JUDGMENT R.K. Agrawal and Rajes Kumar, JJ.
1. The Income Tax Appellate Tribunal has referred the following question under Section 256(1) of the Income-tax Act (hereinafter referred to as "Act) relating to the assessment yea; 1972-73 for opinion to this Court:
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in upholding the CIT(A) 's finding that the penalty order under Section 271(10(c) 'had been passed after the expiry of the limitation period stipulated under Section of the Income-tax Act, 1961?"
2. Brief facts of the case are that the assessee-respondent (hereinafter referred to as "Assessee") for the assessment year 1971-72 filed two returns of income one for the period 01.04.1971 to 30.06.1971 disclosing the income of Rs. 34,510/- and the another return for the period 01.04 1971 to 31.03.172 disclosing the income of Rs. 1,76,172. The Income Tax Officer complete one assessment in respect of both the periods at Rs. 9,15,710/- vide order dated 25 03.1975. This order was subsequently rectified by the Income Tax Officer on 27.06.1975 under Section 154 of the Act whereby the income was reduced to Rs. 6,00,220/-. Assessee preferred an appeal before the Assistant Commissioner inter-alia challenging the various additions made as also clubbing of income of both the periods. Appeal was transferred to Commissioner of Income Tax (Appeals), Lucknow. Commissioner of Income Tax (Appeals), Lucknow passed the order on 30.08.1978 in which he directed the assessing officer to pass the separate assesment order for the two periods on the quantum. He allowed certain reliefs to the assessee. In respect of frist period, the relief. was for Rs. 1,435/- only and the total income was reduced to Rs. 1,28,402/- as against Rs. 1,29,837/- assessed by the Income Tax Officer. Commissioner of Income Tax (Appeals), Lucknow while granting this relief, however, enhanced the addition on account of low gross profit by Rs. 52.938 -(Rs. 84,950/- of Rs. 32,012/-) and sustained an addition of Rs. 7,942/- out of addition of Rs. 62,315/-, made on account of credit in the old Moradabad General Art Metal Mills. The department and the assess both filed the appeal against the order of Commissioner of Income Tax (Appeals), Lucknow. The department challenged the directions of the Commissioner of ''come Tax (Appeals), Lucknow with regard to the framing of separate assessments in respect of the two period. Assessee challenged the various additions confirmed by the Commissioner of Income Tax (Appeals), Lucknow. In the order dated 27.06.1980 Tribunal dismissed the departmental appeal while assessee's appeal in respect of the claim under Section 35B was allowed and matter was restored back to the CIT (Appeals). The other points in respect assessee's appeal were decided by the Tribunal on merits and it was allowed in part. When the matter came before the CIT (Appeals) he set aside the case to the assessing officer vide his order dated 06.01.1981. Income Tax Officer refrained the assessment on 01.03.1983 and has computed the income at Rs. 1,26,301/- in respect of the period 01.04.1971 to 30.06.1971 While completing this assessment he has also issued notice under Section 271(1)(c) of the Act. It me be mentioned here that the penalty notice under Section 271(1)(c) of the Act was also issued on 25.03.1975 while passing the original assessment order but no penalty was levied. It is also mentioned here that alter passing of the atssessment order on 11.03.1983 under Sections 143/251 assessing authority has also passed the order on 27.01.1986 giving effect the order of the Tribunal allowing certain reliefs to the assessee. Assessing authority however, passed the penalty order on 07.03.1986 and levied the penalty under Section 271(1)(c) of the Act.
3. Being aggrieved by the order passed by assessing authority the assessee took up the matter before the CIT (A) raising not only arguments on merits but also on grounds of limitation. The CIT (Appeals) did not adjudicate upon the merits but proceeded to cancel the penalty by taking note of the provisions of Section 275(a) of the Income-tax Act 1961, as it then stood and applying the same to the facts of the case. His observations, thereafter, went as follows:
"I have carefully considered the submissions made before me by the learned authorised representative. I agree with the learned authorised representative that in view of the fact that the departmental appeal had been dismissed by the Hon'ble Income-tax Appellate Tribunal vide its order dated 27/6/80, the penalty proceedings should have been completed within six months from the end of the month in which the order of the Tribunal was received by the CIT. The period of limitation, therefore, would have expired at the end of January or February, 1981 as against Which the proceedings have been completed by the assessing officer on 7/3/1986. I am also of the view that the Assessing Officer was not justified in initiating penalty proceedings against the reassessment order framed by him on 11/3/1983 as such proceedings had already been initiated in the original assessment order dated 25/3/1975 which had not been completed. Thus, it is clear that the issue of notice of penalty in the order dated 11/3/1983 was only a pretext to save the limitation, which had already expired. It is, therefore, held that the proceedings were barred by limitation. In view of this I do not consider it necessary to discuss the merits of imposition of penalty on the appellant"
4. Being aggrieved with the order passed by the CIT (Appeals/ the Revenue came up in appeal before the Tribunal, which, after considering the rival submissions pertaining to the question of limitation proceeded to uphold the action of the CIT (Appeals) with the following observations.
"...Inasmuch as the CIT (A) has not discussed the merits, we do not find it necessary to give our views on that aspect of the matter, but the subsequent discussion would deal with the arguments advanced in respect of the limitation aspect In order to do so it would first of all be necessary for us to reproduce Section 275(a), which, at the relevant point of time, read as follows:
"No order imposing a penalty under this Chapter shall be passed"
a) In a case where the relevant assessment or other order Ls the subject matter of an appeal to the Appellate Assistant Commissioner under Section 246 or an appeal to the appellate Tribunal under Sub-section (2) of Section 253, after the expiration of a period of-
i) two years from the end of the financial year in which the proceedings in the course of which action for imposition of penalty has been initiated are completed., or ii) six months from the end of the month in which the order of the Appellate Assistant Commissioner, as the case may be, the Appellate Tribunal Ls received by the Commissioner, whichever period expires later."
As rightly observed by the CIT (Appeals), the period of '6 months' as mentioned in Clause (ii) in respect of an appeal filed before the Tribunal would apply only when the appeal is filed under Sub section (2) of Section 253 and which speaks of appeals filed by the department since Sub section (1) deals with appeals filed by an assessee. Taking note of the aforesaid provision, the CIT (Appeals) found that the appeal of the department had beet: dismissed by the Tribunal vide order dated 27th June, 1980 and the penalty proceedings should have been finalized within six months from the end of the month in which the order of the Tribunal had been received by the Commissioner. He concluded that since the priod of limitation would have expired either at the end of January 1981 or February, the proceedings completed by the ITO on 7th March 1986 were positively out of time. We agree with the aforesaid view taken by the CIT (A). On the further assumption that the penalty proceedings initiated in the order passed on 11/3/83 had been validly so done the order passed by the /TO under sec 271(1)(c) on 7/3/86 is once again out of time having been passed after a period of two years from the end of the financial year. It is not the case the department that clause (ii) of Section 275(a) is applicable. During the course of the hearing of the present appeal, the learned Departmental Representative sought to contend that the period of limitation be counted from the date of the order passed byt eh Ito finally determining the income of the assessee at Rs. 92,300/- on 27/1/1986. We find on a perusal of the penalty order that this was an order giving appeal effect to the order of the Tribunal and, inasmuch as this cannot he taken as an assessment order for purposes of initiating penalty proceedings the plea is rejected. In the final analysis, we uphold the action of the CIT (Appeals) in canceling the penalty on grounds of limitation."
5. Heard Sri Shambhu Chopra, learned Standing Counsel appearing on behalf of the Revenue. No one appears on behalf of the assessee.
6. Learned Standing Counsel submitted that after setting aside the assessment order by the Commissioner of Income Tax (Appeals) Lucknow the assessing authority reframed the assessment on 11.03.1983 but the income was finally determined on 27.01.1986 after giving effect to the order of Tribunal and penalty order passed on 07.03.1986 was within limitation as contemplated under Section 275 of the Act.
7. We do not agree with the submission of learned Standing Counsel. CIT (Appeals) has held that the order of the Tribunal dismissing the appeal filed by the department was dated 27 06.1980 and accordingly, penalty proceedings should have been completed within six months from the end of the month in which the order of Tribunal was received by the CIT (Appeals) in accordance to Section 275(a)(ii) which would have expired at the end of January or February, 1981 as against which proceedings has been completed by the assessing officer on 07.03.1986 CIT (Appeals) further held that the penalty proceedings was initiated on 25 03.1975 when the original assessment order was passed but the same has not been completed and the subsequent notice dated 11.03.1983 after the order passed in pursuance of the appellate order was only a pretext to save limitation which had already expired
8. Tribunal farther held that even the penalty order could not be passed within two years from the date of the assessment order dated 11.03.1983 and as such it was otherwise barred by limitation.
9. We do not find any error in the view taken by the CIT (Appeals) and the Tribunal. Pleading of the learned Standing Counsel that the income was finally determined at Rs. 92,300/- on 17.01 1986 and from this date penalty order was within time can not be accepted. On 27.03.1986 no assessment order has been passed only. Income has been recalculated to give effect the order of the Tribunal granting relief to the assessee, thus limitation cannot be counted from 27.01.1986.
10. In view of the forgoing discussions we answer the question referred to us in affirmative, i.e. in favour of assessee and against the Revenue.