Limitation for income tax assessment cannot be extended without a timely penalty finding under section 271(1)(c).

Extension of the assessment limitation period under section 153(1)(b) of the Income-tax Act, 1961 is available only when the Assessing Officer records the finding necessary to attract section 271(1)(c) before the ordinary limitation expires. As that requisite finding had not been recorded in time, the assessment was not saved by the extended period. The earlier best judgment assessment was also held beyond limitation, and the later assessment under section 143(3) was therefore time barred. The annulment of the assessment was upheld and the reference was answered in favour of the assessee.

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Issues: Whether the assessment order for the assessment year 1974-75 was rightly annulled as time barred, and whether the period of limitation stood extended under clause (b) of section 153(1) of the Income-tax Act, 1961 on account of proceedings under section 271(1)(c).

Analysis: The assessee had filed the return and revised return, and the assessment proceedings culminated in an order under section 143(3) after an earlier best judgment assessment under section 144 had been cancelled. The Tribunal held that the assessment made under section 144 was itself beyond limitation and that the later assessment under section 143(3) was also time barred. The claimed extension of limitation under section 153(1)(b) was rejected because the requisite finding attracting section 271(1)(c) had not been recorded before the expiry of the ordinary limitation period.

Conclusion: The annulment of the assessment as barred by time was upheld. The question referred was answered in the negative, in favour of the assessee and against the Revenue.

Ratio Decidendi: Extension of the limitation period for assessment under section 153(1)(b) of the Income-tax Act, 1961 is available only if the Assessing Officer records the necessary finding attracting section 271(1)(c) before the ordinary period of limitation expires.

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