Income-tax---

----Penalty---Concealment of income---Penalty proceedings for assessment year 1979-80---Addition of Rs.32,707 made to income of assessee and penalty proceedings initiated---Failure to obtain prior approval of I.A.C.-- Procedural defect which could be cured---Indian Income Tax Act, 1961, Ss. 251 & 271(1)(c).

A procedural irregularity not involving the question of jurisdiction can be cured. .

In the assessment, order for the assessment year 1979-80, the Income-tax Officer made additions amounting to Rs.32,707 to the income of the assessee. The Income-tax Officer initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961. In the assessment order, there was no specific mention of the items of income, which were treated as concealed income. The Commissioner of Income-tax (Appeals) deleted Rs.9,107 out of the addition. The assessee raised an objection that the penalty order was invalid in law since the penalty was levied without the previous approval of the Inspecting Assistant Commissioner of Income-tax when the amount of income in respect of which the particulars were, alleged as inaccurate or concealed, was Rs.32,707, i.e. to say, in excess of Rs.25,000. The Commissioner of Income-tax (Appeals) construed the assessment order as if the Income-tax Officer had initiated penalty proceedings in respect of unexplained investment of Rs.23,600 only. The Commissioner of Income-tax (Appeals), thus, confirmed the addition. The Tribunal reached the conclusion that from the assessment order it could not be inferred that the satisfaction of the Income-tax Officer as to the concealment of income by the assessee was restricted to Rs.23,600 only. The Tribunal, therefore, held the penalty order illegal, having been passed without the previous approval of the Inspecting Assistant Commissioner. On a reference:

Held, that the levy of penalty by the Income-tax Officer without previous approval of the Inspecting Assistant Commissioner was illegal. But it was a defect, which could be cured. Therefore, the case had to go back to the Assessing Authority. While curing the defect by obtaining the prior approval of the Inspecting Assistant Commissioner, he was bound to take into consideration the fact that the penalty proceedings under section 271(1)(c) had to be restricted to the addition of Rs.23,600 out of the entire addition of Rs.32,707. The Inspecting Assistant Commissioner while according approval and the Income-tax Officer while imposing penalty should keep in mind this factual position.

Prabhudayal Amichand v. CIT (1989) 180 ITR 84 (MP) and CIT v. Sardarilal Bhasin (1989) 179 ITR 307 (MP) fol.

D. D. Vyas for the Commissioner.

G. M. Chaphekar for the Assessee.

JUDGMENT

N. K. JAIN, J.---The Income-tax Appellate Tribunal, Indore Bench, Indore, has on an application by the applicant-Department trade under section 256(1) of the Income Tax Act, 1961 (for short "the Act"), stated the case and referred the following questions said to be of law for the opinion of this Court, arising out of its order, dated March 20, 1990, passed in I.T.A. No.375/Ind. of 1985 relating to the assessment year 1979-80:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the satisfaction of the Income-tax Officer for initiation of penalty proceedings under section 271(1)(c) was not restricted to Rs.23,600 out of the entire addition of Rs.32,707, and, as such, levy of penalty by the Income-tax Officer without previous approval of the Inspecting Assistant Commissioner was illegal?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in view of clause (b) of subsection (1) of section 251 of the Income-tax Act, the penalty order could not be remanded to the Income-tax Officer for curing the defect of not obtaining the previous approval of the Inspecting Assistant Commissioner?"

Briefly stated the facts leading to this reference are these: The assessee is a firm. The year of assessment involved is 1979-80. In the assessment order, the Income-tax Officer made the following additions:

The Income-tax Officer initiated penalty proceedings in the course of the said assessment and issued show-cause notice under section 271(1)(c) read with section 274 of the Act. In the assessment order there was no specific mention as to out of the total additions of Rs.32,707 which item/ items of addition was/were treated as concealment of income. The assessment order simply mentioned "Issue penalty notice under section 273(1)(b) and charge interest under section 217(1) separately and issue penalty notice under section 271(1)(c) of the Income-tax Act. On appeal, the Commissioner of Income-tax (Appeals) deleted the addition of Rs.5,000 on account of extra income in the trading account. The addition of Rs.1,000 out of scooter expenses was partially reduced and the addition of Rs.1,000 out of shop expenses and of Rs.2,107 on account of balance-sheet difference became final since probably no appeal in respect therewith was filed. The assessee went in appeal before the Commissioner of Income-tax (Appeals) and raised an objection that the penalty order was invalid in law since the penalty was levied without the previous approval of the Inspecting Assistant Commissioner of Income-tax when the amount of income in respect of which the particulars were alleged as inaccurate of concealed, was Rs.32,707, i.e. to say, in excess of Rs.25,000. The Commissioner of Income-tax (Appeals) construed the assessment order as if the Income-tax Officer had initiated penalty proceedings in respect of unexplained investment of Rs.23,600 only. The Commissioner of Income-tax (Appeals), thus, confirmed the addition (penalty?).

The assessee came in second appeal before the Tribunal. The Tribunal reached the conclusion that from the assessment order it could not be inferred that the satisfaction of the Income-tax Officer as to the concealment of income by the assessee was restricted to Rs.23,600 only. The Tribunal, therefore held the penalty order illegal having been passed without the previous approval of the Inspecting Assistant Commissioner. The Tribunal also held that the mistake committed by the Income-tax Officer in not obtaining the previous approval of the Inspecting Assistant Commissioner could not be cured since in view of clause (b) of sub section (1) of section 251, the First Appellate Authority had no power of remand and the Tribunal as the Second Appellate Authority could not exercise power to excess of that vested in the First Appellate Authority. The Tribunal thus cancelled the penalty. Since the Department was not satisfied with the order of the Tribunal it made application under section 256(1) of the Act thus, giving rise to this reference.

We have heard Shri D.D. Vyas, learned counsel for the applicant/Department, and Shri G. M. Chaphekar, learned senior counsel for the non-applicant/assessee.

Taking the second question first, we may observe at the outset that the, question stands answered by the decisions of, this Court in, Prabhudayal Amichand v. CIT (1989) 180 ITR 84 and CIT v. Sardarilal Bhasin (1989) 179 ITR 307. In the case of Prabhudayal Amichand v. CI.T (1989) 180 ITR 84, this Court under similar situation has held (headnote):

"that a procedural irregularity not involving the question of jurisdiction can be cured. The Tribunal was, therefore, justified in directing the Income-tax Officer to pass a fresh order in accordance with law."

In the case of CIT v. Sardarilal Bhasin (1989) 179 ITR 307 (MP), it was held (headnote):

"The clause 'No order imposing a penalty under this Chapter shall be passed' occurring in section 275 of the Income Tax Act, 1961, is attracted only to the initial penalty order and not to the penalty order passed, after the case. is remanded by the Appellate Authority. This position is not affected by the amendments made in section 275 by the Taxation Laws (Amendment) Act, 1970, or the Taxation Laws (Amendment) Act, 1975. "

Nothing substantial could be urged before us to take a different view in the matter. Question No.2, therefore, deserves to be answered in favour of the Revenue and against the assessee.

Coming to the second question, there can be no doubt that levy of penalty by the Income-tax Officer without previous approval of the Inspecting Assistant Commissioner was illegal. Now that the case shall go back to the Assessing Authority for curing the defect by obtaining prior approval of the Inspecting Assistant Commissioner, they are bound to take into consideration the fact that the penalty proceedings under section 271(1)(c) have to be restricted to the addition of Rs.23,600 out of the entire addition of Rs.32,707. The Inspecting Assistant Commissioner while according approval and the Income-tax Officer while imposing penalty shall keep in mind this factual position. Question No. 1, therefore, deserves to be answered like this that the levy of penalty by the Income-tax Officer without previous approval of the Inspecting Assistant Commissioner was illegal but while curing the defect the concerned authorities shall take into consideration the factual position of the case as indicated above.

The reference, thus, stands decided in terms indicated above but without any order as to costs.

A copy of this order be transmitted to the Tribunal for further action as may be necessary in accordance with law.

M.B.A./3116/FCReference answered