French Dyes and Chemicals (India) Pvt. Ltd. vs Commissioner of Income Tax

B.N. Srikrishna, J.—In this reference, made at the instance of the assessee, the Tribunal has referred the following question for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the penalties levied by the Income Tax Officer u/s 273(a) in the fresh assessments made by him, consequent on the setting aside of the original assessments made by the Appellate Assistant Commissioner, were eligible in law, for 1964-65, 1966-67, 1967-68 and 1970-71 assessment years ?"

The reference pertains to the assessment years 1964-65, 1966-67, 1967-68 and 1970-71. The Income Tax Officer has levied penalty u/s 273(a) of the Income Tax Act, 1961, for the above years at different amounts. He rejected the assessee''s explanation that the advance tax notices u/s 210 issued by the Income Tax Officer had been "ignored" by the assessee as they were issued on the basis in appeal by the Appellate Assistant Commissioner. The assessee had contended that the notices u/s 210 were invalid, that it had submitted estimates of the current income u/s 212 and that it had no reason to believe that these estimates of income were untrue.

On appeal before the Appellate Assistant Commissioner, the Appellate Assistant Commissioner held that the estimates by the assessee were false and that it had not advanced any good reason which could justify the estimated income. The Appellate Assistant Commissioner, accordingly, confirmed the penalty orders passed by the Income Tax Officer.

Before the Tribunal, the assessee took up the contention that the penalty orders passed by the Income Tax Officer were bad in law since the Income Tax Officer''s satisfaction referred to in section 273(a) had not been reached in the course of the regular assessment proceedings but in the course of subsequent assessment proceedings. The asessee contended that the penalty proceedings had arisen from the fresh assessment made by the Income Tax Officer after the original assessments had been set aside by the Appellate Assistant Commissioner, and, hence the penalty proceedings initiated by the Income Tax Officer were invalid as they did not arise out of and during "regular assessment" as defined in section 2(43), i.e., during the assessment proceedings u/s 143 or 144. The assessee also advanced contentions on the merits of the case with which we are not concerned as the reference made to this court pertains only to the first and principal contention noticed hereinbefore.

Miss Patel, learned counsel for the assessee, relied on the judgment of a Division Bench of this Court in D. Swarup, Income Tax Officer, Companies Circle, Bombay Vs. Gammon India Ltd., and contended that u/s 273(a), penalty proceedings can be initiated only in the course of any proceedings in connection with the "regular assessment" for the assessment year. In the present case, the penalty proceedings having been initiated during the subsequent assessment pursuant to the setting a side of the original orders in appeal, those subsequent assessment proceedings cannot be considered to be "regular assessment" within the meaning of the expression used in section 273(a) and, hence, the Income Tax Officer had no jurisdiction to initiate the penalty proceedings and that the proceedings thus initiated were wholly invalid and illegal. She also relied on a judgment of the Delhi High Court in Commissioner of Income Tax Vs. Pratap Singh, in support of this proposition.

Dr. Balasubramanian, learned counsel for the Revenue, contended that the question is now no longer res integra in view of the Full Bench judgment of this court in Commissioner of Income Tax, Bombay City - IV Vs. Carona Sahu Co. Ltd., , and also relied upon an earlier judgment of a Division Bench in Deviprasad Kejriwal Vs. Commissioner of Income Tax (Central), Bombay, . According to him, our High Court has now finally taken the view that the expression "regular assessment" proceedings used in section 273(a) need not carry the meaning attributed to it under the definition clause in section 2(40) of the Act as the court has taken the view that it is permissible to read different meanings into the same expression if the context and the circumstances so required. He also contended that, in any event, the judgment in Deviprasad Kejriwal Vs. Commissioner of Income Tax (Central), Bombay, concludes the controversy. Although that judgment was rendered under the provisions of the Indian Income Tax Act, 1922, the provisions being pair materia, that judgment would be an authority for the proposition that the expression "regular assessment", at least when used in connection with penalty proceedings, need not refer to the initial order of assessment and would take into its ambit subsequent assessment or reassessment proceedings.

In our view, Miss Patel is right in her contention that the question of law is covered by the judgment of the Division Bench in D. Swarup, Income Tax Officer, Companies Circle, Bombay Vs. Gammon India Ltd., . The Division Bench in this case specifically noticed the earlier judgment in Deviprasad Kejriwal Vs. Commissioner of Income Tax (Central), Bombay, and distinguished the said judgment on the ground that the 1922 Act did not define the words "regular assessment", which have now been defined in section 2(40) of the 1961 Act. Section 2(40) defines the expression "regular assessment" as under :

"2. In this Act, unless the context otherwise requires,-....

2(40) ''regular assessment'' means the assessment made under subsection (3) of section 143 or section 144;"

It would thus be seen that, unless the proceedings have arisen u/s 143 or section 144 of the Act, the proceedings would not fall within the expression "regular assessment" as defined in section 2(40) of the Act, although in Deviprasad Kejriwal Vs. Commissioner of Income Tax (Central), Bombay, a Division Bench of this court did take the view that. For the purpose of penalty proceedings u/s 18A(9) of the 1922 Act, it was permissible to construe the words "regular assessment" as even subsequent assessment or reassessment proceedings, we cannot lose sight of the fact that there has been a substantial change in the law. While the expression "regular assessment" was not defined in the 1922 Act, enabling the court to construe the said expression as the context or the circumstances demanded, as pointed out in D. Swarup, Income Tax Officer, Companies Circle, Bombay Vs. Gammon India Ltd., . Such an exercise in no longer open to us. The expression has now been defined in section 2(40) and, unless there are extraordinary reasons, we are obliged to give to the expression such meaning as parliament has given to its. We see no extraordinary reason to depart from the meaning ascribed to this expression u/s 2(40) of the Act. We respectfully agree with the reasoning of the Division Bench in D. Swarup, Income Tax Officer, Companies Circle, Bombay Vs. Gammon India Ltd., and take the view that the words "regular assessment" used in section 273 would only be such assessment proceedings which arise u/s 143 or section 144 of the Act. In the present case, since the penalty proceedings were not initiated in proceedings u/s 142 or section 144 of the Act, we are of the view that they could not have been initiated u/s 273(a), the assessee''s contention in this regard is right and must be upheld.

The judgment of the Delhi High Court in Commissioner of Income Tax Vs. Pratap Singh, also supports the contention advanced by Miss Patel for the assessee. The Delhi High Court considered section 273 also and, after making a survey of several authorities, held that a regular assessment for purposes of sections 214, 215 and 273 would be the initial or first regular assessment under the Act and, therefore, the penalty proceedings could have been validly initiated only in the course of the initial proceedings.

Coming now to the Full Bench judgment Commissioner of Income Tax, Bombay City - IV Vs. Carona Sahu Co. Ltd., , on which the Revenue strongly relies, this judgment, in our view, does not deal with the contention canvassed. The full Bench was only concerned with ascertaining what would be the two termini for the purpose of calculating interest under sections 214 and 215 of the Act. In this context, the Full Bench took the view that the words "regular assessment" used in section 214(1) of the Act means the first order of regular assessment passed as a result of appellate or revision proceedings and. Consequently, the Central Government was liable to pay to the assessee interest on the amount by which the advance tax paid by him during any financial year exceed the amount of tax determined upon such first order of regular assessment from 1st April next following the said financial year to the date not rally touch upon the contention canvassed before us in the present case. In any event, even this judgment interprets the expression "regular assessment", though only in the context of section 214. As the first of initial order of assessment. We fail to see how this judgment can be of any assistance to the Revenue.

In the result, respectfully following the judgment in D. Swarup, Income Tax Officer, Companies Circle, Bombay Vs. Gammon India Ltd., , we hold that the words "regular assessment" used in section 273 would mean the initial or first order of assessment and not any subsequent order of assessment.

Hence. We are of the view that the penalties levied by the Income Tax Officer u/s 273(a) in the case of the assessee were wholly without jurisdiction and illegal.

We, therefore, answers the question referred to this court in the negative and in favor of the assessee.

There will be no order as to costs.