Vildirect: IncomeTax-caselaws-1972-VIL-302-ALH-DT

1972-VIL-302-ALH-DT

Equivalent Citation: [1974] 94 ITR 154

ALLAHABAD HIGH COURT

Date: 07.01.1972

COMMISSIONER OF INCOME-TAX, UTTAR PRADESH

DWARKA PRASAD SUBHASH CHANDRA.

BENCH

Judge(s) : R. S. PATHAK., H. SWARUP.

JUDGMENT

The judgment of the court was delivered by

PATHAK J.- The assessee is a Hindu undivided family engaged in the manufacture and sale of katechu. During the assessment proceedings for the assessment year 1963-64 (the relevant previous year being the year commencing July 1, 1961, and ending June 30, 1962), the Income-tax Officer discovered that the assessee had not disclosed its true income and after considering the explanation of the assessee he added Rs. 66,457 to the total income returned by the assessee. The assessment order was passed on January 21, 1964. At the end of the assessment order the Income-tax Officer recorded that action under section 271(1)(c) would taken separately. The assessee preferred an appeal to the Appellate Assistant Commissioner, but shortly thereafter, it made an application for permission to withdraw the appeal. Permission was denied by the Appellate Assistant Commissioner, and instead he required the assessee to furnish details in respect of the stocks available with it and also with its commission agent. After examining material now available, the Appellate Assistant Commissioner served a notice requiring the assessee to show cause why the income should not be enhanced by Rs. 21,560. The assessee replied that he had no objection to the addition proposed. Accordingly, on May 19, 1965, the Appellate Assistant Commissioner enhanced the income assessed by the Income-tax Officer by Rs. 21,560. A second appeal filed by the assessee was dismissed by the Income-tax Appellate Tribunal

Meanwhile, the Income-tax Officer initiated proceedings under section 271(1) of the Income-tax Act, 1961, for imposition of penalty, and issued a notice on January 21, 1964, to the assessee requiring him to show cause why a penalty should not be levied. As the minimum penalty leviable exceeded Rs. 1,000 the Income-tax Officer referred the case on February 18, 1964, to the Inspecting Assistant Commissioner of Income-tax, under section 274(2) of the Act. The Inspecting Assistant Commissioner made an order dated January 1, 1966, levying penalty of Rs. 60,582. In imposing the penalty, he took into consideration not only the income found by the Income-tax Officer to have been concealed by the, asseesse but also the amount of income enhanced by the Appellate Assistant Commissioner. The assessee appealed against the order of penalty. The Tribunal , allowed the appeal in so far as it reduced the penalty to Rs. 10,000 confining it to the concealed income discovered by the Income-tax Officer. The Tribunal took the view that the Inspecting Assistant Commissioner had no jurisdiction to impose a penalty in, respect of the concealed income discovered by the Appellate Assistant Commissioner.

The Commissioner of Income-tax as well as the assessee applied for a reference to this court, and accordingly the Tribunal has referred the following three questions, the first two being referred at the instance of the Commissioner of Income-tax and the third at the instance of the assessee :

" 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Inspecting Assistant, Commissioner did not have the jurisdiction to impose penalty in so far as it related to the enhancement made by the Appellate Assistant Commissioner ?

2. If the answer to question No. 1 is in the negative, whether, on the facts and in the circumstances of the case, reduction of penalty to Rs. 10,000 was correct in law ?

3. Whether, on the facts and circumstances of the case, the provisions as contemplated under section 275 of the Income-tax Act, 1961, have been correctly followed specially when at the end of the assessment order it was mentioned that action under section 271 (1)(c) will be taken separately ?

After recording at the foot of the assessment order on January 21, 1964, that action under section 271(1)(c) would be taken, the Income-tax Officer issued a notice under section 274(1) to the assessee on the same date reciting

"Whereas, in the course of proceedings before me for the assessment year 1963-64, it appears to me that you, have concealed particulars of your income or deliberately furnished inaccurate particulars of such income and whereas the penalty proceedings have to be referred to the Inspecting Assistant Commissioner of Income-tax according to subsection (2) of section on 274 of the Income-tax Act, 1961, you are hereby informed that the case for levy of penalty under clause (c) of sub-section (1) of section 271 is being referred by me to the Inspecting Assistant Commissioner of Income-tax, Meerut Range, Meerutt. Further proceedings in regard to the levy of a penalty will take place before the said Inspecting Assistant Commissioner of Income-tax as provided in sub-section (2) of section 274."

It is apparent that the concealment of income was discovered by the Income-tax Officer in the assessment proceeding. When he referred the case for imposing a penalty to the Inspecting Assistant Commissioner on February 18, 1964, it was the penalty case arising with reference, to what was discovered in that assessment proceeding. At that time, the Appellate Assistant Commissioner had not yet made any order disposing of, the appeal against the assessment order. Consequently, when the Inspecting Assistant Commissioner proceeded to exercise his powers under section 274(2) he did so on the case referred to him by the Income-tax Officer, that is to say, the penalty case arising with respect to the concealed income discovered at the stage of assessment by the Income-tax Officer. The question then is whether in disposing of this case the Inspecting Assistant Commissioner had jurisdiction to take into account the total income as enhanced by the Appellate Assistant Commissioner subsequently, and, to impose, a penalty on : that basis.

A few provisions of the Income-tax Art are relevant. They are :

" 271. Failure to, furnish returns, comply with notices, concealment of income,, etc.--(1) If the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person- ......

he may direct that such, person shall pay by way of penalty ......

(iii) in the cases referred to in clause (c) in addition to any tax payable by him, a sum which shall not be less than twenty per cent. but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person. had been accepted as the correct income."

" 274. Procedure.-(1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard.

(2) 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.

(3) An Appellate Assistant Commissioner on making an order under this Chapter imposing a penalty, shall forthwith send a copy of the same to the Income-tax Officer."

Section 271(1) confers power upon the Income-tax Officer as well as upon the Appellate Assistant Commissioner to take penalty proceedings. If the Income-tax Officer in the course of any proceedings under the Act before him is satisfied that any one of the defaults mentioned in clauses (a), (b) and (c) has been committed he may take proceedings for imposition of a penalty. Likewise, if the Appellate Assistant Commissioner is satisfied in the course of proceedings before him that such default has been committed, he may also take proceedings for imposing a penalty, it would seem then that whether the Income-tax Officer is empowered to impose a penalty or the Appellate Assistant Commissioner is empowered to do so depends upon whether the satisfaction that a default is committed is arrived at by the authority concerned in the course of proceedings before him. The Income-tax Officer may, after examining the matter, find that the minimum penalty imposable exceeds one thousand rupees. In that event, he is required by section 274(2) to refer the case to the Inspecting Assistant Commissioner. The case which the Inspecting Assistant Commissioner will now dispose of is the case over which, but for the limitation arising out of the amount of minimum penalty imposable, the Income-tax Officer would have had jurisdiction to impose a penalty. Nothing in the statute indicates that the Inspecting Assistant Commissioner has any jurisdiction to impose penalty in a case where the Appellate Assistant Commissioner is satisfied in the course of proceedings before him that penalty proceeding should be taken. The Appellate Assistant Commissioner and the Inspecting Assistant Commissioner have been generally recognised as officers of more or less equivalent status. The Inspecting Assistant Commissioner does not have jurisdiction over the Appellate Assistant Commissioner. The Income-tax Officer is subordinate to the Inspecting Assistant Commissioner, and, therefore, section 274(2) contemplates the transfer of a penalty case beyond his pecuniary jurisdiction to the Inspecting Assistant Commissioner. No such situation is contemplated in a penalty proceeding commenced by the Appellate Assistant Commissioner.

Besides, to recognise in the Inspecting Assistant Commissioner the power to impose a penalty in respect of concealed income discovered by the Appellate Assistant Commissioner (sic) of jurisdiction. On the one hand, as in the case before us, an Inspecting Assistant Commissioner could impose a penalty in respect of concealed income discovered by the Appellate Assistant Commissioner. On the other hand, the Appellate Assistant Commissioner himself could simultaneously proceed to impose a penalty. The statute does not deal with such a situation, and its silence in the matter fortifies our conclusion that such a situation was never contemplated. In our opinion, the Appellate Assistant Commissioner and the Assistant Commissioner are vested, with mutually execlisive jurisdiction in the matter of penalties. The Inspecting Assistant Commissioner has jurisdiction to impose penalty in respect of concealed income discovered. by the Income-tax Officer in a proceeding before him and the Appellate Assistant Commissioner has jurisdiction to impose penalty in respect of concealed income discovered by him in a proceeding before him.

We hold that the Tribunal is right in the view that the Inspecting Assistant Commissioner had no jurisdiction to impose penalty in respect of the concealed income discovered by the Appellate Assistant Commissioner. We answer the first question in the affirmative.

In the circumstances, no answer need be returned to the Second question.

As regards the third question, we have carefully perused the appellate order of the Tribunal and there is nothing to show that this question was ever raised during the hearing of the appeal before the Tribunal. There is nothing in the statement of the case to explain how the question has come to be referred. In our opinion, the question cannot be said to arise out of the appellate order of the Tribunal and its reference to this court is without jurisdiction. Accordingly, we return no answer to the third question.

We may point out that nobody appeared before us on behalf of the assessee, although notice of the reference was served upon it.

The questions are disposed of as follows :-

Question No. 1 : Answered in the affirmative.

Question No. 2 : Returned unanswered.

Question No. 3 : Returned unanswered.

As no one appears on behalf of the assessee, there is no order as to costs. Counsel's fee is assessed at Rs. 200.

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