Patna High Court
Commissioner Of Income-Tax vs Jankidas Mohan Lal on 28 March, 1985
Equivalent citations: [1987]163ITR756(PATNA)
JUDGMENT Nazir Ahmad, J.
1. A statement of the case under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), has been submitted by the Income-tax Appellate Tribunal, 'A' Bench, Patna, referring the following question of law for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the Inspecting Assistant Commissioner was not competent to levy penalty under Section 271(1)(c) read with Section 274(2) and Section 275 of the Income-tax Act, 1961 ?"
2. The relevant short facts of this case may be culled out from the statement of the case which are as follows :
The assessee is a registered firm and the reference relates to the assessment year 1966-67 for which the accounting year was Dewali ending 1965. The Income-tax Officer completed the assessment on October 20,1970, and initiated penalty proceedings as the assessee's returned income was found to be less than 80% of the assessed income and its claim of deduction of interest was found to be on bogus hundi loans. He referred the matter to the Inspecting Assistant Commissioner as the minimum penalty imposable in this case exceeded Rs. 1,000. The Inspecting Assistant Commissioner imposed a penalty of Rs. 16,100 by order dated March 29, 1973, which is annexed and marked as annexure-A forming part of the statement of the case. The Inspecting Assistant Commissioner found that, apart from several additions made by the Income-tax Officer, there was disallowances on account of interest on hundi loans which were admittedly not genuine. He, therefore, held that the assessee's claim for this expenditure was false and it was within his knowledge. The Inspecting Assistant Commissioner, therefore, came to the conclusion that the assessee was liable to penalty since it was guilty of filing inaccurate particulars of income as also because the returned income was less than 80% of the income finally assessed. He, therefore, imposed the penalty as mentioned above.
3. Being aggrieved by the said order, the assessee appealed before the Income-tax Appellate Tribunal. It was urged before the Appellate Tribunal that the difference between the returned income and the assessed income was mainly due to trading account additions on estimate without pointing out any material defect in the assessee's books of account and also to the disallowance of depreciation. It was next submitted that the total income was reduced to Rs. 1,17,000 by the Tribunal in quantum appeal from the originally assessed income of Rs. 1,74,979 and that the difference which was still in existence was due to disallowance of depreciation of considerable amount. It was, therefore, claimed that the assessee was not liable to penalty on merits as there was nothing to show that the assessee had committed fraud or gross or wilful neglect in returning correct income. It was next submitted that the order of the Inspecting Assistant Commissioner imposing penalty suffered from legal infirmity because the assessment was completed on October 20, 1970, whereas penalty was imposed by the Inspecting Assistant Commissioner on March 29, 1973. It was, therefore, urged that the Inspecting Assistant Commissioner had forfeited his right to impose penalty after the period of two years from the date of completion of the assessment. It was pointed out that the Inspecting Assistant Commissioner imposed the penalty as he assumed jurisdiction under the amended provision of Section 274(2), which came into effect on and from the April 1, 1971. According to the assessee, if Section 275 had not been amended with effect from April 1, 1971, the penalty proceedings should have been completed on or before October 20, 1972. It was, therefore, submitted before the Tribunal that while the Inspecting Assistant Commissioner following the provisions of Section 275 as amended had erred in not following the other important provisions as per the amendment of Section 274(2) whereby he could assume jurisdiction only if the minimum penalty imposable exceeded Rs. 25,000. It was, therefore, claimed that, in this case, the minimum penalty imposable being Rs. 16,100, the order of the Inspecting Assistant Commissioner suffered from legal infirmity and, therefore, the penalty should be cancelled.
4. The Tribunal, after considering the facts and circumstances of the case, held that the assessee might or might not have committed fraud but it committed gross negligence in returning its correct income and, therefore, the assessee was liable to penalty on merits. The Tribunal, however, held that apart from legal point of view, the order of the Inspecting Assistant Commissioner suffered from infirmity because the penally order was not finalised by the Inspecting Assistant Commissioner within two years from the date of completion of the assessment. The Tribunal found that, in this case, penalty proceedings were initiated during the course of assessment proceedings which were completed on October 20, 1970, and when Section 274(2) and Section 275 were amended by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971, the penalty proceedings were pending. The crucial date, therefore, for the purpose of penalty was the date of such completion of assessment and, therefore, if Section 275 had not been amended with effect from April 1, 1971, the penalty proceedings should have been completed on or before October 20, 1970. But, since amended Section 275 provides a period of two years from the end of the financial year in which the proceedings in the course of which action for imposition of penalty had been initiated, the Inspecting Assistant Commissioner assumed jurisdiction on that basis and could pass an order legally on that date, i.e., on March 29, 1973. The Tribunal further held that the Inspecting Assistant Commissioner while following the provisions of the amended Section 275 had also to keep in view the amended provisions of Section 274(2) whereby he could assume jurisdiction only if the minimum penalty imposable exceeded Rs. 25,000. The Tribunal, therefore, came to the conclusion that the Inspecting Assistant Commissioner had followed the provisions of the amended section partially, i.e., he passed the order even after two years from the date of completion of the assessment, but he had erred in not following the other provisions that his jurisdiction was limited by the amended Act in the cases where the minimum penalty exceeded Rs. 25,000 only. The Tribunal, therefore, held that the order of the Inspecting Assistant Commissioner suffered from legal infirmity and, accordingly, it cancelled the penalty imposed by the Inspecting Assistant Commissioner. A copy of the order of the Appellate Tribunal has been annexed and marked as annexure-'B' forming part of the statement of the case. Hence, the present reference.
5. A similar question was referred to this court in Taxation Case No. 6 of 1976 (CIT v. Ganga Dayal Sarju Prasad [1985] 155 ITR 618 (Pat)) which was as follows :
"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the order of the Inspecting Assistant Commissioner suffered from a legal infirmity in view of the amended provisions of Sections 274 and 275 of the Income-tax Act, 1961 ?"
6. Thus, it is evident that the question referred in Taxation Case No. 6 of 1976 (CIT v. Ganga Dayal Sarju Prasad [1985] 155 ITR 618 (Pat)) was similar to the question referred in the present case. It is not disputed in the present case that the reference to the Inspecting Assistant Commissioner was made when the Taxation Laws (Amendment) Act, 1970, had not come into existence and that the reference was made by the Income-tax Officer when the provision was for reference to the Inspecting Assistant Commissioner when the minimum penalty leviable exceeded Rs. 1,000. This court considered the question in Taxation Case No. 6 of 1976 (CIT v. Ganga Dayal Sarju Prasad [1985] 155 ITR 618 (Pat)) which was disposed of on September 4, 1984. For the detailed reasons mentioned in Taxation Case No. 6 of 1976 (CIT v. Ganga Dayal Sarju Prasad [1985] 155 ITR 618 (Pat)). I, sitting with S.K. Jha J., held that Section 275 of the Act, which relates to limitation is purely procedural and will apply to the pending cases, but Section 274 relates to the procedure in which substantive right exists and, as there was no specific provision in the Taxation Laws (Amendment) Act, 1970, divesting the Inspecting Assistant Commissioner of the jurisdiction to impose penalty, the Inspecting Assistant Commissioner would continue to have the jurisdiction and, so, this court held that the Tribunal was not correct in law in holding that the order of the Inspecting Assistant Commissioner suffered from legal infirmity in view of the amended provisions of Sections 274 and 275 of the Act and we see no reason to take a different view in the matter. This reference must also be answered in the same terms, i.e., in favour of the Revenue and against the assessee but there shall be no order as to costs.
Uday Sinha, J.
7. I agree.