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TMI Blog1982 (10) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... r this assessment year to the extent of Rs. 3,240 being the interest disallowed for the assessment year 1971-72 and treated it as a payment to self. The Tribunal by its order dated 30-1-1979, dealing with the assessment year 1972-73, gave credit to the assessee for a sum of Rs. 6,000 on account of additions made earlier for the assessment year 1971-72. The relevant portion of the Tribunal's order is as under : " In the assessment year 1971-72, the income returned was Rs. 6,674 and the income estimated from business was Rs. 15,000. We think, we can give a benefit of Rs. 6,000 out of the additions made in this year which would be available to the assessee for introducing by way of credits relating to the assessment year 1972-73. " 2. Thus, the assessee got credit to the extent of Rs. 6,000 for the assessment year 1972-73 on account of additions made for the assessment year 1971-72. 3. On 10-3-1978 the ITO started the penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961 ('the Act') on the following : " In view of the AAC's decision for the year under consideration and the provisions of the newly introduced Explanation 2 to section 271(1)(iii) of the Act, pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities below. Even though the penalty is levied in the present case on the basis of the Explanation 2 to section 271, there is nothing called 'deemed concealment'. This is also a concealment and the Explanation is only a rule of evidence to come to a conclusion as to whether there was concealment or not. Referring to section 271(1A), it is pointed out that this section specifically removes the bar, if any for initiation of penalty. Relying on the decision in J.S. Parkar v. V.B. Palekar [1974] 94 ITR 616 (Bom.), the learned counsel has pointed out that we are dealing here with matters of procedure. In J.S. Parkar's case section 69A of the Act was held to be a rule of evidence and held to apply even for earlier years. Being matters of procedure the provisions in the present case also would apply to years in respect of which action could be taken. This cannot be called strictly restrospective operation of the provisions. Concealment has already taken place on account of the operation of the specific provisions. Reference is made also to the decision of the Gujarat High Court in the case of CIT v. Drapco Electric Corpn. [1980] 122 ITR 341. 7. According to the learned counsel, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t so added or deducted in the year immediately preceding the first preceding year which is sufficient to cover such part of the utilised amount as is not so covered shall be treated to be the income of the assessee, particulars of which had been concealed or inaccurate particulars of which had been furnished for the year immediately preceding the first preceding year and so on, until the entire utilised amount is covered by the amounts so added or deducted in such earlier assessment years. " was inserted by the Taxation Laws (Amendment) Act, 1975 with effect from 1-4-1976. The return was filed in this case on 7-12-1974. The AAC's order based on which a deemed concealment was inferred was passed on 17-9-1977 and the subsequent Tribunal's order which provided for an increased set off was passed on 30-1-1979. In our opinion, for several reasons the penalty levied in this case cannot be upheld and should be cancelled. 9. It is well settled that penalty under section 271 can be levied if the ITO, the AAC or the Commissioner (Appeals) 'in the course of any proceedings under this Act' is satisfied about the different defaults specified therein. The specific use of the word 'or' in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a legal fiction is. A legal fiction can never be regarded as a rule of evidence. Fiction gives rise to substantive provisions of law which affects the subject with regard to his rights and obligations. The analogy sought for from the decision in J.S. Parkar's case would not, therefore, apply. Explanation 2 directly effects substantial rights of the assessee and cannot be regarded as a mere rule of evidence or a matter of procedure which could be adopted retrospectively. 12. Explanation 2 specifies that certain amounts could be treated as income concealed in certain circumstances. Levy of penalty under section 271 can be done only according to and under the provisions therein specified. If in a normal case a fiction or deeming penalty cannot be levied by an authority not empowered to be so under section 271(1), we do not see how the mere fact of a fiction with specific empowerment in this behalf can authorise any one, the ITO, the AAC or the Commissioner (Appeals) to levy penalty where they are not so empowered. We cannot agree with the learned counsel for the department that insofar as some provision for levying penalty obtains and the ITO is not precluded from initiating or l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. Even if the AAC or the Tribunal wanted to levy penalty in the present case in the absence of any proceedings pending for the assessment year 1971-72 before them, they can never acquire jurisdiction for the assessment year. Fundamentally each assessment year being a separate period, the appellate authority never gets jurisdiction unless the particular assessment year is in appeal before him. The ITO, therefore, has absolutely no jurisdiction to levy penalty in the present case when be cannot be said to be satisfied about the default having been committed. Penalty deserves to be cancelled for this reason too. The above view will not render the provisions nugatory since situation can be found where the ITO and the other authorities can act under the section. 15. Explanation 2 was brought on the statute book with effect from 1-4-1976. The return was filed on 7-12-1974. On the authority of Brij Mohan's case the default, if any, even it be a deemed default, can be said to have occurred only when the return was filed, i.e., in 1974. The penalty in the present case being a matter of substantial right and not one of procedure cannot have retrospective effect, that being not provided f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows would be an astounding proposition. It deserves to be noted that Explanation 2 will automatically be applicable because when once the ITO makes an addition to the goods account, that much of money is added to the income of the assessee. If the assessee does not bring back that amount by way of investment, etc., in a subsequent year the natural corollary is that he has either invested or spent that amount in the very same year. To take an example in the present case for the assessment year 1977-78 as against the business income of Rs. 6,000, an estimate of income of Rs. 15,000 was made. The assessee has, thus, put into his hands an extra sum of Rs. 9,000. The assessee must either spend that money or invest it either in the year 1971-72 or in any subsequent year. Whether he claims a set off for this investment or expenditure or not, automatically the set off has to be thought of because the excess money is there. If there is no investment, the ITO can clearly come to the finding that the extra Rs. 9,000 has been spent by the assessee and ask for the assessee's for the source of such explanation expenditure ; naturally the assessee cannot have any explanation because the money ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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