Court upholds penalty levy under sec 271(1)(c) despite amendment, ruling in favor of extended time limit

The High Court of Orissa ruled that the Income-tax Appellate Tribunal erred in canceling the penalty levy under section 271(1)(c) of the Income-tax Act, 1961, as it was not barred by limitation under the amended provision of section 275. The Court held that the new provision extending the time limit for penalty proceedings applied to the case, even though the penalty was imposed before the amendment came into force. The Court emphasized that the law in force at the time of the penalty order should govern, and the penalty imposition was deemed valid.

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Issues involved: Interpretation of the amended provision of section 275 of the Income-tax Act, 1961 regarding the levy of penalty under section 271(1)(c) and its applicability to penalty proceedings initiated before and after the amendment.

Summary:
The High Court of Orissa considered a case where the Income-tax Appellate Tribunal had cancelled the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, citing limitation issues post an amendment to section 275. The assessee, an advocate, had a penalty imposed by the Inspecting Assistant Commissioner for the assessment year 1970-71. The Tribunal held that the amendment to section 275, effective from April 1, 1971, did not extend the period of limitation for penalty proceedings initiated before that date. However, the High Court disagreed with this conclusion.

The original section 275 stated that no penalty order shall be passed after two years from the completion of relevant proceedings. The amendment introduced a new scheme, extending the time limit based on appeal stages. The Court held that the new provision applied to the case as the two-year period had not expired when the amendment came into force. Therefore, the penalty order was not limited by the original provision of section 275.

The Court emphasized that the law in force at the time of the penalty order should apply. The Tribunal's decision to cancel the penalty levy based on limitation was deemed unjustified. The Court's opinion was that the amended provision of section 275 was indeed applicable to the case, and the penalty imposition was valid. The Court also noted that the pending writ application challenging the penalty imposition did not impact the judgment on the limitation issue.

In conclusion, the High Court ruled that the Tribunal erred in canceling the penalty levy under section 271(1)(c) of the Act, as it was not barred by limitation under the amended provision of section 275. No costs were awarded, and the Court's decision did not affect the ongoing writ application challenging the penalty imposition. Both judges, N. K. Das and R. N. Misra, concurred with this judgment.

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