Commissioner of Income Tax vs Madhya Bharat Tyres

R.K. Verma, J.—This reference by the Income Tax Appellate Tribunal, Indore Bench, u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), is made at the instance of the Commissioner of Income Tax, M.P.-I, Bhopal, whereby the following question, of law has been referred for the opinion of this court;

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Inspecting Assistant Commissioner of Income Tax had no jurisdiction to levy penalties and, hence, his penalty orders were illegal and without jurisdiction when the proceedings to levy penalties u/s 271(1)(c) of the Income Tax Act, 1961, for the assessment years 1966-67 to 1969-70 and 1973-74 to 1975-76, were initiated by the Income Tax Officer before April 1, 1976, but the references to the Inspecting Assistant Commissioner u/s 274(2) of the Income Tax Act, 1961, were made by the Income Tax Officer after April 1, 1976 ?"

The aforesaid reference has arisen in the following circumstances.

The non-applicant assessee is a registered firm deriving income from sale of tyres, tubes and other motor parts. The original assessments for the assessment years 1966-67 to 1969-70 were completed prior to October 19, 1974, on which date a search was conducted at the business premises of the assessee-firm from where certain books and other documents were seized by the Income Tax Department. After the search, proceedings u/s 147(a) of the Act were initiated for all the assessment years aforesaid and accordingly notices were issued u/s 148 of the Act and the assessee filed revised returns for all the above years. On assessments being made by the Income Tax Officer, the assessee was held to have concealed incomes in respect of each year of assessment and the Income Tax Officer, therefore, issued penalty notices and referred the cases to the Inspecting Assistant Commissioner of Income Tax u/s 274(2) of the Act, since the amount of income as determined by the Income Tax Officer on assessment in respect of each assessment year exceeded the sum of Rs. 25,000. The aforesaid reference to the Inspecting Assistant Commissioner u/s 274(2) of the Act was made by the Income Tax Officer after April 1, 1976, on which date the Taxation Laws (Amendment) Act, 1975, whereby Sub-section (2) of Section 274 of the Act was deleted, became effective. Sub-section (2) of Section 274 before its deletion on April 1, 1976, read as under ;

"274. (2) Notwithstanding anything contained in Clause (iii) of Subsection (1) of Section 271, if in a case falling under Clause (c) of that Sub-section, the amount of income (as determined by the Income Tax Officer on assessment) in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceeds a sum of twenty-five thousand rupees, the Income Tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose, have all the powers conferred under this Chapter for the imposition of penalty."

Consequent on the search and seizure being made by the Department on October 19, 1974, the assessee submitted revised returns in respect of the assessment years 1973-74 to 1975-76. For these years also, the Income Tax Officer initiated penalty proceedings and referred the cases to the Inspecting Assistant Commissioner after April 1, 1976, for levy of penalty.

The Inspecting Assistant Commissioner imposed penalties u/s 271(1)(c) of the Act by his orders dated March 28, 1978, in respect of all the cases of the assessee pertaining to the assessment years 1966-67 to 1969-70 and 1973-74 to 1975-76.

Against the orders of the Inspecting Assistant Commissioner imposing penalties for the various years, the assessee filed appeals before the Tribunal raising, inter alia, a legal contention that the reference by the Income Tax Officer to the Inspecting Assistant Commissioner u/s 274(2) of the Act after April I, 1976, did not clothe the Inspecting Assistant Commissioner with jurisdiction to impose penalty since the relevant Sub-section (2) of Section 274 had already become non-existent on April 1, 1976, having been omitted by virtue of the Taxation Laws (Amendment) Act, 1975.

The learned Tribunal allowed the appeals of the assessee and held that the Inspecting Assistant Commissioner had no jurisdiction to levy penalties by reason of the fact that Section 274(2) of the Act was omitted by the amendment with effect from April 1, 1976. The learned Tribunal, therefore, cancelled the penalties imposed in the abovementioned cases of the assessee for all the seven assessment years.

The Department had contended before the Tribunal that since the assessments for the relevant years were completed by the Income Tax Officer and he had initiated penalty proceedings before April 1, 1976, the provisions of Sub-section (2) of Section 274 of the Act were applicable to these cases and hence the Inspecting Assistant Commissioner was quite competent to impose penalties in these cases.

On an application for reference u/s 256(1) of the Act made by the Commissioner of Income Tax, the learned Tribunal has referred a question of law as stated hereinabove for the opinion of this court.

Learned counsel for the assessee has cited two decisions of this court in support of his submission that the Inspecting Assistant Commissioner had no jurisdiction to levy penalties and hence his penalty orders were illegal and without jurisdiction when the proceedings to levy penalties u/s 271(1)(c) of the Act for the assessment years 1966-67 to 1969-70 and 1973-74 to 1975-76 were initiated by the Income Tax Officer before April 1, 1976, but the references to the Inspecting Assistant Commissioner u/s 274(2) of the Act were made by the Income Tax Officer after April 1, 1976.

The first decision relied upon by learned counsel for the assessee is Commissioner of Income Tax Vs. A.N. Tiwari, , wherein it has been observed thus (headnote):

"Further, the words ''the Income Tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose, have all the powers conferred under this Chapter for the imposition of penalty'' as they occur in Section 274(2) clearly signify that the jurisdiction of the Inspecting Assistant Commissioner for the purpose of imposing the penalty is derived on a reference made to him by the Income Tax Officer, Therefore, what is important is to see whether the reference was validly made to the Inspecting Assistant Commissioner u/s 274(2)."

In the instant case, when the reference was made by the Income Tax Officer to the Inspecting Assistant Commissioner for the purposes of imposing penalty u/s 274(2) after April 1, 1976, the provision contained in Sub-section (2) of Section 274 had already been deleted by the Taxation Laws (Amendment) Act, 1975, and, therefore, the reference made to the Inspecting Assistant Commissioner was not valid and as such it did not clothe the Inspecting Assistant Commissioner with jurisdiction to impose penalty.

The other case cited by learned counsel for the assessee is Bankatlal Tody Vs. Commissioner of Wealth-tax, (MCC No. 155 of 1979 decided on March 12, 1982) in which the effect of amendment of an analogous provision of Section 18(3) of the Wealth-tax Act by the Taxation Laws (Amendment) Act, 1975, has been considered. In that case, the reference was made by the Wealth-tax Officer on January 29, 1977, when the provisions of Section 18(3) of the Act requiring the Wealth-tax Officer to refer the case to the Inspecting Assistant Commissioner were substituted by the Taxation Laws (Amendment) Act, 1975. It was held that the Inspecting Assistant Commissioner of Wealth-tax had no jurisdiction to impose penalty u/s 18(1)(c) of the Wealth-tax Act after the amendment of Section 18(3) with effect from April 1, 1976, by the Taxation Laws (Amendment) Act, 1975.

Relying on the two decisions cited by learned counsel for the assessee as aforesaid, we hold that the Inspecting Assistant Commissioner had no jurisdiction to levy penalties and hence his penalty orders were illegal and without jurisdiction when the proceedings to levy penalties u/s 271(1)(c) of the Act for the relevant assessment years were initiated by the Income Tax Officer before April 1, 1976, but the reference to the Inspecting Assistant Commissioner u/s 274(2) of the Act was made by the Income Tax Officer after April 1, 1976.

Accordingly our answer to the question of law under reference is in the affirmative and against the Department, Reference answered accordingly.

The parties shall bear their own costs of this reference.