Income-tax---

----Penalty---Concealment of income---Jurisdiction to levy penalty---Law applicable to assessment---Penalty proceedings referred to I.A.C., prior to 1-4-1976---Amendment of S.274(2) divesting I.A.C., of jurisdiction to levy penalty w.e.f. 1-4-1976---Levy of penalty by I.A.C., in March, 1977, was valid---Indian Income Tax Act, 1961, Ss. 271,& 274.

Held, that when the penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961, was referred to the Inspecting Assistant Commissioner, by the Income-tax Officer section 274(2) was not amended and, therefore, the Inspecting Assistant Commissioner had jurisdiction to complete the penalty proceedings, ever, though the order under section 271(1)(c) was passed on March 30, 1977, i.e., after the amendment of section 274(2) by the Taxation Laws (Amendment) Act, 1975, which, came into effect from April 1, 19705.

CIT v. Dhadi Sahu (1993) 199 ITR 610 (SC) and Verkey Chacko v. CIT (1993) 203 ITR 885 (SC) applied.

Abdul Azeez (R.) v. CIT (1981) 128 ITR 547 (Kar.) and Joseph John v. ITO I.T.As. Nos.40 and 41 of 1977-78 ref.

C.V. Raj an for the Commissioner.

P.P.S. Janarthana Raja for the Assessee.

JUDGMENT

THANIKKACHALAM, J. ---At the instance of the Department. the Income-tax Appellate Tribunal has referred the following question for our opinion under section 256(1) of the Income Tax Act. 1961:

"Whether, on the facts and in the circumstances of the case and having regard to the provisions of section 274(2) of the Income Tax Act, 1961, the Appellate Tribunal was right in holding that the Inspecting Assistant Commissioner has no jurisdiction to levy penalty under section 271(1)(c) in the assessee's case on March 30, 1977, by when the law had been amended divesting him of his jurisdiction and vesting it in the Income-tax Officer although the proceedings for levy of penalty were initiated and referred to the Inspecting Assistant Commissioner even before the law had been amended on April 1, 1976"?

The assessee, Seth Purshothamdas Dwarkadas, is an individual carrying on business in money-lending. For the assessment year 1972-73, he filed a return on May 18, 1973, admitting an income of Rs.4,775. Before that, on April 24, 1972, the Intelligence Wing of the Income-tax Department raided the house of the assessee and seized pro notes valued at Rs.67,100, cash amounting to Rs.39,412 and jewellery worth about Rs.21,328. The said jewellery were found in the locker belonging to Smt. Parmeswaribai, the wife of the assessee. Since the pronotes did not find a place in the accounts maintained by the assessee, he was asked to explain the omission. Since the assessee did not properly explain the same, the Income-tax Officer held that the sum represented undisclosed income of the assessee. But, he found that only Rs.39,000 related to the year in question and accordingly included that amount into consideration. Regarding the cash seized, the Income-tax Officer added Rs.36,607, as the assessee's contention that it represented gifts received by his wife during the married life of about 30 years was not substantiated by evidence. As the assessee did not explain properly the source of the jewellery as belonging to the assessee's wife, the Income-tax Officer included Rs.18,869 as income for the year 1972-73. A sum of Rs.18,000 was also added towards income from business. Thus, in all a sum of Rs.1,13,276 was added to the income of the assessee. The Income-tax Officer also initiated proceedings under section 271(1)(c) of the Act and referred the matter to the Inspecting Assistant Commissioner under section 274(2) of the Act. On appeal, the Appellate Assistant Commissioner deleted the addition made towards unexplained jewellery amounting to Rs.18,869 and also the income from business carried on in the name of the wife of the assessee in a sum of Rs.18,800 and a sum of Rs.11,400 towards seized cash. He, however, confirmed the addition made towards pronotes. The assessee preferred an appeal to the Income-tax Appellate Tribunal against the addition of Rs.39,000 towards seized pronotes and Rs.25,207 towards unexplained cash, sustained by the Appellate Assistant Commissioner. The Triburfal, on a consideration of the matter, deleted the addition of Rs.25,207 being unexplained cash as not relating to the year under consideration, but sustained the addition of Rs.39,000 being the unexplained investment in pronotes as income of the assessee.

The Inspecting Assistant Commissioner, in the course of penalty proceedings, held that the assessee had concealed the particulars of income and, accordingly, he levied a penalty of Rs.1,28,144 under section 271(1)(0) on March 30, 1977, after giving an opportunity to the assessee. On appeal, the Tribunal found that out of the additions made, the only addition which was sustained by the Tribunal was the sum of Rs.39,000 being the unexplained investment in pronotes, and it held that penalty is clearly exigible in respect of that sum. However, the Tribunal held that the Inspecting Assistant Commissioner had no jurisdiction to levy penalty after April 1, 1976, in view of the amended provisions of law by the Taxation Laws (Amendment) Act, 1975, and that, therefore, the penalty has to be cancelled. Accordingly, the Tribunal cancelled the penalty levied. In order to come to its conclusion, the Tribunal relied upon the decision of the Karnataka High Court in the case of R. Abdul Azeez v. CIT (1981) 128 ITR 547, and the decision in Joseph John v. ITO (I.T.As. Nos.40 and 41 of 1977-78, dated March 1, 1980). But, on the merits, the Tribunal held that the penalty is exigible because of the behaviour of the assessee before the Department.

Learned standing counsel for the Department submitted that the Tribunal was not correct in holding that the Inspecting Assistant Commissioner has no jurisdiction to levy penalty in this case. According to him, at the time when the matter was referred, to the Inspecting Assistant Commissioner by the Income-tax Officer, section 274(2) of the Act was not amended and that, therefore, the Inspecting Assistant Commissioner has got jurisdiction to complete the penalty proceedings, even though the order was passed on March 30, 1977, i.e., after the amendment came into force. In support of such contention, learned counsel for the Department relied upon the decisions in CIT v. Dhadi Sahu (1993) 199 ITR 610 (SC) and Varkey Chacko v. CIT (1993) 203 ITR 885 (SC). On the other hand, learned counsel for the assessee supported the order passed by the Tribunal in cancelling the penalty on the question of jurisdiction. .

The fact remains that the assessment was completed. The Income-tax Officer initiated proceedings under section 271(1)(c) of this Act, as there was concealment and furnishing of inaccurate particulars and referred the matter to the Inspecting Assistant Commissioner under section 274(2) of the Act. Section 274(2) of the Act was deleted from the statute book by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, It is an admitted fact that on the date on which the matter was referred to the Inspecting Assistant Commissioner, section 274(2) was in the statute book, but before the order was passed by the Inspecting Assistant Commissioner, the said amendment to the Act came into force. According to the amendment, after April 1, 1976, the Inspecting Assistant Commissioner has no jurisdiction to levy penalty under section 271(1)(c) of the Act even if the concealed income is more than Rs.25,000. The question that arises for consideration is, whether the Inspecting Assistant Commissioner can complete the penalty proceedings and levy penalty under section 271(1)(c) of the Act, after the coming into force of the amending Act, even though the reference was made by the Income-tax Officer earlier to the amendment. A similar question came up for consideration before the Supreme Court in CIT v. Dhadi Sahu (1993) 199 ITR 610. The Supreme Court while considering the provisions of law on this aspect, relating to Taxation Laws (Amendment) Act, 1970, held that reference of the case was validly made by the Income?tax Officer before April 1, 1971, and the Inspecting Assistant Commissioner validly acquired jurisdiction to pass the orders imposing penalty. The amending Act did not make any provision that references validly pending before the Inspecting Assistant Commissioner should be returned without any final order being passed. The previous operation of section 274(2) as it stood prior to April 1, 1971, and anything done there under 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 to be seen was as to when the reference was initiated. If the reference was made before April 1, 1971, it would be governed by section 274(2) as it stood before that date and the Inspecting Assistant Commissioner would have jurisdiction to pass the order of penalty. Again in Varkcy Chacko v. CIT ( 1993 ) 203 ITR 885, the Supreme Court, while considering the same question, held that the authority to impose such penalty as is permissible under the law in that behalf is the one, who is obliged to impose such penalty on the date on which the offence of concealment was committed. In deciding that question, the Supreme Court relied upon its earlier decision in CIT v. Dhadi Sahu (1993) 199 ITR 610. In view of the aforesaid decisions of the Supreme Court, we hold that the Tribunal was not correct in coming to the conclusion that the Inspecting Assistant Commissioner in the present case has got no jurisdiction, to pass an order levying penalty under section 271(1)(c) of the Act on March 30, 1977. In that view of the matter, we answer the question referred to us in the negative and in favour of the Department. ??????????

However, learned counsel for the assessee submitted that inasmuch as this Court came to the conclusion that the Tribunal was not correct in cancelling the penalty on the question of jurisdiction, a direction should be given to the Tribunal to dispose of the penalty appeal on the merits. While considering the question of penalty on the merits. the Tribunal has stated as under:??

"Even though we are convicted the assessee is guilty of concealment .of income because of the way he behaved with the Department, while offering explanation for the source this penalty perhaps cannot be sustained on a legal ground. "

It is, however, pertinent to point out here that the assessee has not filed any reference application against the levy of penalty on the merits. Learned counsel for the assessee submitted that inasmuch as the assessee had succeeded before the Tribunal, he is not in a position to file any reference application. However, it must be pointed out that the assessee could have preferred a cross-question in the reference application filed by the Department before the Tribunal. Admittedly, that was not done in this case In view of the above legal position, we are unable to accede to the request made by learned counsel for the assessee to direct the Tribunal to dispose of the penalty appeal on the merits. There will be no order as to costs.

M.B.A./1260/FC???????????????????????????????????????????????????????????????????? Order Accordingly