R.K. Agrawal, J. - (1.) THE Income Tax Appellate Tribunal, Allahabad has referred the following questions of law under Section 256(2) of the Income Tax Act, 1961, hereinafter referred to as the Act, for opinion to this Court. "(1) Whether on the facts and in the circumstances of the case, the penalty under section 28(1)(c) has rightly been cancelled by the Tribunal? (2) Whether on the facts and in the circumstances of the case, the Tribunal is justified in ignoring the reasonable cause for inordinate delay in imposing penalty under section 28 (1)(c) and in holding that the case of the assessee falls within the purview of the decisions of the Hon'ble High Court in the case of Ram Kishan Baldeo Prasad Vs. CIT(65 I.T.R.- 491) and in the case of Bisheshwar Lal Vs. ITO(75 ITR-698)?" Briefly stated the facts giving rise to the present Reference are as follows:-
(2.) THE reference relates to the Assessment Year 1947-48. THE Income Tax Officer completed the assessment for the aforementioned assessment year under Section 23(3)/34 of the Indian Income Tax Act, 1922, hereinafter referred to as the Act of 1922 on 28th March, 1956. THE status of the respondent was taken as HUF. THE addition of Rs.1,20,000/- was added to the total income. THE Income Tax Officer initiated the proceedings under Section 28(1)(c) under the Act of 1922. He imposed a sum of Rs.50,000/- as penalty vide order dated 7.12.1976. Feeling aggrieved the respondent preferred an appeal before the Appellate Assistant Commissioner, who deleted the penalty on the ground that there was an inordinate delay in the imposition of penalty inasmuch as the assessment was made on 28th March, 1956 while the penalty was imposed on 7.12.1976. THE Revenue feeling aggrieved preferred an appeal before the Income Tax Appellate Tribunal, Allahabad. THE two members differed in their views. THE Accountant Member was of the view that the order cancelling the order passed by the Appellate Assistant Commissioner has to be restored whereas the Judicial Member disagreeing with the conclusion of the Accountant Member held that the proceedings have been unduly delayed by the Income Tax Officer for about 20 years and, therefore, the respondent-assessee was entitled to claim cancellation of the penalty imposed. As there was difference of opinion, the matter was referred to the third Member. THE third Member dealt with the different aspects of the matter and agreed with the view expressed by the Judicial Member to the effect that for the inordinate delay there was no explanation and, therefore, the penalty has rightly been cancelled. THE Tribunal has passed the order in conformity with the opinion expressed by the third Member and had upheld the order passed by the Appellate Assistant Commissioner cancelling the penalty. We have heard Sri Shambhoo Chopra, learned Standing Counsel appearing for the Revenue and Sri V.K. Upadhyay, learned counsel appearing for the respondent. The learned counsel for the Revenue submitted that there was sufficient explanation for the inordinate delay in imposition of penalty and, therefore, it could not have been cancelled only on the ground of the order having been passed after more than 20 years. According to him, this was a case where the total income itself and the tax thereon was the subject matter of multifarious proceeding by way of appeal to the Appellate Assistant Commissioner, to the Appellate Tribunal, revision before the Commissioner and various rectifications arising out of the appellate orders in the case of the company of which the respondent was a shareholder and change in the total income and consequently the respondent's share therefrom the various firms of which the respondent was a partner as a result of the appellate orders in the case of the company and firms. He further submitted that penalty under Section 28 (1)(c) of the Act of 1922 depended on the amount of income tax and super tax which would have been avoided if the income as returned had been accepted as the correct income and this figure could not be determined till the total income and the tax thereon was finally worked out. He further submitted that the last order was passed on 2nd February, 1975 and in these circumstances, if the penalty was imposed on 7th December, 1976, the delay in the imposition of the penalty cannot be said to be without reasonable cause. He, therefore, submitted that no adverse inference can be drawn on account of the mere so called inordinate delay in the imposition of the penalty.
(3.) LEARNED counsel appearing for the respondent, however, submitted that the assessment order having been passed on 28th March, 1956 and the penalty order having been passed on 7th December, 1976, there was an inordinate delay of more than 20 years and, therefore, the Tribunal has rightly upheld the order passed by the Appellate Assistant Commissioner cancelling the penalty. He submitted that reliance placed by the learned counsel for the Revenue on the various proceedings, which did not relate to the respondent, would not come to his rescue for explaining the delay. He further submitted that the Tribunal had not committed any illegality. Having heard the learned counsel for the parties we find that the facts are not in dispute. The assessment order for the Assessment Year 1947-48 was admittedly passed on 31st March, 1956 and the penalty proceeding was also initiated during the course of the assessment proceedings. However, the penalty was imposed vide order dated 7.12.1976 i.e. after more than 20 years. It is not clear from the record as to whether any proceeding in respect of the present respondent was continued upto the year 1976 or not. Even though no period of limitation for imposing the penalty under the Act of 1922 had been provided but action for imposing penalty is to be within a reasonable time. The imposition of penalty after more than 20 years cannot be said to be justified. This Court in the case of Mohd. Atiq v. Income-Tax Officer, District II(V), Kanpur, (1962) 46 ITR 452 has held that even though no period of limitation is prescribed for imposing penalty, proceedings for levy of penalty must be taken within a reasonable time. Where proceedings for levy of penalty for non-compliance with notices issued under sub-sections (2) and (4) of Section 22 of the Act of 1922 were taken after the expiry of about fourteen years, this Court has held that there was unreasonable delay in commencing the proceedings and consequently the proceedings were quashed. Similar view has been taken by this Court in the case of Income-Tax Officer, Gonda v. Bisheshwar Lal, (1970) 76 ITR 653.;