ORDER
Per Shri B. M. Kothari (Accountant Member) – The revenue has filed these four appeals against the common order passed by the AAC for A. Ys. 1968-69, 1969-70, 1972-73 and 1973-74 cancelling the penalties levied upon the assessee u/s. 18(1) (a) of the WT Act, 1957.
2. The brief facts relating to the aforesaid case are as under :
Original assessment orders for all the aforesaid years were passed by the WTO on 30-3-1979 and penalty proceedings u/s. 18(1) (a) were also simultaneously initiated for all the aforesaid years. The Commissioner of Wealth-tax had issued show cause notices u/s. 25(2) in respect of wealth-tax assessments completed by the WTO for A. Ys. 1968-69 to 1974-75 for two items. The Commissioner passed an order u/s. 25(2) on 18-3-1981 directing the WTO to modify the assessments for A. Ys. 1968-69 to 1974-75. The concluding para-6 of the order u/s. 25(2) passed by the Commissioner of Wealth-tax is reproduced hereunder.
“6. In the result, the WTO is directed to modify the assessment for the assessment years 1968-69 to 1974-75 after determining the correct value of the gold ornaments and articles of Judtar and after referring them for valuation to the Governments Approved Valued. The WTO shall, of course, give adequate opportunity to the assessee to the present her case in the this regard, before modifying the assessment in question.”
The penalty proceedings initiated u/s., 18(1) (a) at the time of completing the original assessments on 30-3-1979 were to get barred by limitation on 31-3-1981. However, since the Commissioner had already passed the order u/s. 25(2) on 18-3-1981 prior to the aforesaid date of limitation of time for penalty order, the WTO neither dropped the penalty proceedings nor passed any order imposing penalty u/s. 18(1) (a) with reference to penalty proceedings initiated at the time of making of the original assessment orders on 30-3-1979. The WTO passed fresh orders pursuant to the order u/s. 25(2) passed by the CWT on 29-3-1985 and once again initiated penalty proceedings under section 18(1) (a) on that date, i.e., on 29-3-1985. The WTO levied penalties for all aforesaid years under consideration u/s. 18(1) (a) vide penalty orders dated 19-3-1987.
3. Aggrieved by the WTOs orders imposing the penalties the assessee preferred appeals before the AAC. The AAC cancelled the penalties for all the aforesaid years. It will be worth while to reproduce para 5 of the order passed by the AAC cancelling the aforesaid penalties :-
“5. The only point of consideration is whether the WTO after deciding not to levy the penalty at original assessment stage can re-initiated the penalty actions on the basis of the assessment modified under the directions of the Provisions of WT Act u/s. 25(2) of the WT Act. I have no hesitation in the deciding the issue in favour of the appellant because, the penalties once decided not to be levied at original assessment stage may be in an implied manner, cannot be re-initiated and levied at the stage of modification of that original order. Since the penalty actions had got time-barred on 31-3-1981 and penalties were not levied till then, it was not open for the WTO, to re-initiated penalty proceedings subsequently at the time of modification of the original assessment.”
4. The revenue has preferred appeals against the aforesaid orders passed by the AAC cancelling the penalties for all the aforesaid years and have raised the following common grounds of appeal in all these appeals :
(1) On the facts and in the circumstances of the case and in law, the learned AAC erred in deleting the penalty levied under section 18(1) (a) of the Wealth-tax Act.
(2) On the facts and in the circumstances of the case and in law, the learned AAC ought to have upheld the order of the WTO.
5. The learned D. R. argued that the AAC has not properly considered the order imposing penalties passed by the WTO. He submitted that in para 3 of the penalty orders by the WTO it has been stated that nobody attended before him in response to the show cause notices in the aforesaid penalty proceedings of nor any written explanations were received. The learned D. R. contended that the AAC has not taken into consideration this fact mentioned by the WTO in the penalty order. He further contended that the WTO was fair enough not to pass any penalty order with reference to penalty proceedings initiated on 30-3-1979, as even if he would have passed any penalty order either dropping or imposing the penalty pursuant to first initiation of penalty proceedings, the same would have become infructuous with passing of the order by the CWT u/s. 25(2) and it would be have unnecessarily resulted in multiplicity of proceedings. He further submitted that the doctrine of merger is also available in the present case and the original assessment order merged with the order passed by the Commissioner of Wealth-tax u/s. 25(2) and the assessment proceedings should be deemed to have been completed on 29-3-1985, when the WTO passed fresh assessment orders pursuant to order passed by the CWT. The learned D. R. contended that the penalty proceedings initiated once again at the time of making fresh assessment order on 29-3-1985 was perfectly valid and in view of this the fact penalty orders passed by the WTO on 19-3-1987 are not barred by limitation of time, as erroneously decided by the AAC. He therefore submitted that the order passed by the AAC deserves to be cancelled and the orders passed by the WTO imposing the penalties u/s. 18(1) (a) for all the aforesaid years should be restored. The learned D. R. further contended that the assessees case is clearly covered by the provisions of section 18(5) (b) of WT Act, 1957 which provides the limitation of time relating to any other case (others than which are subject matter of appeal before the AAC/CIT (A) or before the Tribunal) which provides that no order imposing a penalty shall be passed after expiration of two years from the end of the Financial Year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. He contended that in the present case the proceedings in the course of which action for imposition of penalty has been initiated, were completed on 29-3-1985, when the modified order was passed by the WTO pursuant to order u/s. 25(2) of the Commissioner of Wealth-tax and hence the penalty orders by the WTO on 19-3-1987 were perfectly valid and within the limitation of the time prescribed in aforesaid section.
6. The learned counsel for the assessee supported the order passed by the AAC. He invited our attention towards section 18(5) of the WT Act, 1957. He contended that section 18(5) (a) prescribes period of limitation for passing an order imposing the penalty in a case where the wealth-tax assessment to which the proceedings for imposition of penalty relate, is the subject matter of appeal to the AAC/CWT (A) or to the appellate Tribunal. Sub-clause (i) of section 5(a) provides the time limit of two years from the end of the Financial Year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. Sub-clause (ii) of section 5(a) provides that no order imposing a penalty shall be passed after the expiry of a period of six months from the end of the month in which the order of the AAC/CWT (A) or the appellate Tribunal is received by the Commissioner. The period of limitation prescribed in section 5(a) (i) or (ii) will expire on the date, whichever expires later as provided in sub-clause (i) or (ii) in section 5(a). The learned counsel therefore submitted that since that the wealth-tax, assessments completed on 30-3-1979 were not subject matter of any appeals, clause (a) is inapplicable in the case of the assessee. He further contended that section 5(b) which is residuary clause applies to any other case will be applicable in the case of the assessee. This sub-clause (b) clearly provides that no order imposing a penalty u/s. 18 shall be passed after the expiration of two years from the end of the Financial Year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. In this case the penalty proceedings were initiated during the course of assessment proceedings which were completed on 30-3-1979 and hence the time limit for levy of penalty expires on 31-3-1981. In view of the aforesaid provisions, the penalty order passed by the WTO are apparently barred by limitation of time and the learned AAC was fully justified in cancelling the penalty orders for all the aforesaid years. He further contended that there is no provision in the Wealth-tax Act for separate limitation of time with reference to order of revision passed by the Commissioner u/s. 25(2). The learned counsel also contended the Direct Tax Laws (Amendment) Act, 1985 has now inserted section 5(ii) providing for separate limitation of time where the relevant assessment is the subject matter of revision u/s. 25(2). This provision is effective from 1-4-1989. It was submitted that by necessary implication, at established that prior to amendment of section 18(5) made by Direct Tax Laws (Amendment) Act, 1989, the provisions of Wealth-tax Act did not provide for any separate time limit for passing penalty order in cases where the assessment is the subject matter of revision u/s. 25(2). This according to the learned counsel also supports the correctness of the decision given by the AAC holding that all the penalty orders passed by the WTO are barred by limitation of time. The learned counsel also submitted that the Commissioner did not cancel the original assessment orders passed by the WTO but merely directed the WTO to modify the assessments only with reference to the items specifically mentioned in order u/s. 25(2) passed by the CWT. Therefore re-initiation of penalty proceedings u/s. 18(1) (a) was apparently contrary to the provisions of law and was also beyond the scope of directions given by the CWT u/s. 25(2). The learned counsel therefore submitted that the order passed by the AAC should be confirmed, as the penalty orders passed by the WTO are apparently barred by limitation of time. On merits the learned counsel submitted that the WTO had wrongly mentioned in the penalty order that no reply to the show cause notices was submitted by the assessee. He has placed a copy of reply dated 18-3-1981 submitted by the assessee before the WTO in relation to penalty proceedings u/s. 18(1) (a) for A. Ys. 1968-69, 1969-70, 1970-71, 1972-73 and 1973-74. The learned counsel argued that since the penalty orders were passed without even considering the aforesaid reply submitted by the assessee, which exist on records, the penalties imposed upon the assessee by the WTO were invalid and unjustified.
7. We have carefully considered the submissions made by the learned representatives of both sides and have also perused the orders passed by the learned authorities below, and have also gone through the relevant provisions of the Wealth-tax Act.
8. In order to appreciate the rival contentions made by the learned representative, it will be worthwhile to reproduce the relevant provisions of section 18(5). Section 18(5) as it stands at present (effective from 1-4-1989) is as under.
(5) No order imposing a penalty under this section shall be passed –
(i) in a case where the assessment to which then proceedings for imposition of penalty relate is the subject-matter of an appeal to the Deputy commissioner (Appeals) or the Commissioner (Appeals) under section 23 or an appeal to the Appellate Tribunal under sub-section (2) of section 24, after, the expiry of the Financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the Deputy commissioner (Appeals) or the Commissioner (Appeals) or as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever is later,
(ii) in a case where the relevant assessment is the subject matter of revision under sub-section (2) of section 25, after the expiry of six months from the end of the month in which such order of revision is passed;
(iii) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action of the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.
Explanation : In computing the period of limitation for the purpose of this section –
(i) any period during which the immunity granted under section 22H remained in force;
(ii) the time taken in given as opportunity to the assessee to be reheard under the proviso to section 39; and
(iii) any period during which a proceeding under this section for the levy of penalty is stayed by an order or injunction of any court.
shall be excluded”.
“Prior to its substitution, sub-section (5), as amended by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976 and Finance (No. 2) Act, 1977, w.e.f. 10-7-1978, stood as under :
(5) No order imposing a penalty under this section shall be passed –
(a) in a case where the assessment to which the proceedings for imposition of penalty relate is the subject-matter of an appeal to the Deputy Commissioner (Appeals) or commissioner (Appeals) under section 23 or an appeal to the Appellate Tribunal under sub-section (2) of section 24, after the expiration of a period of –
(i) two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or
(ii) six months from the end of the month in which the order of the Deputy Commissioner (Appeals) or Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner,
whichever period expires later;
(b) in any other case, after the expiration of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed”.
The Explanation at the end of section 18(5) were the same as it stands at present.
9. The main question which requires our consideration is as to when the period of limitation for passing an order imposing a penalty under the facts and circumstances of the assessees case commenced and when such limitation period expired.
10. Section 18(5) (a) provides two alternatives period of limitation in relation to those cases where the relevant assessments to which the proceedings from imposition of penalty relate are subject matter of appeals. It provides that the WTO may impose penalty within two years from the end of financial year in which these proceedings in the course of which penalty proceedings had been initiated, are completed. This means that the WTO could impose penalty within two years from the end of financial year when the wealth-tax assessments were originally completed. The legislature further provided an option to the WTO to pass the penalty orders within six months from the end of the month in which the appellate order passed by the AAC/CWT (A) or the Tribunal is received by the Commissioner, whichever period expires later. This provision was inserted to enable the W. T. O. to pass penalty order after the quantum appeals are decided by the appellate authorities so that the penalty can be correctly quantified. This amendment was made to obviate difficulties arising in case where the appeals were filed against the assessments, for reducing infructuous work and avoiding hardships to the assessee. The provision of section 18(5), as it existed during the relevant periods did not contain any separate period of limitation where the relevant assessment is the subject matter of revision u/s. 25(2), although specific provision was provided for with reference to limitation of time for passing penalty orders where the relevant assessment were the subject matter of appeals. In section 18(5) (b) the limitation is provided for all residuary cases where the assessments are not subject matter of appeal. The penalty proceedings were admittedly initiated in the aforesaid case at the time when the original assessment orders were passed on 30-3-1979. The proceedings in the course of which the aforesaid penalty proceedings were initiated, were completed when the original assessments were made on 30-3-1979. The proceedings in the course of which the aforesaid penalty proceedings were initiated, were completed when the original assessments were made on 30-3-1979. The order passed by the C. W. T. u/s. 25(2) only contains directions to modify the original assessment orders passed by the WTO but the C. W. T. had not cancelled or set aside the entire assessment order to be made de novo. The C. W. T. had given any direction for re-initiation of such penalty proceedings u/s. 18(1) (a). Such directions for modification of the assessment order in the light of order passed by the C. W. T. u/s. 25(2) cannot alter the date of commencement of period of limitation prescribed u/s. 18(5) (b), which in fact had already commenced with the completion of original assessment proceedings on 30-3-1979. there is no provision in the W. T. Act which provides that where an assessment is modified by an order u/s. 25(2) the period of limitation prescribed u/s. 18(5) will be extended, altered or modified.
11. the words “in which the proceedings, in the course of which action for imposition of penalty, are completed” used in section 18(5) (a) and (b) have to be carefully considered for arriving at the conclusion as to when the penalty proceedings become barred by limitation of time. Originally section did not provide for separate time limit in cases where appeals against assessment orders were submitted. The operation of such time limit without containing any specific provision with regard to separate limitation of time in case where the appeals were filed resulted in various practical difficulties where the assessments had to be modified as a result of appellate orders. In order to obviate difficulties in such cases and to reduce infructuous work and avoid hardships to the assessee, separate time limit was specifically provided in relation to cases where appeals were filed. This indicates that section 18(5) (a) (i) refers to the two years period of limitation to be computed from the date of completion of the original assessment proceedings. In case the appeals were filed and the wealth tax assessments were liable to be modified, cancelled, a separate provision of limitation providing for six months time from the end of the month in which the appellate order was received by the C. W. T. was provided in relation to such modified assessment order. A comparison of the language of section 18(5) (A) with section 18(5) (b) clearly reveals that the residuary clause (b) should be interpreted to mean that the period of limitation of two years will begin from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. The proceedings for penalty in this case were initiated during the course of original assessment proceedings. Therefore, the limitation period of two years should be computed from the date when there original assessments were completed on 30-3-1979. The subsequent revision or modification of the assessment order pursuant to order u/s. 25(2) passed by the Commissioner cannot alter the limitation period which had already expired with reference to the date of completion of the original assessments. Any modification, revision or alternation in the assessment order will take place only after the completion of the original assessments and it cannot be said that the proceedings in which the penalty proceedings were initiated, were completed when the modified assessment order was passed pursuant to order u/s. 25(2). Such modification/revision of assessment can never precede the completion of the original assessment for the purposes of computing the limitation period u/s. 18(5) (b). Since the section 18(5) did not contain any separate time limit where the relevant assessment is the subject matter of revision u/s. 25(2), there was apparently a lacuna in law and that cannot be remedied by judicial decision. The appropriate remedy was only a legislative amendment, which has now been made by the Direct Tax Law (Amendment) Act, 1989 which came into force w.e.f. asst. year 1989-90 and can be appllied only in relation to penalty proceedings initiated after 1-4-1989 or the proceedings which were pending as on 1-4-1989.
12. The Direct Tax Laws (Amendment) Act, 1989 has substituted the old section 18(5) inserting new section as reproduced herein before and it has now been specifically provided that in section 18(5) (ii) that where the relevant assessment is the subject matter of revision u/s. 25(2) the limitation of time for passing the penalty order will expire on the expiry of six months from the end of the month in which such order of revision is passed. Such a provision was absent in the Statute prior to 1-4-1989. This amendment made with effect from 1-4-1989 to remove the lacuna, which existed prior to 1-4-1989, also by necessary implication established that the order u/s. 25(2) passed by the Commissioner in the present case did not extend the period of limitation prescribed u/s. 18(5), which commenced on 30-3-1979 and which naturally expired on 31-3-1981 according to a plain reading of section 18(5) (b). The penalty proceedings initiated on 31-3-1979 should have either resulted in dropping of the said proceedings before 31-3-1981 or an order ought to have been passed before that date. The penalty proceedings valid initiated on 31-3-1979 cannot be left undecided in the manner in which it has been left by the W. T. O. The penalty proceedings once validly initiated should definitely result in some order within the prescribed period of limitation. In case no order is passed before the prescribed limitation of time, the only inevitable conclusion is that the W. T. O. had allowed those penalty proceedings validly initiated on 31-3-1979 to become barred by limitation of time. During the pendency of an already pending penalty proceedings initiated on 31-3-1979, the subsequent re-initiation of similar proceedings u/s. 18(1) (a) is contrary to the provisions of law as no person can be vexed twice in respect of the same default, namely, late filing of the return, which are obviously quasi-criminal proceedings. In the present case the order passed by the Commissioner u/s. 25(2) merely contained directions for modification of the assessment orders already passed by the W. T. O. only with regard too specific items of wealth mentioned in the C. W. T.s order u/s. 25(2). Such specific direction also precludes the W. T. O. to once again initiated penalty proceedings u/s. 18(1) (a) at the time of passing modified order in pursuance of the order of the C. W. T. In view of specific order of the C. W. T. requiring limited and specific modification, the W. T. O. could not validly re-initiate the penalty proceedings, specially when the earlier proceedings initiated u/s. 18(1) (a) on 30-3-1979 were allowed to become barred by limitation of time by him. In view of the aforesaid discussions we agree with the findings given by the A. A. C. that the penalties imposed for all the aforesaid years by the W. T. O. vide order dt. 19-3-1987 had already become barred by limitation of time and the A. A. C. was therefore fully justified in cancelling the penalties for all the aforesaid years.
13. The penalties imposed upon the assessee cannot be sustained also on the gound that the W. T. O. had imposed the penalties for all the aforesaid years without even considering the reply dt. 18-3-1981 submitted by the assessee with reference to penalty proceedings u/s. 18(1) (a) for all the aforesaid years, were as under :
“A. Y. 1968-69 – Time for filing the return of wealth for 68-69 was extended up to 31-8-1969. As provision for steeper penalty came into effect from A. Y. 69-70, the valuation of land building etc. was to be perfectly valued by the approved valuer and as it took time for proper valuation of the assets it was filed late.
A. Y. 69-70 – The return was filed on 30-8-1979 which was late by one month only. The reason for delay was due to late finalisation of accounts by the Account.
A. Y. 1972-73 – Time for filing the return of wealth was extended up to 31-7-1972. The return was filed on 27-12-1972. It was late by 4 months. The reason for delay was due to time taken in valuation of assets.
A. Y. 1973-74 – Time for filing the return was extended up to 15-8-1973. The return was filed on 22-10-1973. As the statement were not ready time for filing the return of wealth was asked for up to 30-9-1973. The application in Form 6 was filed on 19-9-1973. It seems from my record that no reply was received. Since the time was asked for up to 30-9-73 and as the return was filed on 22-10-73 there was no default”.
This reply was submitted before time limit for imposition of penalty was going to expire on 31-3-1981. Since the assessing authority did not pass any order imposing the penalty before 3-3-1981, it can also be presumed that in view of the aforesaid reply the assessing authority might have been satisfied that no penalty is leviable in view of the explanations submitted by the assessee vide letter dated 18-3-1981. The non-passing of any penalty order prior to 31-3-1981, should result in such presumption in favour of the assessee. Even on this ground the penalties imposed upon the assessee are not sustainable.
14. In the result all the appeals filed by the department are dismissed.