Commissioner of Income Tax vs A. Subramania Pillai

K.A. Thanikkachalam, J.—At the instance of the Department, the Tribunal referred the following question said to arise out of the order of

the Tribunal in I.T.A. No. 883/(Madras) of 1978-79 for the assessment year 1970-71 for the opinion of this court u/s 256(2) of the Income Tax

Act, 1961 :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the Income Tax Officer had

no jurisdiction to levy penalty in this case u/s 271(1)(c) of the Income Tax Act, 1961, and that the Inspecting Assistant Commissioner alone can

levy the penalty ?

The assessee, during the assessment year under consideration, was doing business in purchase and sale of standard gold jewellery and silver

articles, filed his return on December 13, 1970, disclosing an income of Rs. 2,105. The Income Tax Officer determined the total income in the

assessment made by him on January 12, 1973, at Rs. 25,510 including additions for deficiency in gross profit and cash balance. The Income Tax

Officer initiated penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961. The assessee submitted before the Income Tax Officer that he

had agreed to additions only with a view to purchase peace. The Income Tax Officer, however, levied the minimum penalty of Rs. 24,400 in his

order dated March 24, 1975.

Aggrieved the assessee filed an appeal before the Appellate Assistant Commissioner, contending that since the penalty imposed exceeds Rs.

1,000, the Income Tax Officer ought to have referred the case to the Inspecting Assistant Commissioner and the amendment made to section

274(2) by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971, would not affect the pending cases and consequently the

penalty could have been levied only by the Inspecting Assistant Commissioner. The contention was not accepted by the Appellate Assistant

Commissioner. According to the Appellate Assistant Commissioner, the amendment is only of procedural nature and therefore the Appellate

Assistant Commissioner held that the Income Tax Officer had jurisdiction to levy penalty.

Aggrieved, the assessee filed a second appeal before the Tribunal contending that since the return was filed on December 13, 1970, only the

provisions of section 274(2) as it stood on that date would be applicable and hence the Income Tax Officer should have referred the case to the

Inspecting Assistant Commissioner and the Income Tax Officer had no jurisdiction to levy the penalty. The assessee also relied upon a decision of

this court in Continental Commercial Corporation Vs. Income Tax Officer and Another, . However, the Department contended that the provisions

of section 274(2) are of procedural nature and, therefore, the amended provisions thereof would apply to this case and consequently the Income

Tax Officer alone had jurisdiction in this matter. The Tribunal, however, placing reliance on a decision of the Orissa High Court in Commissioner of

Income Tax Vs. Dhadi Sahu, , held that the assessee''s contention was acceptable in view of the Madras High Court decision in Continental

Commercial Corporation Vs. Income Tax Officer and Another, , which was binding on the Madras Benches of the Tribunal. Accordingly, the

Tribunal held that the Income Tax Officer had no jurisdiction to levy the penalty. In that view of the matter, the penalty was cancelled. The Tribunal

did not consider the further question as to whether the assessee had concealed his income, on the merits.

The return in the present case was filed on December 13, 1970. The penalty leviable was more than Rs. 1,000. The assessment was completed

on January 12, 1973. The assessment year involved in the present case is 1970-71. The penalty levied was Rs. 24,400 which is less than Rs.

25,000. Notice u/s 271(1)(c) read with section 274 was issued on January 30, 1973, which is after the amendment which came into effect from

April 1, 1971. According to the assessee, the provisions of section 274(2) of the Act, as it stood on the date would be applicable and the

amended provisions of section 274(2) would not be applicable and hence the Income Tax Officer should have referred the case to the Inspecting

Assistant Commissioner, since he had no jurisdiction to levy penalty. According to the Department, the provisions of section 274(2) are procedural

in nature and, therefore, the amended provisions thereof would apply to this case and consequently the Income Tax Officer alone had jurisdiction

in this matter. A similar question came up for consideration before the Supreme Court in the case of Varkey Chacko Vs. Commissioner of Income

Tax, , wherein it was held as follows (page 890) :

A penalty for concealment of particulars of income or for furnishing inaccurate particulars of income can be imposed only when the assessing

authority is satisfied that there has been such concealment or furnishing of inaccurate particulars. A penalty proceeding, therefore, can be initiated

only after an assessment order has been made which finds such concealment or furnishing of inaccurate particulars. Who, at this point of time, has

the authority to impose the penalty is what is relevant. Whoever this authority may be, he is obliged to impose such penalty as was permissible

under the law in that behalf on the date on which the offence of concealment of income was committed, that is to say, on the date of the offending

return. The two aspects must firmly be borne in mind, namely, who may impose the penalty and in what measure.

Thus, considering the facts arising in this case in the light of the abovesaid decision of the Supreme Court, we hold that the Tribunal was not

correct in coming to the conclusion that the Income Tax Officer had no jurisdiction to levy the penalty in this case u/s 271(1)(c) of the Income Tax

Act, 1961. On the other hand, in this case, the Income Tax Officer alone had jurisdiction to levy penalty u/s 271(1)(c) of the Income Tax Act,

1961. Accordingly, inasmuch as the Tribunal has not disposed of the appeal on the merits, we direct the Tribunal to dispose of the appeal on the

merits, after giving an opportunity of being heard to the assessee.

In that view of the matter, we answer the question referred to us in the negative and in favour of the Department. There will be no order as to

costs.