Income-tax---

----Penalty---Concealment of income---Law applicable---Jurisdiction to levy penalty---Penalty proceedings pending before IAC on 31-3-1976---Effect of omission of subsection (2) of S.274 with effect from 1-4-1976 --- IAC competent to continue with proceedings and pass appropriate orders-- Tribunal not considering merits of case---Matter remanded---Indian Income Tax Act, 1961, Ss. 271(1)(c) & 274.

The Income-tax Officer before completing the assessment on March 23, 1974, initiated proceedings for penalty under section 271(1)(c) of the Income-tax Act, 1961, and referred the matter to the Inspecting Assistant Commissioner for levy of penalty. The Inspecting Assistant Commissioner on August 29, 1979, imposed penalty. The assessee contended that in view of the Taxation Laws (Amendment) Act, 1975, omitting subsection (2) of section 274 with effect from April 1, 1976, the Inspecting Assistant Commissioner had no jurisdiction to impose penalty after April 1, 1976. The Tribunal accepted the contention of the assessee. On a reference:

Held, (i) that the Inspecting Assistant Commissioner did not lose jurisdiction to continue with the penalty proceedings pending before him on March 31, 1976. He was entitled to continue with those proceedings and pass appropriate orders according to law.

CIT v. Sharadamma (R.) (Smt.) (1996) 219 ITR 671 (SC) fol.

(ii) that when the Appellate Tribunal cancelled the penalty on the ground that the Inspecting Assistant Commissioner had no jurisdiction to levy penalty, it did not go into the merits of the case as it .was found unnecessary to express any opinion on the merits of the case. It way now necessary that the Tribunal should go into the merits of the case w. regards the levy of penalty and decide the matter accordingly.

CIT v. Star Oil Mills (1997) 228 ITR 26 (Mad.) ref

C.V. Aajan for the Commissioner, Nemo for the Assessee.

JUDGMENT

N. V. BALASUBRAMANIAN, J.---This reference arises out of the order of the Income-tax Appellate Tribunal passed in I.T.A. No. 2004/Mds. of 1979, relating to the assessment year 1971-72. The Appellate Tribunal referred the following question of law under section 256(1) of the Income Tax Act, 1961, for our opinion:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the Inspecting Assistant Commissioner, had no jurisdiction to levy penalty under section 271(1)(c) read with section 274(2) of the Income-tax Act after April 1, 1976, even though reference was made to him prior to April 1, 1976, and thus cancelling the penalty levied in the assessee's case for the assessment year 1971--72?"

The Income-tax Officer before completing the assessment on March 23, 1974, initiated proceedings for penalty under section 271(1)(c) of the Act for imposition of penalty for concealment of income and referred the matter to the. Inspecting Assistant Commissioner on the same day for the levy of penalty. The Inspecting Assistant Commissioner by his order, dated August 29, 1979, imposed penalty under section 271 (1)(c) of the Act. In the meantime, the Taxation Laws (Amendment) Act, 1975, came into effect from April, 1, 1976, and according to the assessee after the enactment of the Taxation Laws (Amendment) Act, 1975, the Inspecting Assistant Commissioner has no jurisdiction to levy the penalty. The Appellate Tribunal also accepted the contention of the assessee and held that the Inspecting Assistant Commissioner had no jurisdiction to levy penalty in view of the intervening amendment made by the Taxation Laws (Amendment) Act, 1975. Against this order of the Appellate Tribunal, the Revenue has sought for and obtained the reference on the question of law stated supra.

During the pendency of the reference, the first respondent was reported to be dead and his legal representative was brought on record. Though the notice was served on the legal representative there was no representation on behalf o)' the second respondent.

A similar question whether the Inspecting Assistant Commissioner would have jurisdiction even after the amendment of the Taxation Laws (Amendment) Act, 1975, was the subject-matter for consideration before the Supreme Court in the case of CIT v. R. Sharadamma (1996) 219 ITR 671 and the Supreme Court held that where the reference was made to the inspecting Assistant Commissioner before the enactment of the Taxation Laws (Amendment) Act, 1975, he would be entitled to continue with those proceedings and pass appropriate orders according to law. The above view of the Supreme Court was followed by this Court in the case of CIT v. Star Oil Mills (1997) 228 ITR 26, wherein this Court has held that the Inspecting Assistant Commissioner did not lose the jurisdiction to continue with the proceedings pending before .him on March 31, 1976, and was entitled to continue with those proceedings and pas, appropriate orders according to law.

Accordingly, following the said judgments, we are of the view that the Appellate Tribunal was not correct in holding that the Inspecting Assistant Commissioner had no jurisdiction to levy the penalty under section 271(l)(c) of the Act in view of the intervening amendment made by the Taxation Laws (Amendment) Act, 1975. Accordingly, we answer the question of law referred to us in the negative and in favour of the Revenue.

However, when the Appellate Tribunal cancelled the penalty on the ground that the Inspecting Assistant Commissioner had no jurisdiction to levy penalty it did not go into the merits of the case as it was found unnecessary to express any opinion on the merits of the case. Since we have held that the view of the Appellate Tribunal is not correct, in view of the subsequent decision of the Supreme Court, it is necessary that the Tribunal should go into the merits of the case as regards the levy of penalty and decide the matter accordingly. No costs.

M.B.A./ 594/FCOrder accordingly.