MODERN TEXTILE and FINISHING MILLS vs COMMISSIONER OF INCOME TAX.

ASHOK BHAN, J. :

Following two questions have been referred by the Tribunal, Amritsar, relating to the asst. yrs. 1968-69 and 1969-70, for the opinion of this Court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Explanation to s. 271(1)(c) which was deleted by the Taxation Laws (Amendment) Act, 1975 w.e.f. 1st April, 1976 was applicable to this case ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the penalty orders should not have been cancelled by the CIT(A) without considering whether the penalty was imposable under the main provisions of s. 271(1)(c) ?"

Assessee had filed its return on 29th Oct., 1971 for the asst. yr. 1968-69 showing a loss of Rs. 2,32,870. The ITO framed the assessment on 17th Sept., 1977, determining the total loss at Rs. 1,30,063. After recording his satisfaction regarding initiation of proceedings under s. 271(1)(c) of the IT Act, 1961 (hereinafter referred to as the Act) read with the Explanation to the section, he after taking into consideration the facts on the record, held that the penalty was imposable on the assessee in respect of two additions made in the assessment recorded in the trading account to the extent of Rs. 1,54,177 and in respect of the claim for payment of commission to the extent of Rs. 25,812. The ITO held that the assessee had concealed particulars of its income and imposed a penalty of Rs. 1,79,989, which was equal to the amount of income which he held the assessee had concealed. Similarly, for the asst. yr. 1969-70, penalty was imposed under similar circumstances and similar facts. In that year, the return was filed on 29th Sept., 1971 and the assessment had been framed on 27th March, 1980.

In appeal before the CIT(A), several grounds were taken. The CIT(A) considered only one point and accepted the appeal of the assessee holding that the penalty was bad in law as the ITO had referred to the Explanation to s. 271(1)(c) of the Act, which was not in existence at the time when the assessment was framed and the notice was issued for levying the penalty. The ITO had referred to the Explanation which was in existence from 1st April, 1964 to 1st April, 1976. Parliament, by an amendment, substituted the earlier Explanation by another set of four Explanations w.e.f. 1st April, 1976. The CIT(A) was of the view that the ITO had erred in relying upon a provision which was not in existence on the date notice for levying the penalty was issued.

He also held that it was not clear as to which out of the four Explanations was invoked by the ITO.

Revenue carried an the appeal before the Tribunal. Counsel for the Revenue raised a contention that the Explanation which was in existence at the time when the return was filed would be applicable. Tribunal accepted the appeal and held that the Explanation which existed prior to 1st April, 1976 i.e. which was in existence at the time of filing the return would be applicable. It was held that the CIT(A) should not have cancelled the penalty orders without considering whether the penalty was imposable under the main provisions of s. 271(1)(c) of the Act. The mention of Explanation in s. 271(1)(c) of the Act does not mean that the main provisions have not been applied and it was necessary to give a finding whether the penalty was imposable under the main provisions itself or not. Tribunal further found that the CIT(A) had not considered the matter on merits. Order of the CIT(A) was set aside and the case was remanded to the CIT(A) to consider the question of imposition of penalty on merits.

At the instance of the assessee, two questions of law, reproduced in the earlier part of the judgment, have been referred to this Court, for its opinion.

Counsel for the assessee at the outset, placing reliance upon a judgment of this Court in Commissioner of Income Tax Vs. Prithipal Singh and Co., argued that where an assessee has filed a return declaring a loss and the assessment was finally framed at a loss figure, then it cannot be said that the assessee had suppressed any income which would have attracted liability to tax; that s. 271(1)(c) of the Act was not applicable and the penalty could not be imposed.

We are not called upon to decide this question. This is a dispute on merits and it shall be open to the assessee to raise this point before the CIT(A), where the appeal is pending for disposal on merits. It shall be for the CIT(A) to decide the question regarding imposability of penalty on merits, in accordance with law.

Counsel for the assessee did not press for answers to the questions referred to us as the matter is pending disposal before the CIT(A) on merits. He wishes to contest the imposability of penalty on merits before the CIT(A). In view of the stand taken by the counsel for the assessee, questions referred to us are returned unanswered.