Patna High Court
Commissioner Of Income-Tax vs Ganga Dayal Sarju Prasad on 4 September, 1984
Equivalent citations: [1985]155ITR618(PATNA)
JUDGMENT Nazir Ahmad, J.
1. A statement of the case under Section 256(1) of the I.T. 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 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 ?"
2. The relevant facts of the case may be culled out from the statement of the case. The assessee is a firm and the assessment year involved is 1966-67. In the course of the assessment proceedings, the ITO noticed cash credits aggregating to Rs. 23,500 in the names of different persons in the books of accounts of the assessee. In the absence of satisfactory evidence as to the sources of the credits, the ITO included this amount as unexplained income of the assessee and initiated proceedings under Section 271(l)(c) of the Act. Since the minimum penalty imposable in this case exceeded Rs. 1000, the ITO referred the matter to the IAC.
3. Before the IAC, it was submitted on behalf of the assessee that there was no finding in the order of the assessment that the assessee had deliberately or fraudulently furnished inaccurate particulars of its income or has concealed its income. It was also submitted that the penalty proceedings being quasi-criminal in nature, it was for the Department to prove that the assessee had concealed its income or had furnished inaccurate particulars of such income. It was also submitted that the mere fact that certain explanations of the assessee were not acceptable would not be sufficient to hold that that the assessee had concealed its income.
4. The IAC considered the submissions made before him and also considered the fact that the alleged persons in whose names the credits appeared were in the employment of the assessee-firm and that all the credits appeared in the assessee's books on the same day, i.e., March 30, 1966, which was towards the close of the accounting year of the assessee. He, therefore, came to the conclusion that the credits were the concealed income of the assessee. The IAC also considered the fact that the assessee's returned income was less than 80% of the finally assessed income. He, therefore, imposed a penalty of Rs. 4,265 rejecting the assessee's objection that he had forfeited his jurisdiction to impose penalty in this case, after the amendment of Sections 274 and 275 of Act. A copy of the order of the IAC has been annexed and marked as annexure A forming part of the statement of the case.
5. The assessee appealed before the Tribunal. None was present on behalf of the assessee at the time of hearing of the appeal. The Tribunal, therefore, disposed of the appeal on the basis of the argument of the departmental representative and the facts on record. Before the Tribunal, it was submitted on behalf of the Department that the inclusion of the cash credits appearing in the assessee's books of account as unexplained income of the assessee was even confirmed by the AAC in appeal, because the assessee could not produce any satisfactory evidence as to the source of the deposits appearing in its books of account. It was further submitted that after amendment of Section 275 of the Act, the IAC could pass penalty order in this case at any time up to March 31, 1973.
6. The Tribunal after considering the facts of the case found that the assessment in this case was completed by the ITO on May 30, 1970, but the penalty was imposed by the IAC on January 3, 1973, when Section 274(2) and 275 of the Act were amended by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971. The Tribunal came to the conclusion that if Section 275 had not been amended with effect from April 1, 1971, the penalty proceedings in this case should have been completed on or before May 30, 1972, but in view of the amendment of the aforesaid sections, the proceedings as were pending on April 1, 1971, would be covered by Section 275 as amended and that the amended Section 275 of the Act provides a period of two years from the end of the financial year in which the proceedings in the case of which action for imposition of penalty has been initiated are completed. The Tribunal, therefore, held that on this basis, the IAC could pass an order legally on or before March 31, 1973 (wrongly noted as 30-5-72) as he did. Bat while doing so, the IAC should also consider the amended provision of Section 274(2), whereby he can assume jurisdiction in a case only if the concealed income exceeds Rs. 25,000. The Tribunal found that in this case, the minimum penalty was Rs. 1,785 and, therefore, the Tribunal came to the conclusion that under the amended provision of Section 274 (2) of the Act, the IAC had no jurisdiction to levy the impugned penalty. According to the Tribunal, the IAC had to keep in view the amended provision of Section 274(2) also when both the provisions came into force with effect from April 1, 1971. The Tribunal, therefore, held that the order of the IAC suffered from legal infirmity and he was not justified in imposing penalty. Accordingly, the Tribunal cancelled the penalty. 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. A question of law has been referred on these facts at the instance of the Revenue.
7. When the argument of the case was taken up, none appeared to argue for the assessee and so ex parte argument on behalf of the Revenue was heard and the case is being disposed of on merits. Mr. B. P. Rajgarhia, senior standing counsel, has argued for the Revenue.'
8. Now, in the present case before us, it is the admitted position that the ITO referred the matter to the IAC in 1970 as the penalty imposable in the case of the assessee exceeded Rs. 1,000. The assessment was completed by the ITO on May 30, 1970, and so reference must have been made before that date. The IAC imposed penalty on January 3, 1973, when Sections 274(2) and 275 of the Act were amended by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971. Now, the question is, whether the IAC was competent to impose penalthy after the Taxation Laws (Amendment) Act, 1970, came into force.
9. Prior to the amendment, Sub-section (2) of Section 274 read thus :
"Notwithstanding anything contained in Clause (iii) of Sub-section (1) of Section 271, if in a case falling under Clause (c) of that sub-section, the minimum penalty imposable exceeds a sum of rupees one thousand, 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."
10. After the amendment, the provision reads thus :
" Notwithstanding anything contained in Clause (iii) of Sub-section (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."
11. There is no dispute that an IAC gets jurisdiction to deal with a penalty matter only when there is a reference made to him by the ITO. Section 271 of the Act requires the ITO or the AAC to initiate a proceeding for penalty where in the course of any proceeding under the Act, the said authorities are satisfied that any of the three events as enumerated in Clauses (a), (b) and (c) of Sub-section (1) of that section has happened. When the initiating authority is the ITO and the amount of penalty imposable is in excess of Rs. 1,000 under unamended Sub-section (2) of Section 274 of the Act, the case has to be referred to the IAC for disposal. However, after the amendment with effect from April 1, 1971, the ITO could himself impose a penalty if the amount of income, in respect of which particulars have been concealed or inaccurate particulars have been furnished, does not exceed a sum of Rs. 25,000, but if it exceeds Rs. 25,000, the ITO has to refer the case to the IAC.
12. In the instant case before us, the question is whether once a reference has been made by the ITO prior to the amendment from the 1st of April, 1971, whether the IAC will retain jurisdiction to impose a penalty where the concealed income is less than Rs. 25,000.
13. Mr. B. P. Rajgarhia has been fair enough to cite decisions both against and in favour of the Revenue. It appears that in the case of CIT v. Dhadi Sahu [1976] 105 ITR 56 (Orissa), a similar point was involved. In this case, assessments were completed for the assessment years 1968-69 and 1969-70 on February 28, 1970. As a result of various additions as against the returned income of Rs. 5,940 for the assessment year 1968-69 and Rs. 7,020 for the assessment year 1969-70, the assessee was assessed on an income of Rs. 30,840 and Rs. 19,472, respectively. The ITO initiated proceedings for imposition of penalty under Section 271(l)(c) of the Act and as he was of the view that the cases were covered by Section 274, referred them to the IAC. While-the matter was pending before the IAC, Section 274(2) was amended by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971. The IAC imposed penalties of Rs. 24,000 and Rs. 12,500, respectively, for these two years. On appeal, the Appellate Tribunal held that, in view of the amendment of Section 274(2), the IAC lost jurisdiction to impose penalty since, before the amendment, he had jurisdiction incases where the minimum penalty imposable exceeded Rs. 1,000, whereas, after the amendment, he had jurisdiction only in cases where the concealment by the assessee exceeded Rs. 25,000. It was under these circumstances that the Orissa High Court held that if the IAC had passed final orders before the amending Act of 1970 came into force, there would have been no question of lack of jurisdiction but as the matter was still pending and by change of procedure, the references became incompetent, the IAC no longer had jurisdiction to deal with the matter or to complete the proceedings. The Orissa High Court considered the proposition whether, as a result of the amendment, a reference pending with the IAC on the basis of the old provision would no more be maintainable if under the new amended provision that reference was not competent, and they held that the answer to the point would depend upon whether the amendment is retrospective in its operation. For this purpose, they relied on various decisions where it was held that no person has a vested right in any course of procedure and that if by an Act of Parliament the mode of procedure is altered, he has no right other than to proceed according to the altered mode and that a change in the law of procedure operates retrospectively and, unlike the law relating to the vested right, is not only prospective. For this purpose, reliance was placed on the case of Anant Gopal Sheorey v. State of Bombay, AIR 1958 SC 915 at page 917. Reliance was also placed on the case of Nani Gopal Mitra v. State of Bihar, AIR 1970 SC 1636 at page 1638, where it was held that " it is true that as a general rule, alterations in the form of procedure are retrospective in character unless there is some good reason or the other why they should not be. " The Orissa High Court also relied on the case of James Gardner v. Edward A. Lucas [1878] 3 AC 582 at 610 (HL), where it was held that the alterations in the form of procedure are always retrospective unless there is some good reason or other why they should not be. The Orissa High Court referred to various other decisions and ultimately came to the finding that Section 274(2) of the Act related to procedure and so when the matter was pending before the IAC by change of procedure, the references became incompetent and so the IAC had no jurisdiction to complete the proceedings because he had no longer jurisdiction to deal with matters of this type.
14. The Orissa High Court followed the decision in the case of CIT v. Dhadi Sahu [1976] 105 ITR 56 (Orissa), in the case of Bhikari Charan Panda v. IAC of I.T. [1978] 112 ITR 526 (Orissa) and in the case of Radheshyam Agarwalla v. CIT [1978] 113 ITR 196 (Orissa). Thus, the Orissa High Court has taken the view that if a reference to the IAC is made prior to the amending Act of 1970 and the reference is pending before the IAC, he loses the jurisdiction to impose penalty after coming into force of the amending Act of 1970.
15. The learned senior standing counsel for the Revenue has also referred to the case of CIT v. Om Sons [1979] 116 ITR 215 (All), where the Allahabad High Court has held that this court is committed to the view that a court or tribunal deciding a matter must not only be possessed of jurisdiction initially, but must also be clothed with the power to decide the matter when final order is made. In this decision also, the ITO initiated penalty proceedings for levy of penalty on the assessee for the assessment year 1969-70 and referred the matter to the IAC who imposed a penalty by his order dated November 29, 1971. However, Section 274(2) of the amending Act of 1970 had come into force with effect from April 1, 1971, and so the Allahabad High Court held that as on the date when the IAC passed his final order, his jurisdiction to do so had been taken away by the amendment of Section 274(2), the order passed by him was without jurisdiction. In this decision also, reliance was placed on the decisions reported in CIT v. Dhadi Sahu [1976] 105 ITR 56 (Orissa) and Radheshyam Agarwalla v. CIT [1978] 113 ITR 196 (Orissa). Thus, the Allahabad High Court is also of the view that after the amending Act of 1970, the IAC lost jurisdiction to impose penalty in a case in which reference had been made to him by the ITO prior to the amending Act of 1970.
16. Mr. B. P. Rajgarhia placed reliance on the case of CIT v. Smt. Raj Rani Devi [1979] 116 ITR 358 (All). It is also a decision of the Allahabad High Court. In this decision, on January 19, 1973, the ITO referred a case to the IAC of Income-tax for drawing up penalty proceedings. The concealed income was Rs, 10,000. On the question whether the order of penalty passed by the IAC on February 24, 1973 was valid, the Allahabad High Court held that Section 274(2) of the Act had been amended with effect from April 1, 1971, and the jurisdiction of the IAC to initiate penalty proceeding was confined to cases where the amount of concealed income was in excess of Rs. 25,000, and on the date on which the case was referred to the IAC, he had no jurisdiction to entertain the case nor did he have such jurisdiction on the date on which the order of penalty was passed and so the order of penalty was held to be invalid. This decision is not helpful to the Revenue, as in this case, reference was made after amending Act of 1970 had already come into force.
17. Mr. B. P. Rajgarhia has also relied on the case of Gupta Rice Mills v. CIT [1980] 123 ITR 825 (All), which is a decision of the Allahabad High Court. In this decision, the Allahabad High Court held that where the ITO found that the concealed income was more than Rs. 25,000 and consequently referred the matter to the IAC, the fact that, after hearing the assessee, the IAC came to the conclusion that the concealed income was less than Rs. 25,000 would not affect his jurisdiction to impose the appropriate penalty and that the IAC continues to retain jurisdiction and he is obliged to impose penalty commensurate with the finding as to the quantum of concealed income. Thus, this decision is not helpful on the point which has to be decided in the present case. This decision also shows that the prescription of the period of limitation being a matter of procedure, any amendment in this regard will be retrospective in the sense that it will apply to all those matters which are pending and which had not become closed or dead on the date the amendment takes effect and the Allahabad High Court held that Section 275 of the Act was procedural and it will apply to pending proceedings. Thus, it is evident that the Orissa and Allahabad High Courts have taken the view that Section 274(2) and Section 275 relate to procedure and so they will apply to all pending proceedings.
18. However, a different view has been taken by the High Courts of Punjab and Haryana, Andhra Pradesh, Gujarat, Madhya Pradesh and Calcutta.
19. In the case of CIT v. Raman Industries [1980] 121 ITR 405, the Punjab and Haryana High Court held that a statute dealing with procedure is retrospective and its provisions also apply to the proceedings pending at the time of its enactment but where some provisions of a statute of procedure affect vested rights, they are prospective in operation unless there is an indication in the statute to the contrary. It has also been held in this decision that a jurisdiction of a Tribunal to try a case is a vested right and is to be determined according to the law in force at its institution and that a change in law while a case is pending cannot affect the right of the parties to continue proceedings in that Tribunal in the absence of provisions to the contrary. It has also been held by the Punjab and Haryana High Court that there is no provision in the Taxation Laws (Amendment) Act, 1970, to indicate that the amendment of Section 274 is retrospective and that the section deals with vested rights and, therefore, the amendment is prospective in operation. It has also been held that the jurisdiction of the IAC to deal with a matter of penalty is to be looked at as on the date of initiation of proceedings and not with reference to subsequent events and such jurisdiction cannot be divested by what has subsequently happened. It has also been held that if during the time when the matter of penalty had been referred to and was pending before the IAC, the law was changed and the minimum penalty for the purpose of making a reference to the IAC was raised from Rs. 1,000 to Rs. 25,000, it does not mean that the jurisdiction of the IAC has been taken away and that, in such a case, the IAC would have the jurisdiction to impose the penalty. The case before the Punjab and Haryana High Court was similar to the case before us. The Punjab and Haryana High Court also relied on the decision in the case of James Gardner v. Edward A. Lucas [1878] 3 AC 582 at page 603. The Punjab and Haryana High Court also relied on the observation of the Privy Council in Colonial Sugar Refining Co. Ltd. v. Irving [1905] AC 369 at page 372 (PC) and relied on various other decisions and in view of those decisions, the Punjab and Haryana High Court differred from the decisions of the Orissa and Allahabad High Courts. The Punjab and Haryana High Court followed this decision in the case of CIT v. Sadhu Ram [1981] 127 ITR 517 (P & H). In this decision, in response to a notice under Section 148 of the Act, the assessee filed a return on June 17, 1968, showing an income of Rs. 7,094. The ITO, however, after necessary proceedings, assessed the income at Rs. 22,140 on February 9, 1970, and issued notice to show cause as to why penalty should not be imposed for concealment of income. He referred the matter to the IAC on February 20, 1970, for imposition of penalty because, at that time, the ITO was competent only to impose a penalty of Rs. 1,000. The assessment order was later on rectified by the ITO on April 27, 1970, so as to reduce the total income to Rs. 10,738, The IAC, after hearing the assessee, imposed a penalty of Rs. 16,000 under Section 271(l)(iii) of the Act by order dated March 4, 1972. This order was challenged by the assessee by way of appeal before the Appellate Tribunal on two grounds, namely, (i) that the penalty order, having been passed more than two years after the assessment order, was without jurisdiction, and (ii) that the penalty levied upon less than Rs. 25,000 could be imposed by the ITO and not by the IAC. The Tribunal rejected the first contention but allowed the appeal on the second ground and set aside the order imposing penalty. It was under these circumstances that the Punjab and Haryana High Court held that the IAC had jurisdiction to impose penalty. Thus, the Punjab and Haryana High Court supports the contention of the Revenue.
20. Mr. B. P. Rajgarhia has also relied on the case of Addl. CIT v. Watan Mechanical and Turning Works [1977] 107 ITR 743 (AP) [FB], which is a Full Bench decision of the Andhra Pradesh High Court. In this decision, the provision of Section 275 was considered and it was held that Section 275 related to procedure and no one has a vested and substantive right in procedure and limitation has to be considered as a part of the procedural law as distinct from substantive law and it was held that Section 275 of the Act enlarges limitation. This decision does not relate to Section 274(2) of the Act.
21. However, a decision of the Gujarat High Court in CIT v. Royal Motor Car Co, [1977] 107 ITR 753 (Guj) has been made an Appendix to this Full Bench decision in [1977] 107 ITR 743 (AP), where the question in dispute before us was considered at page 756, where it was pointed out that as regards the jurisdiction of the IAC to pass an order of assessment, in view of the amendment in Section 274 by the amending Act of 1970, it is well-settled law that every litigant has a vested right in the procedural law so far as substance is concerned and if the substantive question of jurisdiction is to be affected by a new amendment, the Legislature must say so either in express terms or by necessary implication. Relying on the decision as mentioned at pages 756 and 757, it was held that the IAC, whose power was affected by the Amendment Act of 1970, would continue to have the jurisdiction in matters which were then pending before him, since the amendment Act of 1970 neither in express words nor by implication has indicated that the jurisdiction of the IAC, even in pending matters, i.e., matters which were already referred to him, was to be affected. The Gujarat High Court held that since there is no such clear indication nor necessary implication affecting the jurisdiction of the IAC in pending matters, it follows that the jurisdiction which the IAC had, under the unamended Section 274 of the Act, continued in the circumstances of the case, and, therefore, he had jurisdiction to dispose of the penalty proceeding against the assessee-firm.
22. Mr. B. P. Rajgarhia also relied on the case of CIT v. Balabhai and Co, [1980] 122 ITR 301 (Guj) and also on the case of CIT v. Manu Engineering Works [1980] 122 ITR 306 (Guj). Both the decisions are of the Gujarat High Court and besides giving other reasonings, they have followed the decision in CIT v. Royal Motor Car Co. [1977] 107 ITR 753 (Guj).
23. Mr. B. P. Rajgarhia also relied on the case of Addl. CIT v. Dr. Khaja Khutabuddinkhan [l978] 114 ITR 905 (AP), which is a decision of the Andhra Pradesh High Court where, after discussing various decisions, it was held that if during the time when the matter of penalty had been referred to and was pending before the IAC, the law was changed and the minimum penalty for the purpose of making a reference to the IAC was raised from Rs. 1,000 to Rs. 25,000, it does not mean that the jurisdiction of the IAC to impose penalty is taken away and that Section 6(d) of the General Clauses Act, 1897, would apply in such cases, and notwithstanding the change, the proceedings would continue to be governed by the unamended provisions.
24. Mr. B. P. Rajgarhia also relied on the case of CIT v. Tiwari [1980] 124 ITR 680 (MP), where it has been held that it is a general principle that a law which brings about a change in forum does not affect pending actions unless the intention to the contrary is clearly evinced and that one of the modes by which such an intention is shown is by making a provision for change-over of the proceedings from a court or tribunal where they are pending to the court or tribunal which under the new law gets jurisdiction to try them. It has also been held that Section 274, as it stood before April I, 1971, required the ITO to refer the case to the IAC if the minimum penalty imposable exceeded a sum 'of Rs. 1,000 and that the IAC on a reference made by the ITO gets jurisdiction to impose penalty in such cases and that the references validly made by the ITO before April 1, 1971, were not invalidated by the amendment to Section 274(2) made by the Amendment Act, 1970, and that in such references pending on April 1, 1971, the IAC continues to have jurisdiction to impose penalty even though the amount of income concealed does not exceed Rs. 25,000.
25. Mr. B. P. Rajgarhia also relied on the case of CIT v. Eastern Development Corporation [1982] 135 ITR 516, where the Calcutta High Court also took the view that Section 274(2) of the Act which was amended by the Amendment Act of 1970, with effect from April 1, 1971, does not take away the jurisdiction of the IAC in respect of the proceedings for imposition of penalty which are pending before him nor does it provide for a transfer of the penalty proceedings by him to the ITO. The Calcutta High Court has also held that the section does not say that the proceedings for imposition of penalty which are pending before the IAC shall abate if the amount of income as determined by the ITO on assessment, in respect of which particulars have been concealed or inaccurate particulars have been furnished, exceeds Rs. 25,000.
26. From the above discussions, it is evident that the Orissa and Allahabad High Courts have taken the view that Section 274(2) of the Act relates to procedure and it will apply to pending cases also and so after the Amendment Act of 1970, the IAC will lose jurisdiction to impose penalty if a reference was made prior to the amending Act of 1970 and, subsequently, the IAC imposed a penalty where the concealed income was less than Rs. 25,000, However, the High Courts of Punjab and Haryana, Andhra Pradesh, Gujarat, Madhya Pradesh and Calcutta have taken the view that Section 275 which relates to limitation is purely procedural and it will apply to pending cases but Section 274 relates to procedure in which substantive right exists and as there is no specific provision in the said amending Act divesting the IAC from imposing penalty, the IAC will continue to have jurisdiction and thus these five High Courts support the Revenue.
27. Following the majority decisions of the different High Courts, I hold that the Tribunal was not correct in law in holding that the order of the IAC suffered from legal infirmity in view of the amended provisions of Sections 274 and 275 of the Act and, accordingly, I answer the question in the negative and in favour of the Revenue and against the assessee. As the assessee has not appeared to contest the case, the petitioner will bear his own costs.
S.K. Jha, J.
28. I agree.