Madras High Court
Commissioner Of Income Tax vs K.S.D. Pandurangan on 18 April, 1995
JUDGMENT Mishra, J.
1. This Court in T. C. P. No. 130 of 1981 has directed the Tribunal and accordingly the Tribunal has made the reference, which has arisen out of its order dt. 16th June, 1979.
2. The assessee filed his IT return on 29th Sept., 1970, and on that basis, an order of assessment was made on 25th Nov., 1971. The proceeding, however, reopened under s. 147(a) of the IT Act, 1961 (hereinafter referred to as "the Act"), and started for reassessment under s. 148 of the Act. The assessee voluntarily disclosed an additional income of Rs. 20,000 and was reassessed accordingly. Preceding, however, the reopening the assessment and the submission of a fresh return with the offer of Rs. 20,000 on 30th Nov., 1974, by the assessee, his business premises were subjected to a search on 12th July, 1973, and certain pronotes, etc., were seized. The ITO initiated penalty proceedings under s. 271(1)(c) of the Act and found that the assessee had concealed the income in the original return filed on 29th Sept., 1970, and levied a penalty of Rs. 20,000. The assessee appealed before the AAC. The AAC in his order held as follows :
"There is no dispute that the appellant did not disclose the correct particulars of his income in the return filed on 29th Sept., 1970, for the asst. yr. 1970-71. Even if the appellant is found to have not disclosed or disclosed by instalments the true income relating to the asst. yr. 1970-71 in the subsequent proceedings for reassessments, he must be penalised for concealment under s. 271(1)(c) of the Act only by reference to the return originally filed on 29th Sept., 1970. The law that would apply to such penalty proceedings will be the law that was in force on 29th Sept., 1970.
Under s. 274(2) of the Act as it stood prior to its amendment w.e.f. 1st April, 1971, the ITO could deal with penalties under s. 271(1)(c) of the Act only where the maximum penalty leviable did not exceed a sum of Rs. 1,000. Where it exceeds Rs. 1,000, the IAC alone could dispose of such penalties under s. 271(1)(c). Their Lordships of the Madras High Court have held that the amended provisions of s. 274(2) of the Act which enlarged the powers of the ITOs to deal with the penalties under s. 271(1)(c) even where the lump sum leviable exceeded Rs. 1,000 but did not exceed Rs. 25,000 w.e.f. 1st April, 1971, would not have retrospective operation.
As the amendment fell into the realm of substance and not procedure, the law as it stood prior to the amendment aforesaid, i.e., on 29th Sept., 1970, conferred jurisdiction on the ITO, to deal with the penalties under s. 271(1)(c) of the Act where the minimum penalties leviable exceeded Rs. 1,000. The ITO's order imposing a penalty of Rs. 20,000 under s. 271(1)(c) of the Act on the appellant by reference to concealment of income in a return filed by the appellant on 29th Sept., 1970, is, therefore, without jurisdiction and bad in law. The penalty levied is, therefore, cancelled [see Continental Commercial Corporation vs. ITO ]."
The Revenue preferred an appeal before the Tribunal. The Tribunal has upheld the order of the AAC. The reference, thus, is at the instance of the Revenue.
3. This Court in Continental Commercial Corporation vs. ITO has held that the amendment to s. 274(2) of the Act by (Act 42 of 1970) had no retrospective effect and hence the jurisdiction of the ITO to levy penalty should be determined with reference to the provision of such law as it stood on the date on which the assessee filed the return. That case related to the asst. yr. 1970-71. The assessee had filed his return on 22nd Dec., 1970. The amendment in s. 274(2) of the Act came into effect on 1st April, 1970. The assessment order for 1970-71 was made on 25th Jan., 1973. A notice under s. 271(1)(c) was issued to the assessee on the same day. The minimum penalty imposable exceeded the sum of Rs. 1,000. But the ITO considered that he had jurisdiction to proceed with the matter in view of the amendment to s. 271(1)(c) by Act 42 of 1970 since the amount of income in respect of which the particulars had been concealed did not exceed the sum of Rs. 25,000. He imposed on the assessee penalty of Rs. 4,000. The assessee filed a revision before the Addl. CIT, Madras. The revision petition was dismissed. Against the revisional order, the assessee filed a writ petition in this Court and contended that the proceeding initiated by the ITO, for imposition of penalty was without jurisdiction. A Bench of this Court accepted the said contention saying that the question was not res integra, but was already covered by the decision in CGT vs. C. Muthukumaraswamy Mudaliar (1975) 98 ITR 540 (Mad). It also referred to a judgment of the Punjab High Court in CIT vs. Bhan Singh Boota Singh . The case in CGT vs. C. Muthukumaraswamy Mudaliar (supra) had arisen under the GT Act, 1958. In that case, the penalty proceedings were initiated against the assessee under s. 17(1)(a) of the GT Act on the ground that the assessee had without reasonable cause failed to file the return within the prescribed time-limit which expired on 30th June, 1962. By amendment effected in s. 17(1)(a) by the Gift-tax (Amendment) Act, 1962, which came into force w.e.f. 1st April, 1963, a provision for the imposition of a minimum penalty was introduced. The question before the Court, thus, was, whether the said provision for the imposition of a minimum penalty was applicable to the case on hand. The Court held that the relevant date for the purpose of finding out the law that was applicable for levying penalty was the date of the commission of offence, namely, failure to furnish the return in time. Accordingly, it was held that the law as it stood on 30th June, 1962, governed the proceedings and the provision for imposition of minimum penalty had no application to the case. The Court applied the well-established legal position that the quantum of penalty to which a person can be subjected in connection with commission of an offence has to be determined with reference to the law governing the matter as it stood on the date of commission of the concerned offence. The Court, thus, held that the quantum of penalty to be levied in proceedings under s. 17(1)(a) of the GT Act for the offence of failure to file the return within the prescribed time necessarily was governed only by the law as it stood on the date when the assessee committed the offence, namely, 30th June, 1962, which was the last date before which the return had to be filed. The question before the Punjab High Court in the case of Bhan Singh Boota Singh (supra) was also only in respect of the quantum of penalty leviable in respect of an offence which is to be determined with reference to the law prevailing on the date when the offence or infringement took place or with reference to the law as on the date when the penalty proceedings were initiated or completed. Neither this Court in Muthukumaraswamy Mudaliar's case (supra) nor the Punjab High Court in Bhan Singh Boota Singh case (supra) had/has dealt with the question of jurisdiction or competence of the officer concerned to exercise the power of imposition of penalty. This Court in Continental Commercial Corporation's case (supra) also has failed to take notice of the distinction between the issue as to the jurisdiction or the power of the authority concerned to impose penalty and the quantum of penalty to be levied in a proceeding. The two judgments aforementioned related clearly to the issue of quantum of penalty to be levied in proceedings under s. 17(1)(a) of the GT Act and s. 271(1)(c) r/w s. 274(2) of the Act as amended by Act 42 of 1970, with reference only to the quantum of penalty and reiterated the principle that the quantum of penalty to which a person can be subjected in connection with the commission of an offence is to be determined with reference to the law governing the matter as it stood on the date of the commission of the concerned offence. The competence or jurisdiction to impose penalty or to initiate penalty proceedings is different from the power or the limit of jurisdiction as to the imposition of penalty, in the sense, the change in the authority and empowerment to initiate penalty proceedings accordingly cannot be governed by something which will perforce continue the authority which has ceased to exist or has undergone a change only for the purpose of dealing with such cases in which the offence or infringement is committed before the change in the law in this behalf, but the action is started and penalty imposed after the enforcement of the amended law.
The Kerala High Court in the case of CIT vs. Varkey Chacko was first to see this difference and to record its disagreement with the view expressed in the case of Continental Commercial Corporation (supra) in these words :
"As already indicated by us, the principle that the penal liability of a person in respect of an offence committed by him is governed by the law actually in force as on the date of the commission of the offence cannot have application in determining which authority is competent to initiate proceedings for imposition of penalty in respect of the commission of any offence or infringement under the Act. We are clearly of opinion that the competence or jurisdiction of the authority to initiate the penalty proceedings can be governed only by the law which is in force on the date of such initiation of proceedings. A combined reading of s. 271(1)(c)(iii) of the Act (along with the Explanation thereto) and sub-s. (2) s. 274 provides a clear indication that under the provisions of sub-s. (2) of s. 274, as they stood prior to the amendment of 1970, the competency of the ITO to exercise the power of imposition of penalty against an assessee under cl. (c) of s. 271(1) was to depend upon the findings arrived at by him in the assessment proceedings as to the factum of concealment and the amount of the income in respect of which such concealment had taken place. It is only on arriving at such a finding that concealment has taken place that the question of initiation of penalty proceedings against an assessee can arise."
The Kerala High Court placed reliance upon the observations of the Supreme Court in Jain Brothers vs. Union of India which are as follows :
It is obvious that for the imposition of penalty it is not the assessment year or the date of the filing of the return which is important but it is the satisfaction of the IT authorities that a default has been committed by the assessee which would attract the provisions relating to penalty. Whatever be the stage at which the satisfaction is reached, the scheme of ss. 274(1) and 275 of the Act of 1961, is that the order imposing penalty must be made after the completion of the assessment. The crucial date, therefore, for purposes of penalty, is the date of such completion."
Had the matter, however, rested with the opinion of this Court in the case of Continental Commercial Corporation (supra) and the Kerala High Court in the case of CIT vs. Varkey Chacko (supra) we would have chosen to consider whether the obvious mistake of law in reading the earlier judgment of this Court in the case of C. Muthukumaraswamy Mudaliar (supra) and the Punjab High Court in the case of Bhan Singh Boota Singh (supra) should be held per incuriam or the conflict should be resolved by a larger Bench. The Kerala High Court's judgment has since been affirmed by the Supreme Court in the case Varkey Chacko vs. CIT . Affirming the judgment of the Kerala High Court, the Supreme Court has observed as follows :
"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.
In the instant case, when the ITO reached the satisfaction that the assessee had concealed his income and made the assessment order on 27th March, 1972, the amended provisions of s. 274(2) were in operation and they entitled the ITO to impose penalty in cases where the amount of income in respect of which particulars had been concealed were, as here, less than Rs. 25,000.
We are, therefore, of the view that the High Court answered the question referred to it correctly. The appeal, therefore, is dismissed..."
4. The question referred to us, that is, "whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the provisions of s. 274(2) prior to its amendment w.e.f. 1st April, 1971, apply to this case for purpose of levy of penalty under s. 271(1)(c) and hence the ITO had no jurisdiction to levy penalty", has to be answered in favour of the Revenue and against the assessee, that is, the authority, namely, the ITO who enjoyed enhanced jurisdiction w.e.f. 1st April, 1971, was competent to impose penalty, but only to the extent of permissible quantum of penalty under the law which was in force at the time of the commission of the offence or infringement. We have chosen to close the proceeding by answering the question referred to us but for a question, which in our opinion, should be addressed by all concerned before any penalty is imposed under s. 271(1)(c) of the Act. Penalty proceeding is an independent proceeding and is initiated to punish the violation of the law that the assessee had failed to furnish the return, has failed to comply with the notice, has concealed the income, etc., or in a case falling under s. 271(1)(c) for the reason that he has concealed the particulars of income or furnished inaccurate particulars of income. One cannot fail, however, to notice that s. 139 of the Act enjoins every person, if his total income or the total income of any other person in respect of which he is assessable under the Act during the previous year exceeded the maximum amount which is not chargeable to income-tax to furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. The ITO is given power of making enquiry before assessment under s. 142 of the Act and calling upon the assessee to produce, or cause to be produced, such accounts or documents as he may require or to furnish in writing and verified in the prescribed manner information in such form and on such points or matters including a statement of all assets and liabilities of the assessee, whether included in the accounts or not. The ITO may, without requiring the presence of the assessee or the production by him of any evidence in support of the return, make an assessment of the total income or loss of the assessee under s. 143 of the Act, and in cases where a return has been made under s. 139 of the Act and an assessment has been made under sub-s. (1) of s. 143 of the Act, the assessee makes an application objecting to the assessment or whether or not an assessment has been made under sub-s. (1) of s. 143, the ITO considers it necessary or expedient to verify the correctness and completeness of the return by requiring the presence of the assessee or the production of evidence in this behalf, proceed to enquire after giving an opportunity to the assessee to show cause. The assessment can be reopened at the instance of the assessee (see s. 146 of the Act) and by the ITO if he has reason to believe that by reason of the omission or failure on the part of an assessee to make a return under s. 139 of the Act for any assessment year to him or to disclose fully and truly all material facts necessary for his assessment for that year, or notwithstanding that there has been no omission or failure as mentioned in cl. (a) on the part of the assessee, has in consequence of information in his possession reason to believe that the income chargeable to tax has escaped assessment for any assessment year (see s. 147 of the Act). The expressions "material facts" in cl. (a) of s. 147 of the Act for reopening and, "concealed the particulars of his income or furnished inaccurate particulars of such income" in s. 271(1)(c) of the Act, are different and convey in the former case, that is, for s. 147(a) such facts which go to show income from various sources duly verified if filed under s. 139(1) and if not filed as are referable to the prescribed form and verified in the prescribed manner in this behalf as envisaged under s. 139(1) of the Act."Particulars", however, are distinguished from "material facts" and can be supplied in case of default or even otherwise in the course of any enquiry by the ITO, by the assessee when called upon to do so or voluntarily to explain any ambiguity in the return or to complete the return in all respects."Particulars", however, which are found prescribed in the rules, have in any case to be disclosed and failure to do so may amount to concealment and if they are inadequate for such inaccurate disclosure. When the legislative intent behind s. 271(1)(c) is examined, it is possible to say that mentioning the sources of income and putting under a particular head certain amount in the return and not disclosing substantial income and inaccurately any particular earning or omitting altogether any return with respect to any kind of income is covered by this provision. There is no reason, in our opinion, to restrict the rule of this provision which is intended to punish those who concealed their income or disclosed inaccurate particulars with respect to any source of income. This, however, cannot rule out the possibility of omission, which is not intentional or failure to disclose certain income for any genuine reason.
The case of the assessee in the penalty proceedings is stated in the order of the AAC in these words :
"Shri K. R. Sarangapani, C. A., the appellant's learned representative submitted that the appellant did not conceal the particulars of his income even in the original return filed on 29th Sept., 1970. The seized materials did not positively indicate any undisclosed transactions of the appellant. Taking into account the pronotes where complete details were available like the name of the lender, amounts lent, date of loan, name of the borrower, etc., the appellant arrived at the amount advanced between the asst. yrs. 1966-67 and 1972-73 at Rs. 17,315 and offered a round sum of Rs. 20,000 for the asst. yr. 1970-71 as his undisclosed income. This was done with a view to avoiding protracted litigation in the matter of the appellant's assessment and facilitating expeditious completion of the assessment. The revised return filed would not, therefore, establish any falsity in the original return. Obviously, the undisclosed investments, if any, in the years 1966-67 to 1969-70 could not have come from the undisclosed income of 1970-71 as offered for assessment by the appellant. It was, therefore, urged that the penalty levied had to be cancelled."
5. None of the authorities has considered whether the assessee is right in saying that the seized materials did not positively indicate any undisclosed transaction of the assessee and that the undisclosed investment, if any, of the years 1966-67 to 1969-70 did not form the undisclosed income for 1970-71. How it is inferred that the undisclosed income of Rs. 20,000 constituted concealment of particulars or inaccurate disclosure of particulars in the return for the year 1970-71 is not clear. It is a case, in our view, in which a clear finding in this behalf is necessary. No one who has concealed particulars of his income or disclosed inaccurate particulars should be allowed to escape penalty, if he has done it intentionally. No one who has not done any such thing and if any such thing is done unknowingly or inadvertently should be subjected to penalty. If only on the basis of assessment of escaped income or on the basis of later disclosure of some income by the assessee, it has to be inferred that he has infringed the requirements of law, there will be no purpose of a separate penalty proceedings. The very fact that penalty proceedings are separately taken out and an opportunity is given to the assessee to show cause and produce evidence, etc., must assume that before inflicting penalty, it should be examined whether there is a deliberate concealment of income by the assessee of particulars of income or deliberate furnishing of inaccurate particulars of income. We are inclined, for the said reason, in the instant case to remit the case to the Tribunal to consider in the light of the observations above whether any penalty should be imposed upon the assessee. The reference is disposed of accordingly.