalty notice might have been issued prior to April 1, 1971, subject to the only condition that the limitation period prescribed in respect of those proceedings under the earlier sections had not lapsed on or before March 31, 1971. In the present case the period of limitation prescribed originally would have come to an end only on April 28, 1972. But, since by this time the amendment had come into force, the department was entitled to avail itself of the extended period of limitation provided for the amended section and was within its rights in passing a penalty order at any time on or before March 31, 1973. Learned counsel submitted that this was the unanimous view taken by all the High Courts and he referred to the following decisions : CIT v.Bhikari Charan Panda : [1976]104ITR73(Orissa) , CIT v. Soubhagya Manjari Devi : [1976]105ITR82(Orissa) , Addl CIT v. Watan Mechanical and Turning Works : [1977]107ITR743(AP) , CIT v. Royal Motor Car Co. : [1977]107ITR753(Guj) , CIT v. M. Nagappa : [1978]114ITR707(KAR) , Kerala Oil Mills v. CIT : [1980]121ITR254(Ker) and CIT v. Sadhu Ram . He, thereforee, submitted that the view taken by the Tribunal is patently incorrect and that the penalty order should have been upheld by the Tribunal.

9. Mr. K.K. Jain, learned counsel for the assessed, repelled the contentions of the department in two ways. His principal stress was on the fact that so far as the penalty under s. 273 is concerned such penalty proceedings could be initiated only at the time of the 'regular assessment'. Learned counsel contended that a second assessment made under s. 147 of the Act is not a 'regular assessment' within the meaning of s. 273. His principal contention, thereforee, was that the penalty proceedings initiated on April 27, 1970, were wholly without jurisdiction. This being so, only the penalty notice issued on February 28, 1969, could be taken note of and counted from the date of the original assessment order the period of limitation had expired on February 28, 1971, and did not get revived, even on the department's argument, by the subsequent amendment effective from April 1, 1971. In support of his contention that the expression 'regular assessment' did not take within its purview an assessment made under s. 147 of the Act, Shri Jain relied on the following decisions : Gates Foam & Rubber Co. v. CIT : [1973]90ITR422(Ker) , CIT v. Ram, Chandra Singh : [1976]104ITR77(Patna) , Smt. Kamla Vati v. CIT and Trustees of H.E.H. Nizam's Religious Endowment Trust v. ITO : [1981]131ITR239(AP) . He also referred to the decision of the Madras High court in Natarajan Chettiar v. ITO : [1961]42ITR29(Mad) .

10. Having rested his case principally on the above contention, Shri Jain also contended, alternatively, relying on the decision of the Supreme Court in the case of Brij Mohan v. CIT : [1979]120ITR1(SC) , that in all matters of penalty the law which would govern the present case would be the law on the date of which the offence was committed. According to the department the assessed's offence consisted in deliberately understating its income subject to advance tax and this default or offence had been committed some time in 1965. That being so, all issues connected with the penalty proceedings, whether they be regarding the quantum of the assessment, the authority authorised to impose penalty or the period of limitation, have to be judged only on the provisions of the law as they stood in 1965. Looked at from this point of view, the penalty order passed on August 2, 1972, was clearly out of time even if reckoned from the date of the order of reassessment, namely, April 28, 1970. For these reasons, learned counsel contended, the view taken by the Tribunal was a correct view and we should contended, the view taken by the Tribunal was a correct view and we should answer the reference accordingly.

11. We are of opinion that the first contention of Shri Jain should prevail. Section 273 under which the impugned penalty order has been passed contemplates the initiation of proceedings 'in the course of any proceedings in connection with the regular assessment for the assessment year'. The expression 'regular assessment' is defined in s. 2(40) as 'the assessment made under section 143 or section 144' and the term 'assessment' has itself been defined in s. 2(8) as including reassessment as well. The penalty under s. 273 is imposed for the failure of the assessed to comply with his obligations relating to the payment of advance tax which the outlined in Chap. XVII-C of the Act. The expression 'regular assessment' is used not only in the context of the penal provision in s. 273 but also in the context of the interest payable by or to an assessed under the provisions of ss. 214 to 217 of the Act.

12. This Bench had occasion to consider the scope of this expression 'regular assessment' in some detail in the context of the interest provision in the case of National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India : [1981]130ITR928(Delhi) . Some of the decisions which have been cited by Shri Jain have been considered by us in detail in the said judgment. We have pointed out in that judgment that here are two phases in the assessment of an assessed under the Act : the phase of advance tax payment or payment of tax by deduction at source and the other phase of payment of the tax on the basis of an assessment made by the ITO under the Act. We have pointed out that the first phase, namely, the payment of advance tax has material significance only till the initial or first assessment is made. But it has no separate existence by itself once an assessment is made and a tax demand is made on the assessed. We have agreed with the basic concept of the advance tax provisions as outlined by Chagla C.J. in Sarangpur Cotton Mfg. Co. Ltd. v. CIT : [1957]31ITR698(Bom) and Pathak J. (as he then was) in the case of Sir shadilal Sugar and General Mills Ltd. v. Union of India : [1972]85ITR363(All) . Though the question raised before us in that decision was whether the modification of an assessment consequent on appellate orders could be treated as a regular assessment, it was necessary for us to consider, while discussing the scope of the expression 'regular assessment', how for a reassessment made under s. 148 read with s. 143 or s 144 could be described as a regular assessment for the purposes of the Act. We have noticed the decision of the Madras High Court in Natarajan Chettiar v. ITO : [1961]42ITR29(Mad) , where it was held that an assessment completed under s. 34, to modify an assessment already made on the assessed, could not be described as a 'regular assessment' and the subsequent decision of the same High Court in K. Gopalaswami Mudaliar v. Fifth Addl. ITO : [1963]49ITR322(Mad) , which had held that where a first or initial assessment was itself completed by reference to the provisions of s. 34 of the 1922 Act, it could well be described as a regular assessment. In the context of these decisions we have pointed out at p. 947 (of 130 ITR) :

' (i) the basic concept, in our opinion, was originally outlined in the 1922 Act, and this concept has not really changed in spite of various amendments effected to the section over the period of years. The general scheme of the Act is to collect tax after it is quantified on the basis of initial or the first assessment and the demand notice issued in pursuance thereof. This, in our opinion, is the regular assessment contemplated by the Act whether it is completed under s. 23(3),(4)/ss. 143, 144 of the Acts, or whether it is made under the above sections read with s. 34/147 of the Acts.'

and again at p. 948 :

'(iv) Again for purpose of ss. 214, 215 and 273, there is no reason why an assessment made for the first time under s. 143 should be outside the purview of that section. We agree in this respect with the decisions of the Bombay High Court in Deviprasad Kejriwal v. CIT : [1976]102ITR180(Bom) and of the Madras High Court in K. Gopalaswami Mudaliar v. ITO : [1963]49ITR322(Mad) . With respect we are unable to agree with the decisions of the Kerala High Court in Gates Foam & Rubber Co. v. CIT : [1973]90ITR422(Ker) and of the Punjab High Court in Smt. Kamla Vati v. CIT .'

13. At p. 950, we have pointed out that liberally construed the expression 'regular assessment' would take in not merely the first or initial assessment in a particular case but also all assessments supplementing it, rectifying it, modifying it or revising it as a consequence of the appellate orders or for other reasons, but in the context of the advance tax provisions this expression could not be interpreted in a very liberal manner and should be restricted in its application to the first or initial assessment made under the Act and not subsequent modifications thereof. In other words, while we felt ourselves unable to agree with the decisions of the Kerala High Court and the Punjab High Court earlier referred to, namely, Gates Foam & Rubber Co. v. CIT : [1973]90ITR422(Ker) , Smt. Kamla Vati v. CIT , we agreed with the decision of the Bombay High Court in Deviprasad Kejriwal v. CIT : [1976]102ITR180(Bom) and of the Madras High court in K. Gopalaswami Mudaliar v. Fifth Addl. ITO : [1963]49ITR322(Mad) . We may notice here that in the case of Deviprasad Kejriwal, the Bombay High Court went slightly further and held that a supplemental assessment made under s. 34/147 would be a regular assessment for purposes of s. 273. We have not gone to this extent but have qualified ourselves and restricted ourselves only to saying that an assessment under s. 34/147 would be a regular assessment for the puroses of these provisions provided it is the first or initial assessment made on the assessed. We have arrived at this conclusion on the basis of the principle earlier set out, namely, that the advance tax phase comes to an end as soon as an assessment is made under the Act and that, for the purposes of working out the purpose of Chap. XVII-C of the Act, one should not travel outside to a supplemental assessment or the revision or modification of an assessment earlier made as that might lead to extreme consequences. Summing up the position, thereforee, we have already decided in the case of National Agrl. Co-op. Marketing Federation v. Union of India : [1981]130ITR928(Delhi) , that a regular assessment for purposes of ss. 214, 215 and 273 would be the initial or first regular assessment under the Act. This being so, we find force in the contention of Shri Jain that so far as the present case is concerned the penalty proceedings under s. 273 could have been validly initiated only in the course of the assessment proceedings which culminated in an assessment on 28th February, 1969. The proceedings initiated on April 27, 1970, were, in our opinion, incompetent and beyond the jurisdiction of the ITO and have to be ignored. That being so, under the law as it then stood, the penalty proceedings initiated on February 28, 1969, should have culminated in a penalty order on or before 27th February, 1971. But no such order was passed in this case before that date nor had the amendment of s. 275 become effective before that date. No question, thereforee, arises of the amendment extending the period of limitation being available to the department. In our opinion, thereforee, the Tribunal was right in holding that the penalty order was barred by limitation.

14. We may also look at the matter from a slightly different point of view. In the present case the assessed is being penalised for having filed an under-estimate of advance tax. The satisfaction of the ITO, that the assessed had so under-estimated his tax and paid much less advance tax than he should have, had been reached in the course of the original assessment proceedings which ended in the assessment order dated February 28, 1969. The reassessment proceedings were initiated only to disallow a certain item of loss and in the course of these proceedings there was no occasion for the ITO to have reached at any conclusion that the assessed had under-estimated and under-paid the advance tax. One can understand such a satisfaction being reached in a case where the original assessment had been made on a figure which was not considerably different from the figure of income on which the assessed had paid advance tax but the reassessment has made the ITO aware of the assessed's default in this respect. For instance if in the present case the ITO had completed the assessment on the basis of the figures for which the advance tax had been paid and the reassessment had been on much higher footing, one could say that the satisfaction regarding the offence under s. 273 having been committed, was reached by the ITO only at the time of reassessment. But in this case the ITO's reason for coming to the conclusion that the penalty under s. 273 was attracted was that the income returned by the assessed was much than the income on which the advance tax was paid. This satisfaction came to the ITO at the time of original assessment and there was no question of this satisfaction being arrived at by the ITO for the first time in these course of the proceedings for reassessment, which could have justified the issue of a fresh penalty notice under s. 273. From this point of view also it would appear to us that the assessment order on the basis of which the limitation period has to be reckoned is only the assessment order dated February 28, 1969, and not the revised assessment order dated April 28, 1970.

15. In the view we have taken on the first contention put forward by the learned counsel for the assessed, it is really unnecessary for us to consider the second contention. However, it seems to us that on the second contention the learned counsel for the assessed cannot succeed in view of the principles laid down by the unanimous rulings of several High Courts which haves been relied upon by the learned counsel for the department. The learned counsel for the assessed sought to meet these judgments by relying on the decision of the Supreme Court in the case of Brij Mohan [1980] 120 ITR 1. It is true that in the said case the Supreme court laid down that so far as penalty matters are concerned the substantive law to be applied will be the law as it was in force on the date on which the offence was committed. But this principle laid down by the Supreme Court is applicable only in respect of the substantive law and not in respect of procedural law. As pointed out by the several decisions referred to by Shri Lalwani, it is well settled that the procedural law will be effective from the date of its coming into force and that it will be applicable even in respect of proceedings instituted earlier unless those proceedings have lapsed or have come to an end as a result of the provisions earlier in force, before the date when the amendment came into operation. In the present case, if the time limit for the penalty order is to be reckoned from February 28, 1969, then the rights of the department to pass a penalty order came to an end on February 28, 1971, much before the amendment became effective and could not be revived by the amendment in question. On the other hand, if the departmental counsel can be said to be right in saying that the limitation has to be reckoned from the date of the reassessment order, we would have to hold that though on the date of the assessment order as well as on the date when the advance tax estimate was filed the period of limitation was a period of two years from the date of the assessment order, that period had got extended as it had not expired by the date on which the amendment came into effect. The amendment would then have had to be held to be operative in the assessed's case and the department's right to impose the penalty up to 31st March, 1973, upheld. We are, thereforee, of opinion that if limitation had to be reckoned from the date of the reassessment order then the penalty order would have been within time but that, since, for the reasons stated earlier the time has to be counted from February 28, 1969, the penalty order cannot be upheld.

16. For the reasons discussed above, we answer the first question referred to us in the affirmative and the second question in the negative and in favor of the assessed. As we have rested our conclusion on a basis different from that adopted by the Tribunal in deciding the case and as one of the contentions of the department has been accepted, we do not think that this is a case in which the department should be asked to pay the costs of the assessed. We, thereforee, make no order as to costs.


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