Commissioner of Income Tax vs Vakharia Cotton Traders

B.S. Kapadia, J.—The present reference is made u/s 256(1) of the Income Tax Act. The question referred is as under :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the order of penalty passed by the Inspecting

Assistant Commissioner on March 18, 1975, was time-barred ?

The facts leading to the present reference are as under :

The assessee is a registered firm under the Income Tax Act and consisted of four partners in the relevant assessment year 1957-58. The

assessment was originally completed on January 29, 1959, on a total income of Rs. 67,648. Later on, the Income Tax Officer reopened the

assessment u/s 34 of the 1922 Act and passed a fresh order on April 9, 1964, on a total income of Rs. 1,47,648 adding Rs. 80,000 as income of

the assessee from the business in the name of Isab Ahmed Mussa. The assessee took the matter in appeal before the Tribunal and the Tribunal, by

its order in Income Tax Application No. 18848 of 1966, held that the business transacted in the name of Isab Ahmed Mussa really belonged to

the assessee-firm and the name of Isab Ahmed Mussa was introduced with a view to avoid proper taxation. However, the Tribunal allowed some

relief in quantum.

The Income Tax Officer initiated penalty proceedings u/s 27(1)(c) of the Income Tax Act for the concealment of the said income of Rs. 80,000.

As per the relevant provisions of section 274(2) of the Act, he referred the matter to the Inspecting Assistant Commissioner of Income Tax. He

issued a notice and ultimately found that the assessee has done business in the name of Isab Ahmed Mussa and imposed penalty of Rs. 50,000 on

April 1, 1966.

The assessee took the matter to the Tribunal. The Tribunal by its order dated December 29, 1969, set aside the order of the Inspecting

Assistant Commissioner and restored the matter to his file for afresh adjudication after giving the assessee an opportunity of hearing. The Inspecting

Assistant Commissioner thereafter took up the matter afresh and passed the order on March 18, 1975, imposing penalty of Rs. 35,000 u/s 271(1)

(c) of the Income Tax Act, 1961.

Against the said order of the Inspecting Assistant Commissioner, the two partners of the firm have filed two separate appeals. The Tribunal

heard both the appeals together. It was urged in the said appeals that the imposition of the penalty was time-barred as the penalty proceedings

were in connection with the assessment order which was passed by the Income Tax Officer u/s 34 of the Indian Income Tax Act, 1922, on

February 9, 1964. The Tribunal, relying on the decision in the case of Additional Commissioner of Income Tax Vs. K.S.G. Panicker, Kerala

Produce Exporting Co., , allowed both the appeals by a common order. At the instance of the Revenue, the present reference has been made.

Shri S. N. Shelat, the learned advocate appearing for the Revenue, submits that the Tribunal has erred in relying on the decision in Additional

Commissioner of Income Tax Vs. K.S.G. Panicker, Kerala Produce Exporting Co., and the Tribunal ought to have followed the decision in the

case of Commissioner of Income Tax, Bombay North Vs. Kishoresinh Kalyansinh Solanki, . He further submits that the decision of Commissioner

of Income Tax, Bombay North Vs. Kishoresinh Kalyansinh Solanki, has been followed by the Gujarat High Court in the case of Vasani and Co.

Vs. Commissioner of Income Tax, Gujarat-III, . Mr. Shelat also pointed that the said decision in Commissioner of Income Tax, Bombay North

Vs. Kishoresinh Kalyansinh Solanki, has been approved by the Supreme Court in the case of CIT v. National Taj Traders [1980] 121 ITR 535

and, therefore, the question referred by the Tribunal should be answered in the negative, that is, in favour of the Revenue and against the assessee.

Shri J. P. Shah, the learned advocate appearing for the assessee, submits that in view of the judgment of the Supreme Court in [1980] 121 ITR

535, this being a penalty proceeding u/s 275 of the Act, should be strictly construed and as the order passed by the Inspecting Assistant

Commissioner imposing penalty on March 18, 1975, was clearly made after two years from the date of the order dated April 9, 1964, the

question referred should be answered in the affirmative. It may be stated that Mr. J. P. Shah has conceded that the Gujarat High Court has already

decided in the case of Vasani and Co. Vs. Commissioner of Income Tax, Gujarat-III, , the point of limitation against the assessee on the

construction of section 275. However, he has based his contention only on the following observation made by the Supreme Court (p. 545 of 121

ITR) :

.....it is well settled that the principle that the fiscal statute sho-uld be construed strictly is applicable only to taxing provisions such as a charging

provision or a provision imposing penalty and not to those parts of the statute which contain machinery provisions.......

It is true that a fiscal statute should be construed ""strictly"" and it would apply to the taxing provisions such as a charging provision or a provision

imposing penalty, but that principle would not apply to those parts of the statute which contain machinery provisions. In the said case, the Supreme

Court has also observed that by no stretch of imagination section 33B (of the I.T. Act, 1922) could be regarded as a charging provision and in

section 33B there is a provision in sub-section (2)(b) prescribing the time-limit on the Commissioner''s powers to revise an erroneous order of the

Income Tax Officer. Similarly, section 275, as it stood at the relevant time, only provides the period of limitation and it was not a provision

imposing penalty. The provision which imposes penalty is section 271 of the Act and, therefore, the above observation does not help the assessee.

The provision Of section 275 has been already construed by this court in Vasani and Co. Vs. Commissioner of Income Tax, Gujarat-III, .

In view of this position, we are bound by the said decision and we do not agree with Mr. J. P. Shah that the aforesaid judgment Of the Gujarat

High Court stands impliedly overruled in view of the above observations of the Supreme Court. Accordingly, the question referred in this reference

is answered in the negative, that is, in favour of the Revenue and against the assessee. Hence, the reference is disposed of accordingly with no

order as to costs. We have not entered into the merits of the matter as the question referred to us pertained only to limitation.