1984 (4) TMI 98 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Inspecting Assistant Commissioner (IAC) to pass an order under section 271(1)(c)/274(2) of the Income-tax Act, 1961.
2. Legality of the penalty imposed on the assessee.

Issue-wise Detailed Analysis:

1. Jurisdiction of the IAC:

The assessee contested the jurisdiction of the IAC to pass the order under section 271(1)(c)/274(2) following the amendment by the Taxation Laws (Amendment) Act, 1975, effective from 1-4-1976. The assessee argued that the ITO should have had jurisdiction to pass the penalty order, not the IAC, citing the Karnataka High Court decision in R. Abdul Azeez v. CIT [1981] 128 ITR 547. The ITO issued a show cause notice under section 271(1)(c) on 12-7-1976, and the IAC issued a separate notice on 14-12-1977. The assessee claimed that issuing two notices for the same purpose was illegal, referencing the Calcutta High Court decision in Kashiram Tea Industries Ltd. v. ITO [1981] 132 ITR 783.

The departmental representative countered that the penalty proceedings are procedural and any defect would be cured under section 292B of the Act. The Tribunal found that the ITO issued the notice under section 271 on 12-7-1976 and referred the matter to the IAC, who then issued a notice on 14-12-1977. The Tribunal distinguished the facts from the Kashiram Tea Industries Ltd. case, noting no simultaneous penalty proceedings were ongoing.

The Tribunal also referenced the Supreme Court decision in D.M. Manasvi v. CIT [1972] 86 ITR 557, which held that the satisfaction of the ITO precedes the issue of notice. The Tribunal concluded that the ITO properly initiated the proceedings, and the IAC validly continued them, sustaining the IAC's action.

2. Legality of the Penalty Imposed:

The assessee argued against the penalty on the merits, contending that while the assessee maintained a mercantile system of accounting, the claims from railway authorities were accounted on a cash basis. The assessee claimed that not all claims were realized and had to go to court for some recoveries. The ITO had added Rs. 91,653 as income, disallowed Rs. 2,500 in Majuri account, and added Rs. 3,000 in travelling expenses due to missing vouchers and unsubstantiated claims.

The IAC noted that the assessee's appeal against disallowances was dismissed by the AAC. The IAC concluded that the assessee concealed income and particulars by not disclosing Rs. 91,653 and making false claims for Majuri and travelling expenses. The Tribunal reviewed the facts and submissions, noting that the assessee did not initially furnish particulars until asked by the ITO. The Tribunal upheld the IAC's penalty order, finding no material to conclude otherwise.

Conclusion:

The Tribunal dismissed the appeal by the assessee, sustaining the IAC's jurisdiction and the penalty imposed. The Tribunal found that the ITO properly initiated the penalty proceedings, and the IAC validly continued and concluded them, with no simultaneous proceedings or jurisdictional errors. The Tribunal also upheld the penalty on the merits, finding the assessee had concealed income and made false claims.