1975-VIL-453-MAD-DT

Equivalent Citation: [1975] 100 ITR 170

MADRAS HIGH COURT

Date: 09.01.1975

CONTINENTAL COMMERCIAL CORPORATION

Vs

INCOME-TAX OFFICER AND ANOTHER

BENCH

Judge(s)  : V. RAMASWAMY., V. SETHURAMAN

JUDGMENT

The judgment of the court was delivered by

RAMASWAMI J.--This is a petition under article 226 of the Constitution of India praying for the issue of a writ of certiorari to quash the order of the second respondent made in C. No. 471 (484 and 485) of 1973, dated March 16, 1974, by which he had confirmed the order of the first respondent dated October 9, 1973. In the assessment proceedings for the assessment year 1970-71 relating to the assessee, it was noticed that the assessee's cash book contained a credit entry of Rs. 4,000 on the date April 24, 1969, in the name of one G. Parekh and a debit entry of the same amount of Rs. 4,000 on the next day, namely, April 25, 1969. This transaction was found not entered in the ledger. The assessee contended before the Income-tax Officer that the credit entry of Rs. 4,000 represented a hand-loan which was returned the next day. But the Income-tax Officer considered that this explanations not acceptable. He also pointed out that but for this credit entry there would have been a deficit cash balance on April 24, 1969. On these grounds, he held that the credit entry was a bogus entry and the sum of Rs. 4,000 represented the assessee's income from undisclosed sources. He, accordingly, included this amount in the total income of the petitioner and initiated proceedings under section 271(1)(c) of the Income-tax Act. There is no dispute that the assessment order had now become final. In the penalty proceedings under section 271(1)(c), the petitioner was called upon by a notice to make such representations as he may like and produce such other evidence as he may have. The petitioner filed an objection to these proceedings in which he had taken a legal plea that the mere fact that the assessee was not able to prove the genuineness of the credit entry in the assessment proceedings, did not attract the provision of section 271(1)(c). He also relied upon a decision of the Supreme Court in Commissioner of Income-tax v. Anwar Ali and contended that the burden is on the department to prove the deliberate concealment of the assessee and the Income-tax Officer merely on the ground that his explanation is not acceptable could not levy the penalty. Though he had also made a complaint in the objections that he did not have enough time to produce necessary evidence in the assessment proceedings he did not choose to produce any further evidence in the penalty proceedings as well. Therefore, the Income-tax Officer proceeded with whatever material that was available. He again considered that the statement of the assessee that the credit entry of Rs. 4,000 represented a hand-loan from Mr. Parekh could not be accepted especially when the cash position as on that date showed that but for the credit there would have been a deficit cash balance. Finding that the assessee concealed an income to the extent of Rs. 4,000, the Income-tax Officer levied a sum of Rs. 4,000 as penalty which is the minimum that could be levied under section 271(1)(c) read with section 274(1) of the Income-tax Act, 1961. The petitioner filed a revision petition before the Additional Commissioner of Income-tax, Madras. Before the revisional authority, the petitioner produced a letter from one Ganshyamlal R. Parekh of Ahmedabad which was to the effect that he had given the loan in question to the petitioner while he was in Madras on visits. The Additional Commissioner of Income-tax observed that there was no means of verifying the genuineness of that letter and there was also no explanation as to why the confirmation from the said Parekh could not be produced at the time of hearing in connection with the penalty order. With respect to the contention of the assessee that the onus was on the department to prove the concealment of income, the revisional authority was of the view that since the word " deliberately " was deleted by a later amendment of section 271(1)(c), the onus was not on the department to prove that the concealment was deliberate. The revisional authority was also of the view that the non-acceptability of the explanation leads to the logical inference that if a genuine explanation was given it would have been to the disadvantage of the assessee. For these reasons, he confirmed the order of the Income-tax Officer levying a penalty of Rs. 4,000. It is against these orders that the present writ petition has been filed.

Though the petitioner has raised a contention in his affidavit that the order is liable to be set aside even on merits, the learned counsel for the petitioner at the time of his argument confined himself to the question of jurisdiction of the Income-tax Officer to make the order under section 271(1)(c) in view of the provisions of section 274(2). According to the learned counsel, the Income-tax Officer had no jurisdiction to deal with the penalty proceedings under section 274(2). The learned counsel for the revenue, on the other hand, relied on the amendment of section 274(2) by Act 42 of 1970 and contended that under the provision, as amended, the Income-tax Officer alone had the jurisdiction to deal with the case. Section 274(2), before it was amended by Act 42 of 1970, read as follows :

" 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. "

According to the learned counsel for the petitioner, since the penalty proceedings was with reference to the assessment year 1970-71, the relevant provision which would be applicable was section 274(2) as it stood prior to its amendment and, under that provision, in a case falling under clause (c) of section 271(1), where the minimum penalty imposable exceeds the sum of Rs. 1,000 the Income-tax Officer shall refer the case to the Inspecting Assistant Commissioner and he could not himself levy the penalty. Section 274(2), as amended by Act 42 of 1970, reads as follows :

" 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. "

If the amended provision is applicable to the instant case, the Income-tax Officer would have been the competent authority for the imposition of penalty under section 271(1)(c) because, in this case, the amount of income in respect of which particulars have been concealed did not exceed the sum of Rs. 25,000. It is thus the question as to which provision is applicable that arises for consideration in this petition. Before we discuss this question it is necessary to note certain dates which are relevant. The return in respect of the assessment year 1970-71 was filed by the assessee on December 22, 1970. The assessment order was made on January 25, 1973, and the notice under section 271(1)(c) was issued on the same day. The order levying the penalty is dated October 9, 1973. The amendment of section 274(2) was with effect from April 1, 1971. The learned counsel for the petitioner submitted that the provision that was in force on the date when he filed the return was the relevant one and not the one that was in force on the date on which either the notice under section 271(1)(c) was issued or the date on which the penalty order was made.

On the other hand, the learned counsel for the revenue contended that in respect of the penalty orders the law in force on the date of the order levying the penalty is only relevant. The point in issue is not res integra but covered by an authority in Commissioner of Gift-tax v. C. Muthukumaraswamy Mudaliar (T.C. No. 242 of 1968). In this case a Division Bench of this court, to which one of us was a party, had to consider a similar question arising under the Gift-tax Act, 1958. In that case, the facts were as follows : The assessee made a gift of certain properties on July 14, 1961. Though a return in respect of that gift was due on June 20, 1962, the return was actually filed on October 22, 1963. The Gift-tax Officer completed the gift-tax assessment on March 31, 1964. He initiated penalty proceedings under section 17(1)(a) of the Gift-tax Act on the ground that the assessee had no reasonable cause for not filing the return within the time allowed under the Act and, ultimately, levied a penalty of Rs. 2,605. In an appeal filed by the assessee before the Appellate Assistant Commissioner, the penalty was reduced to Rs. 1,000. Thereafter, the revenue preferred an appeal to the Tribunal and contended that the Appellate Assistant Commissioner erred in reducing the penalty levied under section 17(1)(a) by the Gift-tax Officer, which was the minimum leviable under the Act. The Tribunal rejected the said contention holding that the provision regarding the minimum penalty came into force only on April 1, 1963, by an amending Act of 1962 and since the default in filing the return took place on June 30, 1962, the provision imposing the minimum penalty cannot be applied to that case. At the instance of the revenue a reference was made to this court. It was contended on behalf of the revenue that it was the amended provision that has to be applied in relation to the assessees' default as that was the law in force on the date when the Gift-tax Officer actually, by an order, levied the penalty. This court held that the date when the offence or infringement takes place would be the relevant date for the purpose of finding out the law that was applicable for initiating or levying the penalty. On this principle, when the infringement was said to be the failure to furnish the return in time, the offence was said to be complete when the return was not filed on the due date. Accordingly, the law on June 30, 1962, was held to be the relevant law. In support of this view, this court had also relied on two decisions in Commissioner of Income-tax v. R. K. Saraf and Commissioner of Income-tax v. Bhan Singh Boota Singh. The learned counsel for the revenue submitted that the decision of this court in Commissioner of Gift-tax v. C. Muthukumaraswamy Mudaliar (T.C. No. 242 of 1968) related to a case of failure to file a return in time and was not concerned with a case of concealment of income and that, therefore, that decision is not fully applicable to the instant case. The ratio of the judgement, in our opinion, is that the law in force on the date when the offence or infringement takes place will be the law that would have to be applied and not the law that came into force after that date. Since the facts related to the offence of failure to furnish the return in time, it was held that the due date for filing the return was the relevant date. In fact, the two decisions which were relied on by this court in support of that view related to the offence under section 271(1)(c). In Commissioner of Income-tax v. R. K. Saraf, the Madhya Pradesh High Court has held that the provisions relating to the penalty are of penal character and their object being to punish the assessee so as to deter him from transgressing the law in future, the quantum of penalty would have to be determined with reference to the law prevailing on the date when the act of concealment was committed and not when the penalty proceedings are initiated or completed. That was also the view expressed by the Punjab High Court in Commissioner of Income-tax v. Bhan Singh Boota Singh. In fact, we find a circular of the Board of Revenue dated July 6, 1968, referred to in that judgment, is also to the effect that with reference to an offence under section 271(1), the provision as amended in April, 1968, would apply only to a case where a return was filed after that date. We have, therefore, no doubt, that, to the instant case, the law that was in force on December 23, 1970, when the return was filed, is the one that would be applicable.

Even so, the learned counsel for the revenue contended that section 274(2) and the amendment made by Act 42 of 1970 are procedural in nature and, therefore, the amendment would apply to all cases of infringements whether committed before or alter the amendment. In other words, the amendment was retrospective and would apply to even a case where the return was filed prior to the amendment. The learned counsel, in this connection, also relied on the marginal note saying " procedure ". We are unable to agree with this contention of the learned counsel. The provision relates to the jurisdiction of the Income-tax Officer to deal with penalty proceedings. Before the amendment the Income-tax Officer could deal with cases falling under section 271(1)(c) only if the minimum penalty imposable did not exceed a sum of Rs. 1,000. Under section 271(1)(c)(iii) the minimum penalty imposable is a sum equal to the amount of income in respect of which the particulars have been concealed or inaccurate particulars have been furnished. In cases where the minimum penalty imposable exceeds the sum of Rs. 1,000, the Income-tax Officer shall refer the case to the Inspecting Assistant Commissioner. Under the amended provision, the Income-tax Officer is enabled to deal with cases in which the amount of income concealed did not excess the sum of Rs. 25,000. In other cases it is the Inspecting Assistant Commissioner who would have jurisdiction to deal with penalty proceedings. Thus, those cases in which the income concealed was in excess of Rs. 1,000 but below Rs. 25,000 which were originally within the jurisdiction of the Inspecting Assistant Commissioner are now to be dealt with by the Income-tax Officer. The amendment had thus enlarged the jurisdiction of the Income-tax Officer. Being a question dealing with the jurisdiction of an officer to deal with a case we are unable to agree with the learned counsel that the amendment was retrospective in effect in the sense that it would apply even to a case where the offence or infringement was committed prior to the amendment. In fact, if the provision is to be given such retrospective effect, it would mean that cases which were properly dealt with by the Inspecting Assistant Commissioner, prior to the amendment, would have been without jurisdiction. The learned counsel for the revenue did not say from what date the amended provision would take effect, if it is to be given retrospective operation. If the retrospective operation is given from the inception of the Act in 1962, then, many of the proceedings of the Inspecting Assistant Commissioner completed prior to the amendment would also be without jurisdiction. If the submission of the learned counsel for the revenue is that it is retroactive in the sense that it would apply only to a pending proceeding, then that point also is covered by the decision of this court in Commissioner of Gift-tax v. C. Muthukumaraswamy Mudaliar (T. C. No. 242 of 1968), where a similar provision was held not retroactive. We, therefore, hold that the provision of section 274(2) as it stood prior to its amendment on April 1, 1971, was the relevant provision that was applicable to the instant case. If that is so, it is not disputed that the Income-tax Officer had no jurisdiction in this case, and that, therefore, the impugned orders are liable to be set aside.

Before parting with this case, we should also notice one other argument of the learned counsel for the revenue. He contended that neither before the Income-tax Officer nor before the revisional authority, the petitioner ever raised the question of jurisdiction and that, therefore, he shall not be permitted to raise that question, for the first time, in this writ petition. If it is put as a question of submitting to the jurisdiction, we are unable to agree with the learned counsel that by submitting to a jurisdiction the petitioner could confer any jurisdiction on an authority who had no jurisdiction at all. If it is merely put as an estoppel from raising that question, we are unable to accept that contention because, this being a question of jurisdiction, we cannot refuse to consider that issue even though our jurisdiction under article 226 is a matter of discretion. We are not, therefore, inclined to dispose of the writ petition merely on the ground that the petitioner had not raised the question of jurisdiction before the Income-tax Officer or the revisional authority. The writ petition is, therefore, allowed and the order of the Income-tax Officer, as confirmed by the Additional Commissioner, is set aside. The result of that is, it would be open to the Income-tax Officer to refer the matter to the Inspecting Assistant Commissioner who has jurisdiction for the purpose of dealing with the same according to law.

The learned counsel for the revenue invited our attention to section 275 which prescribed a period of limitation for making orders imposing a penalty. In view of this provision, it is expected that the petitioner would extend full co-operation in completing the penalty proceedings within the period prescribed. In particular, we would consider as fair and reasonable if he is given a week's time for submitting his objections and producing such evidence as he may choose in penalty proceedings before the Inspecting Assistant Commissioner who had the jurisdiction to deal with the matter. Subject to these observations, we allow the writ petition and make the rule nisi absolute. The petitioner will be entitled to his costs. Counsel's fee Rs. 250.

 

 

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