1983 (1) TMI 134 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the penalty imposed under Section 271(1)(c) of the Income Tax Act.
2. Jurisdiction of the Income Tax Officer (ITO) to levy the penalty.
3. Reasonableness and quantum of the penalty imposed.
4. Merits of the penalty based on the facts of the case.

Detailed Analysis:

1. Legality of the Penalty Imposed Under Section 271(1)(c):
The appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] dated 7th November 1979, which confirmed the penalty of Rs. 21,500 under Section 271(1)(c) of the Income Tax Act, levied by the Income Tax Officer (ITO). The penalty was initially imposed due to the inclusion of a loan amount of Rs. 20,000 and interest of Rs. 1,500, which were considered as income from undisclosed sources.

2. Jurisdiction of the Income Tax Officer (ITO) to Levy the Penalty:
The assessee raised a jurisdictional issue, contending that the law applicable to penalty proceedings is the law as it stood at the date of filing of the return in which the concealment took place. The return was filed on 12th August 1968, and according to the law then, if the minimum penalty leviable exceeded Rs. 1,000, the penalty could only be levied by the Inspecting Assistant Commissioner (IAC) and not by the ITO. The CIT(A) did not accept this contention, stating that the issue of jurisdiction was not specifically taken in the grounds of appeal and focused only on the reasonableness of the penalty.

3. Reasonableness and Quantum of the Penalty Imposed:
The penalty imposed by the ITO was initially 150% of the sum of Rs. 21,500. The Tribunal had earlier directed the AAC to record a finding on whether the penalty imposed by the ITO was excessive or appropriate. The CIT(A) eventually reduced the penalty to 100%, confirming the penalty of Rs. 21,500. The Tribunal, however, noted that the authority competent to levy the penalty where the minimum penalty imposable exceeded Rs. 1,000 was the IAC, not the ITO, as per the law on the date of filing the return.

4. Merits of the Penalty Based on the Facts of the Case:
The assessee argued that the penalty was imposed without proper appreciation of the statements of the parties concerned and that the loan was genuine. The Tribunal observed that the concealment of particulars of income was effected when the return was filed on 12th August 1968. The Tribunal referred to the Supreme Court judgment in the case of Brij Mohan, which clarified that the law applicable to the imposition of penalty is the law ruling on the date when the act of concealment takes place. Since the return was filed on 12th August 1968, the jurisdiction to levy the penalty lay with the IAC, not the ITO. Therefore, the penalty imposed by the ITO was deemed bad in law and was cancelled.

Conclusion:
The Tribunal allowed the appeal, cancelling the penalty on the legal ground that the ITO did not have the jurisdiction to levy the penalty as per the law applicable on the date of filing the return. The Tribunal did not find it necessary to go into the other contentions relating to the merits of the case.