1983 (11) TMI 50 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Inspecting Assistant Commissioner (IAC) to levy penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of amended Section 274(2) of the Income Tax Act, 1961.
3. Determination of jurisdiction based on the date of reference by the Income Tax Officer (ITO).

Issue-wise Detailed Analysis:

1. Jurisdiction of the Inspecting Assistant Commissioner (IAC) to levy penalty under section 271(1)(c) of the Income Tax Act, 1961:

The Tribunal held that the IAC had no jurisdiction to impose any penalty under the amended Section 274(2) of the Act. The Tribunal observed that Section 274 was amended by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971. Under the amended Section 274(2), the IAC could impose a penalty only in a case where the amount of income (as determined by the ITO on assessment) in respect of which the particulars had been concealed or inaccurate particulars had been furnished, exceeds Rs. 25,000. In this case, the alleged concealed income was only Rs. 4,675. Therefore, the IAC had no jurisdiction in the case as the reference of the penalty proceedings was made by the ITO to the IAC on February 8, 1973, after the amended provisions of Section 274(2) came into force.

2. Applicability of amended Section 274(2) of the Income Tax Act, 1961:

The amended Section 274(2) came into effect from April 1, 1971, and it stipulated that the IAC could impose a penalty only if the concealed income exceeded Rs. 25,000. It is settled law that penalty is 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 that determines the penalty. In this case, the wrongful act of concealment took place when the return was filed by the assessee on November 6, 1968. However, the jurisdiction to impose the penalty is determined by the law in force at the time the reference is made by the ITO to the IAC. Since the reference was made on February 8, 1973, the amended law applied, and the IAC had no jurisdiction as the concealed income was less than Rs. 25,000.

3. Determination of jurisdiction based on the date of reference by the Income Tax Officer (ITO):

The ITO initiated penalty proceedings by issuing a notice under Section 271(1)(c) on December 7, 1970. However, the ITO made the reference to the IAC on February 8, 1973. The IAC derives jurisdiction to impose a penalty on the assessee only on a valid reference being made by the ITO. The law that determines the jurisdiction of the ITO or the IAC is the law prevalent on the date of conferring power, as suggested by the words "shall refer the case." Since the reference was made on February 8, 1973, the ITO could make a valid reference to the IAC only if the concealed income exceeded Rs. 25,000. As this was not the case, no valid reference could be made, and the IAC did not acquire any jurisdiction to impose the penalty.

Conclusion:

The court concluded that the IAC could not assume jurisdiction without a valid reference by the ITO. The source of the IAC's jurisdiction is a valid reference made by the ITO. An invalid reference means the IAC does not acquire jurisdiction to impose the penalty. The court thus answered the question against the Department and in favor of the assessee, stating that the Tribunal was justified in holding that the IAC had no jurisdiction to levy the penalty under Section 271(1)(c) and thereby canceling the penalty of Rs. 5,000. The court made no order as to costs.