ORDER
Per Shri T. N. C. Rangarajan, Judicial Member – These appeals by the Revenue are directed against the common order of the CIT (Appeals) holding that the orders of penalty were ab initio void and also barred by limitation.
2. The admitted facts are as follows. The assessment orders for the assessment years 1968-69, 1972-73, 1973-74 and 1974-75 were made on 20-4-1977. The assessment orders for the assessment years 1969-70, 1970-71 and 1971-72 we made on 26-10-1977. These orders were set aside by the Commissioner of Income-tax acting u/s. 263 by orders dated 18-4-1979 and 24-10-1979 respectively requiring the ITO to pass fresh orders of assessment. But no such fresh orders were passed by the ITO as the orders of the CIT were challenged on appeal. The Income-tax Appellate Tribunal by order dated 26-6-1981 set aside the orders made u/s. 263 on the ground that adequate opportunity of being heard was not given to the assessee and remitted the matter to the CIT for fresh disposal in accordance with law. THereafter, the CIT passed an order on 21-5-1984 dropping the proceedings taken u/s 263. In the meanwhile, the ITO passed an order on 10-8-1981 purporting to revive the assessment orders by giving effect to the order of the Tribunal and on 31-3-1984 passed orders imposing penalties u/s 271 (1) (c) and 273 in respect of all the assessment years.
3. The assessee appealed and contended that these orders imposing penalties were without jurisdiction and barred by limitation. The CIT (Appeals) by his order dated 31-8-1984 accepted these contentions on the ground that until the fresh disposal of the 263 proceedings there were no enforceable assessment orders or penalty notices based on such orders which could clothe the ITO with the jurisdiction to levy penalties. He was also of the view that the limitation prescribed was only 6 months u/s 275 (a) (ii) from the date of the order of the Tribunal and therefore the orders of penalty were barred by limitation.
4. In the appeals before us it was contended on behalf of the Revenue that the CIT (Appeals) had overlooked the effect of the Tribunal order which was to revive the assessments and hence the ITO had jurisdiction to levy the penalties. It was also submitted that the limitation prescribed was u/s 275 (b) which was 2 years from the end of the financial year in which the proceedings in the course of which action for imposition of penalty had been initiated, were completed. According to the Revenue, the assessment proceedings were in effect completed by the Tribunal order and, therefore, the orders passed were within the period of limitation prescribed.
5. On the other hand, it was contended on behalf of the assessee that the assessment orders have been set at large by the 263 proceedings and until these 263 proceedings were dropped on 21-5-1984 the assessment proceedings themselves were in abeyance and no penalty proceedings could have been initiated or completed. On the question of limitation, it was argued that the period of limitation could be only two years from the date of original assessment order and even if the period when 263 orders were pending in appeal before the Tribunal were to be excluded, the penalty orders were out of time and rightly cancelled by the CIT (Appeals).
6. On a consideration of the rival submissions, we are of the opinion that the assessee is entitled to succeed only on the point of limitation but not on the point of jurisdiction. As we have seen, the assessments have been made in 1977 and penalty proceedings have been validly initiated thereunder. Those assessments were cancelled by orders made u/s 263. The orders of the CIT made u/s 263 were set aside by the Tribunal on 26-6-1981 on the ground that an adequate opportunity had not been afforded to the assessee. In other words, the orders made u/s 263 had become vitiated by a supervening legality and, therefore, the 263 proceedings were restored to the point of time at which the illegality supervened. See Guduthur Bros. v. ITO [1960] 40 ITR 298 (SC). It follows that the assessment orders were revived and were pending before the CIT for review u/s 263. Now the question is whether the pendency of the proceedings u/s 263 amounts to setting the assessments at large so as to say that there were no valid or enforceable initiate and impose penalties. Obviously, the answer to this has to be against the assessee because a notice u/s 263 is only a proposal to review the assessment and does not affect the assessment order until an order is actually passed u/s 263. The result is that after the passing of the Tribunal order on 26-6-1981 the assessment orders had been revived and there existed valid assessment proceedings which could be a proper foundation for initiating and imposing penalties.
7. The second question is whether the orders of penalty made on 31-3-1984 are within the period of limitation prescribed. Section 275(a) (ii), relied on by the CIT (Appeals), relates to a situation where the assessment order itself is subject of appeal before the AAC or the TRibunal. Such is not the case here because there was no appeal against the assessment order before the Tribunal. In the circumstances, sub-clause (b) which is the residuary clause applying to any other case would be attracted. That prescribes the limitation of a period of 2 years from the end of the financial year in which the proceedings in the course of which action for imposition of penalty was initiated or completed. In other words, it is two years from the financial year in which the assessment was completed. The contention of the Revenue is that until the 263 proceedings are finalised, the assessment could not be said to have been completed and, therefore, the period of limitation will enure. But the Revenue cannot have it both ways. Since we have already held that the 263 proceedings do not set at large the assessment, we must hold that the assessments had already been completed when they were originally passed. The second argument of the Revenue was that on the analogy of section 153 (2A) the period of limitation must be counted from the date of the order of the ITO by which the earlier assessment orders have been revived by giving effect to the order of the Tribunal. This argument is also untenable because the position in law as seen above is that the assessment orders got revived automatically by the order to give effect to the Tribunal order, for the Tribunal had only remitted the matter back to the CIT. The provisions of section 153(2A) specifically allow a period of two years for making a fresh order of assessment where the original order has been set aside. But such is not the case here because there is no provision specifically prescribing a separate period of limitation where the assessment order is revived after having been earlier cancelled u/s 263. On the other hand, the appropriate analogy can only be a case where the assessment order is stayed. In such an event, the Explanation to section 275 excludes the period during which the proceeding is stayed in computing the period of limitation. Here also, during the period when the assessment orders had been cancelled by the CIT and until they were revived by the Tribunal, the ITO could not have initiated or proceeded with any penalty proceedings and hence that period would have to be excluded in computing the period of limitation. But that would not affect the commencement of the period of limitation which had begun to run from the end of the year in which the assessment order had originally been made, i.e., 31-3-1978. The result is that we can only exclude the period from 18-4-1979 to 26-6-1981 in computing the period of two years from 31-3-1978. That would lead us to the conclusion that at best the order of penalty could have been made before 8-6-1982. It follows that the orders made on 31-3-1984 were beyond the period of time limit prescribed under the Act and hence rightly cancelled by the CIT (Appeals). His orders are confirmed.
8. In the result, the appeals are dismissed.
