Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the penalty order passed is not barred by limitation under s. 275 of the IT Act, 1961 ?

Counsel Appeared

N. Srinivasan, for the Petitioner : J. Jayuaraman & Mrs. Nalini Chidambaram, for the Revenue

SETHURAMAN, J. :

In this reference under s. 256(1) of the IT Act, 1961, the following question has been referred: “Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the penalty order passed is not barred by limitation under s. 275 of the IT Act, 1961 ?”

2. The assessee furnished an estimate for advance tax payable by it on March 14, 1970. The tax so estimated was Rs. 86,623. The assessment was completed on the total income of Rs. 16,26,990 and the tax payable thereon after adjustment of tax deducted at source and double income-tax relief due came to Rs. 2,35,091. As the estimate filed by the assessee was prima facie wrong, the ITO issued a notice under s. 274 to show cause why penalty should not be levied. The assessee’s reply was that the penalty proceedings were time-barred as two years had elapsed after the assessment order was passed on January 20, 1971. The objection was overruled and the ITO levied Rs. 1,09,526 as penalty. The assessee appealed to the AAC. He (the AAC) pointed out that under s. 275, before the amendment in 1970, the penalty proceedings were required to be completed within two years from the date of passing of the assessment order. Since the penalty proceedings were completed beyond the said two years limit, the order levying the penalty was not sustained. The Department filed an appeal to the Tribunal, which held that the penalty order could not be said to be barred by limitation as the time-limit had been extended by the amended provision. In this view, the Tribunal set aside the order of the AAC and restored the appeal to his file, pointing out that the AAC had not stated as to what was the amount of advance tax payable by the assessee, which he (the assessee) knew or had reasons to believe to be untrue. The appeal was to be disposed of afresh. The assessee challenges this order of the Tribunal in the present reference.

3. Learned counsel for the assessee contended that the assessment was made on January 20, 1971, and that the penalty levied on March 9, 1973, was beyond the period of two years envisaged by s. 275 as it was in force at the time when the default, if any, was committed. Learned counsel for the CIT submitted that s. 275 extended the time-limit and that so long as the penalty proceedings had not become barred at the time when the amendment was introduced, the extended time-limit arising under the amended provision would apply. Sec. 275, to the extent relevant, ran as follows: “No order imposing a penalty under this Chapter shall be passed after the expiration of two years from the date of the completion of the proceedings in the course of which the proceedings for the imposition of penalty have been commenced…”

4. This provision was deleted and a new provision was substituted in its place by the Taxation Laws(Amendment), Act, 1970, w.e.f. April 1, 1971. The amended provision, to the extent relevant, runs as follows : “No order imposing a penalty under this Chapter shall be passed— (a) in a case where the relevant assessment or other order is the subject matter of an appeal to the AAC under s. 246 or an appeal to the Tribunal under sub-s. (2) of s. 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 AAC or, as the case may be, the Tribunal is received by the CIT, whichever period expires later…”

The question is whether the amended provision applies to the present case or the original provision. We considered a similar question in CWT vs. G. Savithri (T.C. Nos. 165 to 167 of 1975, judgment dated 17-12-1979) (reported as Appendix at p. 697 infra). In that case a similar amendment had been made to s. 18 of the WT Act by the Finance Act of 1969. In accordance with the provisions in force at the time when the assessment was completed, the order levying penalty could have been passed only by 26th April, 1972. The penalty order was, however, made after the said date. There was an amendment of the law before the expiry of the period of limitation and, therefore, taking that fact into account it was pointed out , “It is now well settled, that if before the limitation period expired, the period of limitation is extended, the limitation provision, being a procedural one, the extended period of limitation would apply to such proceedings.” Reference was made to the decision of the Supreme Court in S. C. Prashar vs. Vasantsen Dwarkadas (1963) 49 ITR (SC) 1 and also to the decision of the Andhra Pradesh High Court in Addl. CIT vs. Watan Mechanical & Turning Works (1977) 107 ITR 743 (FB), in support of this view. It would be instructive to refer to a passage in the judgment of Hidayathullah J. (as he then was) in Prashar’s case at p. 67 running as follows : “…….. we wish to say a few words about the well-known principle that subsequent changes in the period of limitation do not take away an immunity which has been reached under the law as it was previously. In this sense statutes of limitation have been picturesquely described as ‘statutes of repose’. We were referred to many cases in which this general principle has been firmly established. We do not refer to, these cases because in our opinion it is somewhat inapt to describe s. 34 with its many amendments and validating sections as a section of repose. Under that section there is no repose till the tax is paid or the tax cannot be collected. What the law does by prescribing certain periods of time for action is to create a bar against its own officers administering the law. It tries to trim between recovery of tax and the possibility of harassment to an innocent person and fixes a duration for action from these two points of view. These periods are occasionally readjusted to cover some cases which would otherwise be left out and hence these amendments.”

Applying the principles laid down by the Supreme Court, we may state that the period prescribed in the unamended s. 275 cannot be described as statutes of repose. The idea was to see that penalty was levied without any undue delay in the case of persons who had committed defaults in making returns or payments envisaged by the law. While there was a fixed rigid time-limit under the original provision, the time-limit was altered under the amended provision so as to take into account ,the period of pendency of the appeal. In fact, the amendment cannot be described as one motivated in the interest of the Revenue. It was often the case previously that as soon as an assessment was made, penalty had to be levied, as otherwise, the period of limitation would expire while the matter was pending on appeal. In order to see that any harassment to the assessee did not arise by an order levying penalty having to be independently appealed against, the Legislature has provided a time-limit, which would take into account only the final order after the assessment was made. There are several decisions which have taken the view that the amended provision would alone apply so long as the period of limitation had not expired on April 1,

1971, when the new provision was brought into force. The decisions are too numerous and all of them take a uniform view. Therefore, we do not think it necessary to detail them here.

It has also been held that this provision is a procedural one. Learned counsel for the assessee contended that he had acquired a vested right of the penalty proceedings having to be completed within two years from the assessment and that the said vested right could only be affected by express retrospective amendment. Sec. 275 being only in the nature of a procedural provision, there is no question of any vested right accruing to any assessee by reason of the assessment being completed on any particular date. It is now well settled that there is no vested right in any procedural matter. In the present case, therefore, the extended period of limitation would alone apply.

Learned counsel for the assessee drew our attention to a decision of this Court in Continental Commercial Corporation vs. ITO (1975) 100 ITR 170 (Mad). That case dealt with the provisions of s. 274(2). In that case, the appropriate authority for levying penalty under the law in force at the time of assessment was the IAC. By an amendment, the ITO was vested with the power to levy penalty in cases where the assessed income was below a particular amount. This Court held that the law in force at the time when the return was filed would be applicable and that the authority who could levy penalty was the one envisaged in the provision then in force. In the same case, the question of limitation has also been described as a procedural one. We are not here concerned with the levy of penalty by an authority who could not have levied the penalty as on the date of (filing) the return. This is not a matter of jurisdiction, so that the law in force when the return was filed could alone apply. We do not, therefore, find it possible to extend the principle laid down in the said decision dealing with jurisdiction, in the present case, along with procedure. The result is, the question referred to us is answered in the affirmative and in favour of the Revenue. The Revenue will be entitled to its costs. Counsel’s fee Rs. 500.

[Citation : 141 ITR 693]