(Appeal from the judgment and order, dated November 7, 1980, of the Kerala High Court in ITR No.42 of 1976. The judgment of the High Court is reported as CIT v. Varkey Chacko (1982) 136 ITR 733 (Ker).

Income-tax---

--Penalty---Concealment of income---Jurisdiction to impose penalty---Change of law---Return filed before amendment of section 274(2)---Assessment made after amendment---Income concealed less than Rs.25,000 --- Income Tax officer has jurisdiction to impose penalty---Indian Income Tax Act, 1961, Ss.271(1)(c), 274(2) (Before and after amendment by Indian Taxation Laws (Amendment) Act, 1970).

For the assessment year 1968-69, the appellant filed his return on April 16, 1970. On March 27, 1972, i.e. after section 274(2) of the Income Tax Act, 1961, was amended by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971, the Income Tax Officer made the order of assessment and initiated penalty proceedings against the appellant on the basis of a finding recorded in the assessment order that there was concealment of an amount which did not exceed Rs.25,000 and thereafter, on March 26,1974, the Income Tax Officer imposed a penalty of Rs.10,000. On appeal, the Appellate Assistant Commissioner set aside the penalty and the Appellate Tribunal confirmed his order holding that the law governing the imposition of penalty for concealment of income was the law as in force on the date the return was filed. On a reference, the High Court reversed the Tribunal's order holding that the competence of the Income Tax Officer to impose penalty depended on the findings arrived at by him in the assessment proceedings as to the fact of concealment and the law applicable was that in force on the date of assessment order. On appeal to the Supreme Court:

Held, affirming the decision of the High Court, that, when the Income Tax Officer reached the satisfaction that the appellant had concealed his income and made the assessment order on March 27, 1972, the amended provisions of section 274(2) were in operation and they entitled the Income Tax Officer to impose penalty in cases where the amount of income in respect of which particulars had been concealed were less than Rs.25,000. The Income Tax Officer had jurisdiction to impose the penalty and he need not have referred the matter to the Inspecting Assistant Commissioner.

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. Proceedings for the imposition of penalty can, therefore, 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 was committed, that is to say, on the date of the offending return. The two aspects must be firmly borne in mind, namely, who may impose the penalty and in what measure.

CIT v. Varkey Chacko (1982)136 ITR 733 affirmed.

Brij Mohan v. CIT (1979) 120 TM 1 (SC); CIT v. Dhadi Sahu (1993) 199 ITR 610 (SC); CIT v. Onkar Saran and Sons (1992) 195 ITR 1 (SC); Jain Brothers v. Union of India (1970) 77 ITR 107 (SC); Manasvi (D.M.) v. CIT (1972) 86 ITR 557 (SC) ref.

M.T. George, M.M. George and R. Sathish for the Appellant.

B.B. Ahuja, Senior Advocate (S. Rajappa and Ms. A. Subhashini, Advocates with him) for the Respondent.

JUDGMENT

S.P. BHARUCHA, J.---This is an appeal on a certificate granted by the High Court of Kerala (see (1982) 136 ITR 733). The judgment under appeal was delivered on a reference under section 256(2) of the Income Tax Act, 1961. It answered in the negative, that is, against the appellant (assessee) and in favour of the Revenue (respondent;), the following question (see (1982) 136 ITR 734):

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in holding that the Income Tax Officer had no jurisdiction to levy the penalty and that he should have referred the case to the Inspecting Assistant Commissioner for imposition of penalty?"

The reference pertained to the assessment year 1968-69, the relevant accounting period having ended on March 31,1968.

The assessee filed his return on April 16, 1970. With effect from April 1, 1971, subsection (2) of section 274 of the Income Tax Act, 1961, was amended. Prior to the said amendment where, in a case falling under clause (iii) of subsection (1) of section 271, the minimum penalty imposable exceeded the sum of Rs.1,000, the Income Tax Officer was obliged to refer the case to the Inspecting Assistant Commissioner. By reason of the said amendment, the Income Tax Officer was obliged to refer to the Inspecting Assistant Commissioner such cases falling under clause (c) of subsection (1) of section 271, where the amount of income, as determined by the Income Tax Officer on assessment, in respect of which particulars had been concealed or inaccurate particulars had been furnished exceeded the sum of Rs.25,000. On March 27, 1972, the Income Tax Officer made the orders of assessment and initiated penalty proceedings against the assessee on the basis of a finding recorded in the assessment order that there had been concealment of income in respect of an amount which did not exceed Rs.25,000. After considering the assessee's objections, the Income Tax Officer, by order, dated March 26, 1974 imposed a penalty of Rs.10,000.

The assessee's appealed to the Appellate Assistant Commissioner who set aside the penalty order on the ground that the Income Tax Officer did not have the jurisdiction to levy the penalty. The Revenue carried the matter to the Income Tax Appellate Tribunal, which confirmed the order of the Appellate Assistant Commissioner. It held that the law governing the imposition of penalty for concealment of income was the law that was in force on the date on which the return in which the concealment had been made was filed and that the said amendment had no application to the case because it had not been made expressly retrospective.

Arising out of the order of the Tribunal, the question quoted above was referred to the High Court. The High Court noted that the question to be considered was whether the proceedings for imposition of penalty taken in the case were governed by the provisions of section 274(2) as they stood prior to the said amendment or whether it was the subsection as amended that would apply. It concluded that the competence or jurisdiction of the authority to initiate the penalty proceedings could be governed only by the law which was in force on the date of initiation of such proceedings. A combined reading of section 271(1)(c)(iii) and section 274(2) provided a clear indication that, under the provisions of section 274(2) as they stood prior to the amendment of 1970, the competence of the Income Tax Officer to exercise the power of imposition of penalty against an assessee under section 271(1)(c) was to depend upon the findings arrived at by him in the assessment proceedings as to the factum of concealment and the amount of income in respect of which such concealment had taken place. It was only on arriving at such a finding that the question of initiation of penalty proceedings could arise. In this connection, the High Court referred to the judgment of this Court in Jain Brothers v. Union of India (1970) 77 ITR 107. Accordingly, the Tribunal was held to be in error and the question referred to the High Court was answered in the negative, that is, against the assessee and in favour of the Revenue.

Section 271(1)(c) confers upon the assessing authority the power to direct an assessee to pay a penalty where he is satisfied that the assessee has concealed the particulars of his income or has furnished inaccurate particulars of his income. Section 274(2), before it was amended by the Taxation Laws (Amendment) Act, 1970, with effect from April, 1, 1971, read thus:

"Notwithstanding anything contained in clause (iii) of subsection (1) of section 271, if in a case falling under clause (c) of that subsection, 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."

After the said amendment, it reads thus:

"Notwithstanding anything contained in clause (iii) of subsection (1) of section 271, if in a case falling under clause (c) of that subsection, 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 sums 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."

Learned counsel for the assessee submitted that the offence of concealment had been committed when the return had been filed; that, therefore, the un-amended provisions of section 274(2) applied and the Income Tax Officer had no authority to impose the penalty. He relied upon the judgment of this Court in CIT v. Onkar Saran and Sons (1992) 195 ITR 1. Emphasis was laid upon the statement in the judgment that, after the decision of this Court in Brij Mohan v. CI T (1979) 120 ITR 1, there could be no doubt that the law applicable to penalty proceedings under section 271(1)(4) or (c) was the law that was in force on the date on which the offending return had been filed.

The issue in the cases of Onkar Saran (1992) 195 ITR 1 (SC) and Brij Mohan (1979) 120 ITR 1(SC), related to the quantum of penalty that could be demanded, and it was in that context that the statement that was emphasised was made. In Brij Mohan's case (1979) 120 ITR 1 (SC), it was expressly stated that penalty was imposed on account of the commission of a wrongful act and "it is the law operating on the date on which the wrongful act is committed which determines the penalty."

Learned counsel for the Revenue drew our attention, first to this Court's judgment in Jain Brothers' case (1970) 77 ITR 107. It was there held, inter alia, that it was the satisfaction of the income-tax authorities that a default had been committed by the assessee which attracted the provisions relating to penalty. Whatever the stage at which the satisfaction was reached, the order imposing the penalty had to be made only after the completion of the assessment. The crucial date, therefore, for purposes of penalty, was the date of such completion. In D.M. Manasvi v. CIT (1972) 86 ITR 557 (SC), this was reiterated. Counsel for the Revenue laid great stress upon the judgment of this Court in CIT v. Dhadi Sahu (1993) 199 ITR 610. In this case, the assessee had failed to disclose certain income falling to the share of his minor children for the assessment years 1968-69 and 1969-70. The Income Tax Officer passed assessment orders on February 28, 1970, and initiated penalty proceedings under section 271(1)(c). Since the amounts of the penalty to be imposed would exceed Rs.1,000, the Income Tax Officer referred the cases under section 274(2), as it then stood, to the Inspecting Assistant Commissioner. Pending the penalty proceedings, section 274(2) was amended with effect from April 1, 1971, as a result of which only cases of penalty in which the income concealed- was Rs.25,000 or more were required to be referred to the Inspecting Assistant Commissioner. In the assessee's case referred to the Inspecting Assistant Commissioner, the income concealed was less than Rs.25,000. Even so, the Inspecting Assistant Commissioner passed orders on February 15, 1973, imposing penalty in the sums of Rs.24,000 and Rs.12,500, respectively, for the assessment years 1968-69 and 1969-70. This Court held that the reference had been validly made by the Income Tax Officer to the Inspecting Assistant Commissioner before April 1, 1971, and the question was whether the amendment that came into effect on April 1, 1971, divested the Inspecting Assistant Commissioner of his jurisdiction because the amount of concealed income did not exceed Rs.25,000 and the case did not fall within the ambit of section 274(2) as amended. The amending Act, it was noted, did not make any provision that references validly pending before the Inspecting Assistant Commissioner had to be returned without passing any final orders, if the amount of income in respect of which particulars had been concealed did not exceed Rs.25,000. This supported the inference that, in a pending reference, the Inspecting Assistant Commissioner continued to have jurisdiction to impose penalty. The previous operation of section 274(2) as it stood before April 1, 1971, and anything done thereunder continued to have effect under section 6(b) of the General Clauses Act, 1897, enabling the Inspecting Assistant Commissioner to pass orders imposing penalty in pending references. What was material was the date on which the references were initiated. If the references had been made before April 1, 1971, they would be governed by section 274(2) as it stood before that date and the Inspecting Assistant Commissioner had jurisdiction to pass the orders of penalty.

Learned counsel for the Revenue submitted that the Income Tax Officer had, in the instant case, satisfied himself that there had been concealment of income on March 27, 1972, when he made the order of assessment. Such satisfaction was a prerequisite to the initiation of the penalty proceedings, which were initiated on the same day. On that day, under the amended provisions of section 274(2), the Income Tax Officer had the authority to impose the penalty upon the assessee. Therefore, the High Court had answered the reference correctly.

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 Income Tax Officer reached the satisfaction that the assessee had concealed his income and made the assessment order on March 27, 1972, the amended provisions of section 274(2)

were in operation and they entitled the Income Tax Officer 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, with no order as to costs.

M.B.A./216/T.F.????????????????????????????????????????????????????????????????????????????????? Appeal dismissed.