High Court Emphasizes Responsibility in Penalty Cancellation Decision

Commissioner Of Income-Tax, Lucknow Versus Ajodhya Prasad Gopi Nath

Commissioner Of Income-Tax, Lucknow Versus Ajodhya Prasad Gopi Nath - [1977] 107 ITR 951 Issues: Assessment proceedings, undisclosed income, penalty proceedings, delay in penalty proceedings, applicability of penalty, responsibility for delay.

Assessment Proceedings: The Income-tax Officer found undisclosed purchases of crystal sugar in the assessee's cash book during the assessment for the years 1952-53 and 1953-54. The items were not included in the return, leading to their inclusion as income from an undisclosed source. The assessment orders were passed in 1954 and 1955, with subsequent appeals reducing the tax amounts.

Penalty Proceedings: Penalty proceedings under section 28(1)(c) of the Indian Income-tax Act were initiated by the Income-tax Officer in 1956. However, the penalty orders were passed in 1968, imposing penalties of Rs. 10,000 and Rs. 40,000 for the two assessment years. The Appellate Assistant Commissioner reduced the penalties, leading to further appeals by the assessee.

Delay in Penalty Proceedings: The delay in the penalty proceedings was attributed to administrative reasons, including transfer of records between different Income-tax Officers. The Income-tax Officer stated that the assessee also contributed to the delay by not submitting replies to notices. The Commissioner found that the delay was beyond the department's control and that the assessee engaged in dilatory tactics.

Applicability of Penalty: The Tribunal, considering relevant decisions, held that in the absence of a prescribed period of limitation, delay is a relevant factor in determining the propriety of a penalty order. Citing previous judgments, the Tribunal concluded that the delay in this case affected the levy of penalties for the assessment years in question.

Responsibility for Delay: The High Court noted that the Tribunal failed to determine responsibility for the delay in penalty proceedings and its impact on the penalty orders. Referring to previous decisions, the Court emphasized that inordinate delay can affect the propriety of a penalty order, especially if the assessee is not to blame for the delay. The Court found that the Tribunal did not adequately consider the impact of the delay on the penalty orders and should have fixed responsibility before canceling the penalties.

In conclusion, the High Court held that the Tribunal erred in canceling the levy of penalties without determining responsibility for the delay and its effect on the penalty orders. The Court emphasized the importance of considering all relevant factors, including responsibility for delay, before upholding or canceling penalties.