COMMISSIONER OF INCOME-TAX VS ESCORTS EMPLOYEES ANCILLARIES LTD., 1998 PTD-PUNJAB-AND-HARYANA-HIGH-COURT-INDIA 1293 (1996)

Income-tax---

----Reference---Penalty---Concealment of income---Penalty cancelled by CIT (Appeals)---Tribunal setting aside order of CIT (Appeals) to consider afresh on merits---Court will not answer reference as matter is before CIT (Appeals) on merits---Indian Income Tax Act, 1961, Ss. 256(1) & 271(1)(c).

The assessee filed a loss return for the assessment years 1968-69 and 1969-70. The Income-tax Officer assessed the loss at a lower amount and initiated penalty proceedings under section 271(l)(c) of the Income Tax Act, 1961 read with the Explanation thereto. It was cancelled by the Commissioner of Income-tax (Appeals) only on the point that the Explanation referred to by the Income-tax Officer was not in existence when notice was issued, for levying the penalty. The Tribunal set aside the order of the Commissioner of Income-tax (Appeals) to consider the matter on the merits. On a reference:

Held, that the questions referred would not be answered by the High Court as the matter was before the Commissioner of Income-tax (Appeals) on the merits.

CIT v. Prithipal Singh & Co. (1990) 183 ITR 69 (P & H) ref.

B.N. Goswami, S.S. Mahajan and Ms. Aparna Mahajan for the Assessee.

R.P. Sawhney, Senior Advocate and Sanjay Goyal for the Commissioner.

JUDGMENT

ASHOK BHAN, J.---The following two questions have been referred by the Income-tax Appellate Tribunal, Amritsar, relating to assessment years 1968-69 and 1969-70, for the opinion of this Court:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Explanation to section 271(1)(c) which was deleted by the Taxation Laws I(Amendment) Act, 1975, with effect from April 1, 1976, was applicable to this case?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the penalty orders should not have been cancelled by the Commissioner of Income-tax (Appeals) without considering whether the penalty was imposable under the main provisions of section 271(1)(c)?"

The assessee had filed its return on October 29, 1971, for the assessment year 1968-69 showing a loss of Rs.2,32,870. The Income-tax Officer framed the assessment on September 17, 1977 determining the total loss at Rs.1,30,063. After recording his satisfaction regarding initiation of proceedings under section 271(1)(c) of the Income Tax Act, 1961 (herein after referred to as "the Act"), read with the Explanation to that section, he, after taking into consideration the facts on the record, held the penalty was imposable on the assessee in respect of two additions made in the assessment recorded in the trading account to the extent of Rs.1,54,177 and in respect of the claim for payment of commission to the extent of Rs.25,812. The Income-tax Officer held that the assessee had concealed particulars of its income and imposed a penalty of Rs.1,79,989, which was equal to the amount of income, which he held, the assessee had concealed. Similarly, for the assessment year 1969-70, penalty was imposed under similar circumstances and similar facts. In that year, the return was filed on September 29, 1971, and the assessment had been framed on March 27, 1980.

In appeal before the Commissioner of Income-tax (Appeals), several grounds were taken. The Commissioner of Income-tax (Appeals) considered only one point and accepted the appeal of the assessee holding that the penalty was bad in law as the Income-tax Officer had referred to the Explanation to section 271(l)(c) of the Act, which was not in existence at the time when the assessment was framed and the notice was issued for levying the penalty. The Income-tax Officer had referred to the Explanation which was in existence from April 1, 1964, to April 1, 1976. Parliament, by an amendment, substituted the earlier Explanation by another set of four Explanations with effect from April 1, 1976. The Commissioner of Income tax (Appeals) was of the view that the Income-tax Officer had erred in relying upon a provision which was, not in existence on the date notice for levying the penalty was issued. He also held that it was not clear as to which out of the four Explanations was invoked by the Income-tax Officer.

The Revenue carried an appeal before the Tribunal. Counsel for the Revenue raised a contention that the Explanation, which was in existence at the time when the return was filed would be applicable. The Tribunal accepted the appeal and held that the Explanation, which existed prior to April 1, 1976, i.e., which was in existence at the time of filing the return would be applicable. It was held that the Commissioner of Income-tax (Appeals) should not have cancelled the penalty orders without considering whether the penalty was imposable under the main provisions of section 271(1)(c) of the Act. The mention of the Explanation in section 271(1)(c) of the Act does not mean that the main provisions have not been applied and it was necessary to give a finding whether the penalty was imposable under the main provision itself or not. The Tribunal further found that the Commissioner of Income-tax (Appeals) had not considered the matter on the merits. The order of the Commissioner of Income-tax (Appeals) was set aside and the case was remanded to the Commissioner of Income-tax (Appeals) to consider the question of imposition of penalty on the merits.

At the instance of the assessee, the two questions of law reproduced in the earlier part of the judgment, have been referred to this Court, for its opinion.

Counsel for the assessee at the outset, placing reliance upon a judgment of this Court in CIT v. Prithipal Singh & Co. (1990) 183 ITR 69, argued that where an assessee 'has filed a return declaring a loss and the assessment was finally framed at a loss figure, then it cannot be said that the assessee had suppressed any income which would have attracted liability to tax, that section 271(1)(c) of the Act was not applicable and the penalty could not be imposed.

We are not called upon to decide this question. This is a dispute on the merits and it shall be open to the assessee to raise this point before the Commissioner of Income-tax (Appeals), where the appeal is pending for disposal on the merits. It shall be of the Commissioner of Income-tax (Appeals) to decide the question regarding impossibility of penalty on merits in accordance with law.

Counsel for the assessee did not press for answers to the questions referred to us as the matter is pending disposal before the Commissioner of Income7tax (Appeals) on the merits. He wishes to contest the impossibility of penalty on the merits before the Commissioner of Income-tax (Appeals). In view of the stand taken by counsel for the assessee, the questions referred to us are returned unanswered.

M.B.A./1443/FCOrder accordingly.