V.K. SINGHAL, J. - (1.) UNDER s. 256(1) of the IT Act, the Tribunal has referred the following question of law arising out of its order dt. 13th Jan., 1986 in respect of asst. yr. 1975-76 : "Whether, on the facts and circumstances of the case the Tribunal was legally justified in quashing the penalty order on the ground of limitation ?"
(2.) THE brief facts of the case are that, the assessee filed a return of income at a figure of Rs. 15,389. Various additions were made while finalising the assessment under s. 143(3) on 29th Jan., 1977 and the total income assessed was Rs. 74,830. This addition includes a figure of Rs. 9,540 which was on account of unexplained credit entry in the name of Shri Hastimal. THE addition of Rs. 9,540 was confirmed by the AAC. THE matter was challenged before the Tribunal by the assessee, and the Tribunal set aside the order of the AAC, certain directions were given. THE AAC passed the order again on 26th June, 1980, and upheld the addition of Rs. 9,540. Relief was given on other points. Penalty proceedings under s. 271(1)(c) were initiated. It was submitted that the assessee was not provided with proper opportunity. THE ITO found that number of opportunities were given at the time of assessment and at the time of appellate proceedings. THE contention of the assessee was rejected and penalty of Rs. 14,310 was levied. Before the AAC, it was submitted that the ITO passed the order on 20th Dec., 1980 while the hearing was fixed on 22nd Jan., 1981 and the order was passed before considering the reply. This contention was rejected and it was held that the assessee cannot escape the charge of concealment. THE penalty, however, was reduced from Rs. 14,310 to Rs. 9,540. In the second appeal before the Tribunal, a preliminary objection was taken that the assessment in this case was completed on 27th Jan., 1977 and penalty proceedings were initiated at the time of assessment. According to the provisions of s. 271, the order could have been passed on or before 31st March, 1979. The appeal was disposed of on 1st Feb., 1978 at the first instance and the penalty could have been levied only upto 1st Aug., 1978. The order dt. 26th Dec., 1980 was contended to be barred by limitation. The Tribunal accepted the plea of the assessee and held that the matter is not free from doubt, though apparently the assessee's contention appears to be correct as per the language of s. 275, because penalty in the present case has been levied in the proceedings which were initiated in the first instance. The penalty order was quashed on the priliminary ground raised. The matter with regard to the penalty was also challenged by the representative of the assessee on merit. The contention on merit was not accepted. It is in these circumstances, the above question of law has been referred. The arguments of both the learned counsel have been heard. The provisions of s. 275 of the IT Act, 1961 are as under : "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 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/CIT(A) or as the case may, be the Tribunal is received by the CIT, whichever period expires later. (b) in any other case, after the expiration of 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." On the perusal of the above provisions, it is evident that the penalty order has to be passed within 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. Sub-cl. (ii) provides the limitation of six months from the end of the month in which the order of the AAC/CIT(A) or as the case may be, the Tribunal is received by the CIT. This clause contemplates that the limitation which is later in point of time has to be taken into consideration, and the last date of limitation in any of the methods referred in this section has to be considered as the expiry of the period of limitation. The problem has come in this present case, because the assessment order was completed on 29th Jan., 1977 and the penalty proceedings were initiated at that time which according to the cl. (a)(i) should have been completed within two years from the end of the financial year which could be 31st Dec., 1979, but, in the meantime the order of appeal by the AAC was passed on 1st Feb., 1978, on the basis of which the penalty could have been levied within six months from the date of order of the AAC. This order of the AAC was challenged before the Tribunal by the assessee and the Department was not in appeal before the Tribunal. The Tribunal vide its order dt. 28th Oct., 1978 set aside the order of the AAC and the matter was restored to the file of the AAC. The AAC passed the order in consequence of the order of the Tribunal on 26th June, 1980. The penalty order in the present case is dt. 20th Dec., 1980. The Tribunal was not aware on which date the order of the AAC was received by the CIT, but the fact that, a notice was issued on 15th Jan., 1981 for fixing the hearing on 22nd Jan., 1981 was taken into consideration. It was submitted by the Department that the notice was issued inadvertently and the penalty order was passed on 26th Dec., 1980. It was observed that the onus of proving that the notice was issued on a later date, i.e., on 15th Jan., 1981 was by mistake, was to be proved by the Department more particularly, when the order of the penalty dt. 20th Dec., 1980 (mentioned as 26th Dec., 1980) was not served in the month of January, 1981. Since the assessee had filed his appeal on 2nd March, 1981, against the penalty order, therefore, the order of penalty was considered to have been served after 1st Feb., 1981. In these circumstances, the assessee was given the benefit and the order of penalty was quashed. The provisions of s. 275 in cl. (a)(ii) period of six months has been contemplated for completing penalty proceedings from the date of the order of the AAC received by the CIT. If certain objections are taken on any ground before the Tribunal and the objections were not taken earlier before the AAC then the proper course for the Revenue was to seek time or to produce documents in support of their contention. No such time was sought. On the contrary when another fact that the notice for penalty was issued on 15th Jan., 1981 fixing the date of hearing for 22nd Jan., 1981 was urged before Tribunal, it was contended that the notice was issued by mistake. No document was produced in support of this contention. If notice was required to be issued, then, how the order could have been passed on 20th Dec., 1980 (which has been shown as 26th Dec., 1980) so as to bring it within limitation of six months. The Revenue authorities cannot play with the public record in a manner they liked. If the notice was not required to be issued, then why the said notice was issued, and if it was required to be issued, then why the penalty has been levied by the ITO on 20th Dec., 1980. This all shows that the inference of the Tribunal that this was done only to bring the proceedings within limitation, is a correct finding which has been recorded. In these circumstances it cannot be said that the Tribunal was not legally justified in quashing the penalty on the ground of limitation. The reference is answered in favour of the assessee and against the Revenue with cost of Rs. 500. A copy of this order may be sent to the Chief CIT, Rajasthan, for initiating the disciplinary proceedings against the officers responsible for the loss of the legitimate amount which was otherwise due to the Revenue and the order of the Tribunal in quashing the penalty is upheld on account of inaction of the ITO to complete the proceedings within the time prescribed. The amount may be recovered from the officers who are found responsible for loss to the Revenue.;