Reasonable time for penalty powers: unexplained decades-long delay made the income-tax penalty unsustainable.

Penalty under section 28(1)(c) of the Indian Income-tax Act, 1922 could not be sustained where it was imposed after an unexplained delay of more than 20 years. Although the Act prescribed no express limitation period, the power to levy penalty had to be exercised within a reasonable time, and a lapse far beyond that standard was held improper and vulnerable. The Department's reliance on other proceedings did not justify the delay on the facts of this case, and the Tribunal was justified in cancelling the penalty for want of reasonable cause. The questions referred were answered in favour of the assessee and against the Revenue.

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Issues: Whether penalty imposed after an inordinate delay of more than 20 years under section 28(1)(c) of the Indian Income-tax Act, 1922 could be sustained, and whether the Tribunal was justified in cancelling the penalty on the ground that the delay was not explained by reasonable cause.

Analysis: Although no period of limitation was prescribed for levy of penalty under the 1922 Act, the power to impose penalty had to be exercised within a reasonable time. The assessment had been completed in 1956, while the penalty order was passed only in 1976. The Department's explanation based on other proceedings was not shown to justify the prolonged delay in the respondent's case. The earlier decisions on the requirement of reasonable time in penalty matters supported the view that an unexplained and excessive delay may render the penalty order improper and vulnerable. The long lapse of time was held to be far beyond what could be regarded as reasonable, and the delay was not accepted as being backed by reasonable cause.

Conclusion: The cancellation of the penalty was upheld, and the questions referred were answered in favour of the assessee and against the Revenue.

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