Commissioner of Income Tax vs Bombay Motor

At the instance of the revenue the Tribunal has referred the following question for the opinion of the High Court: Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the IAC had no jurisdiction to levy the impugned penalties ?

The facts relevant are these :

The assessee was a registered firm. For the assessment year 1972-73 the assessment was completed on 15-11-1973 by the ITO. At the time of completing the assessment the ITO initiated penalty proceedings u/s 271(1)(c) of the income tax Act, 1961, read with Amending Act, 1975. Since, the minimum penalty leviable exceeded Rs. 1,000, the ITO referred the matter to the IAC who imposed penalty u/s 271(1)(c) on 8-7-1976.

In respect of the assessment year 1973-74 the return was filed by the assessee-firm. The ITO completed the assessment on 17-11-1973. At the time of completing the assessment he initiated penalty proceedings u/s 271(1)(c). Since, the minimum penalty leviable exceeded Rs. 1,000 the matter was referred to the IAC.

In both the matters the IAC imposed penalty u/s 271(1)(c). On the assessee taking up the matter before the Tribunal the orders of the IAC were reversed on the finding that the IAC had no jurisdiction to impose penalty after 1-4-1976, when the Taxation Laws (Amendment) Act came into force.

On an application made by the department, the following question was referred by the Tribunal for opinion of the High Court:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the IAC had no jurisdiction to levy the impugned penalties ?

We have noted above that the orders imposing penalty were made by the IAC, in July 1976. The arguments of the assessee before the Tribunal, as also before us, was that as the penalty orders were passed after 1-4-1976 and, as such, the IAC did not have jurisdiction to pass those orders. The orders of penalty were void ab initio. Reliance had been placed on the decision of Commissioner of Income Tax Vs. Dhadi Sahu, We are not satisfied with the arguments of the assessee. After 1-4-1976 section 274(2) of the Act was deleted. It means, from 1-4-1976, the IAC no longer remained in power to impose penalty u/s 271(1)(c). With effect from 1-4-1976 section 271(1)(c) provides that if the ITO is satisfied that any person has concealed particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, in the cases referred in clause (c), in addition to any amount of tax payable by him, a sum which shall not be less than 10 per cent but which shall not exceed so per cent of the amount of tax sought to be avoided by reason of concealing of particulars of his income or furnishing of inaccurate particulars of such income.

From the above, it would appear, the ITO was empowered to impose penalty u/s 271(1)(c). In view of the Amending Act, 1975 this submission has no substance. The provisions of the Amending Act as well as those of section 274 read together would indicate that if a reference has been made by the ITO to the IAC for imposition of penalty in a case where the penalty was more than Rs. 1,000, the IAC would have jurisdiction to impose penalty u/s 271(1)(c). But where reference had not been made before 1-4-1976, the IAC would have no jurisdiction.

Before the Tribunal the revenue contended that the IAC was perfectly justified in imposing the penalties even after 1-4-1976, because they were validly initiated before that date.

In Commissioner of Income Tax Vs. Smt. Amar Kumari, this question came up for consideration before this Court. The Court held that the relevant consideration in judging the validity of an order passed by the IAC was whether the penalty proceedings were pending before the IAC prior to 1-4-1976. If the reference had been made prior 1-4-1976, when sub-section (2) of section 274 was deleted, the IAC would have jurisdiction to impose penalty, since, the IAC''s jurisdiction was saved even after the deletion of sub-section (2) of section 274. We have noted above that his jurisdiction was saved in respect of references made to him prior to 1-4-1976. We are in respectful agreement with the view taken in the aforesaid decision.

From the referring order, the date on which reference was made by the ITO to the IAC is not clear. However, the mistake of the Tribunal on that count does not come in our way in deciding the reference by holding that if the reference had been made by the ITO to the IAC, before 1-4-1976 he would have jurisdiction to decide it. The order imposing penalty could be valid, but if no reference was made before that date, the IAC would have no power to impose penalty u/s 271(1)(c). Initiation of the penalty proceedings u/s 271(1)(c), do not in itself decide the validity of the penalty order. It is the date of reference which is material.

For the reasons given above, we answer the question referred to us by holding that the IAC would have jurisdiction to levy penalty if the reference had been made by the ITO to the IAC before 1-4-1976. But if that was not so done, the penalty orders would be void. In the circumstances, we make no order as to costs.