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TMI Blog1995 (8) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... sistant Commissioner ?" The questions, referred at the instance of the Revenue, are as follows : " (1) Whether, on the facts and in the circumstances of the case, and also on an interpretation of section 271(1)(c) of the Income-tax Act, the Tribunal is right in law and fact in holding that 'he had concealed the particulars in respect of only that income which he should have disclosed in the return, namely, the capital gains arising from the transaction computed in accordance with the provisions of section 80T and section 48' ? (2) Whether, on the facts and in the circumstances of the case, for the purpose of determining the quantum of concealment, should not the Tribunal in law first set off the capital loss of Rs. 8,355 relating to the assessment year 1972-73 against the capital gains for the assessment year 1973-74 ? (3) Whether, on the facts and in the circumstances of the case, does the Inspecting Assistant Commissioner have the jurisdiction to impose penalty ?" The assessee, who was doing business in the manufacture and sale of beedies, had sold 23 cents of land with a building thereon to his two daughters on July 24, 1972. The consideration for the sale was Rs. 1 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to the deletion of section 274(2) with effect from April 1, 1976, the Inspecting Assistant Commissioner had no jurisdiction to levy penalty for alleged concealment of income under section 271(1)(c) even in cases referred to him earlier to April 1, 1976. Consequently, the Tribunal set aside the order of the Inspecting Assistant Commissioner and cancelled the penalty as per the order dated August 16, 1980 (annexure-B). When the reference cases came up for consideration before the Division Bench on July 6, 1993--S. M. Syed Mohammed v. CIT [1994] 206 ITR 269 (Ker)--T. L. Viswanatha Iyer J., on behalf of the Division Bench ordered thus (at page 270) : " These references are at the instance of the assessee and the Revenue and concern the imposition of penalty on the deceased assessee under section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1973-74. While the assessee contended that he had not concealed particulars of any income, it was the case of the Department that the case squarely fell within section 271(1)(c). The penalty had been imposed by the Inspecting Assistant Commissioner purporting to act under section 274(2) of the Act which had been repealed wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein it has been stated thus : " Neither the Revenue nor the assessee is able to furnish the letter of the Income-tax Officer dated March 31, 1976, mentioned as item No. 1 above. However, the Revenue has furnished the copy of a report of the Income-tax Officer dated August 18, 1977. It is represented before us that the miscellaneous records for the assessment year 1973-74 with the Income-tax Officer as also the Inspecting Assistant Commissioner's file in respect of penalty proceedings would appear to have been weeded out. " Subsequently, the income-tax reference cases with the supplementary statement dated July 29, 1993, came up for hearing again before the Division Bench. The Division Bench, however, considered it necessary to refer the cases for decision by a Full Bench of this court. T. L. Viswanatha Iyer J., on behalf of the Division Bench, in the order of reference, has observed as below : " One of the questions which arises for consideration in these references is whether the jurisdiction of the Inspecting Assistant Commissioner to levy penalty under section 274(2) of the Income-tax Act, 1961, is preserved after April 1, 1976, so as to justify his action in imposing pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74. During the relevant period the power to impose penalty is vested with the Inspecting Assistant Commissioner. He will get the jurisdiction to levy penalty only when the Income-tax Officer refers the case to him. The provision of section 274(1) and (2), as it stood at the relevant period, is extracted below : " 274. (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard. (2) Notwithstanding anything contained in clause (iii) of sub-section (1) of section 271, if in a case falling under clause (c) of that sub-section, the amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceeds a sum of twenty five thousand rupees, the Income-tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose, have all the powers conferred under this Chapter for the imposition of penalty." The above sub-section (2) authorising the Income-tax Officer to refer the case to the Inspecting Assistant Commissioner was however deleted with e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ependent, on the exercise of the power of reference by the Income-tax Officer. But the exercise of the power of reference by the Income-tax Officer does not ipso facto confer jurisdiction on the Inspecting Assistant Commissioner to levy penalty. The conferment of jurisdiction will be complete only when the order of reference is received by the Inspecting Assistant Commissioner or otherwise made known to him directly. In other words, the conferment of jurisdiction shall reach within his knowledge and as soon as it is known he is entitled to take cognizance of the powers conferred on him by virtue of the reference made by the Income-tax Officer under section 274(2). The question whether the reference was pending before the Inspecting Assistant Commissioner on March 31, 1976, requires to be examined. No doubt, the reference was ordered by the Income-tax Officer on March 31, 1976. If, on the same day, the reference order was served on the Inspecting Assistant Commissioner, it would have been possible for the Revenue to contend that the reference was pending before him on March 31, 1976. It is the case of the Revenue that the letter stated to have been issued by the Income-tax Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside the order imposing penalty on the ground that the Inspecting Assistant Commissioner had no jurisdiction to impose penalty after the Taxation Laws (Amendment) Act, 1975, came into force. This view was affirmed by this court on the reference made at the instance of the Revenue. The Full Bench observed (at page 804) : " As noticed earlier in this judgment, section 271(1) of the Income-tax Act confers jurisdiction on the Income-tax Officer to impose penalty on satisfaction of the conditions mentioned in sub-clause (a), (b) or (c). Section 274(2) of the Act had invested the Inspecting Assistant Commissioner with the power of the Income-tax Officer to impose penalty in cases mentioned therein. The jurisdiction of the Inspecting Assistant Commissioner under section 274(2) was only that of the Income-tax Officer under section 271(1) of the Act. By deletion of sub-section (2) of section 274 by the Taxation Laws (Amendment) Act, 1975, the Inspecting Assistant Commissioner is divested of the jurisdiction of the Income-tax Officer under section 271(1) of the Act and on such divestiture, the Inspecting Assistant Commissioner ceased to have jurisdiction to proceed under section 271 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt meant while saying "when the references were initiated" was only the valid references and not the initiation of references invalidly made. If the reference was valid, then the initiation was also valid. In the present case before us, the initiation of reference was invalid as there was no valid reference. Therefore, the decision of the Supreme Court in Dhadi Sahu's case [1993] 199 ITR 610, has no application in this case. The factual situation in Varkey Chacko v. CIT [1993] 203 ITR 885 (SC), is in no way different. That was a case where the Income-tax Officer made the order of assessment and initiated penalty proceedings against the assessee on March 27, 1972, i.e., after section 274(2) of the Act was amended by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971. The Income-tax Officer imposed a penalty of Rs. 10,000 on March 26, 1974, and the Appellate Tribunal confirmed his order holding that the law governing imposition of penalty was the law as in force on the date when the return was filed. On a reference, the High Court reversed the Tribunal's order holding that the law applicable was that in force on the date of the assessment order. This view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t held that if the reference was made before April 1, 1971, it would be governed by section 274(2) as it stood before that date and the Inspecting Assistant Commissioner would continue to have jurisdiction. The Division Bench by order dated August 20, 1993, referred the matter to the Full Bench to consider the question whether the decision of the Full Bench in CIT v. P. L. Issac [1987] 168 ITR 793 (Kar) is impliedly overruled by the Supreme Court decision in CIT v. Dhadi Sahu [1993] 199 ITR 610. The Income-tax Appellate Tribunal, Cochin Bench, has referred the following questions of law for the decision of this court under section 256(1) of the Income-tax Act, 1961 : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that penalty is exigible under section 271(1)(c) of the Income-tax Act for the assessment year 1973-74 ? 2. Whether there was a valid reference by the Income-tax Officer under section 274(2) to the Inspecting Assistant Commissioner ? The following questions at the instance of the Commissioner of Income-tax are also referred for the decision of this court under section 256(1) of the Income-tax Act, 1961: " 1. Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arising from the above sale at Rs. 1,09,900 taking the market value of the property at Rs. 2,44,960 as sale consideration and Rs. 1,35,000 as its value as on January 1, 1954. He also initiated action for the levy of penalty in his order dated March 30, 1976, the operative portion of which is as follows : " Since this income is not disclosed in the return, penalty proceedings are initiated under section 271(1)(c) of the Income-tax Act and the matter is referred to the Inspecting Assistant Commissioner of Income-tax, Trivandrum." The order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner and the Tribunal. In the meantime, the Inspecting Assistant Commissioner of Income-tax, in his proceedings dated March 18, 1978, found that the assessee had concealed the particulars of his income to the tune of Rs. 1,09,900 and, therefore, levied a penalty of Rs. 1,09,900 under section 271(1)(c) of the Income-tax Act. On appeal before the Income-tax Appellate Tribunal, the following questions were raised and answered : " (1) Whether the assessee had concealed income in the return filed by him, wherein he had disclosed the income of Rs. 28,320 ? Ans. : From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,--. . . . (iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than twenty per cent., but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income. Explanation.--Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this sub-section. " The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting Assistant Commissioner would continue to have the jurisdiction to impose the penalty. The controversy has now been set at rest by the two decisions of the Supreme Court in CIT v. Dhadi Sahu [1993] 199 ITR 610 and Varkey Chacko v. CIT [1993] 203 ITR 885. The Full Bench of this court in CIT v. P. I. Issac [1987] 168 ITR 793, while holding that the Inspecting Assistant Commissioner ceased to have jurisdiction to proceed under section 271 of the Income-tax Act after the amendment came into force on April 1, 1976, mainly followed the reasoning of the Division Bench of the Orissa High Court in CIT v. Dhadi Sahu [1976] 105 ITR 56 in support of their conclusion in preference to the view of the Division Bench of the Kerala High Court in Varkey Chacko's case [1982] 136 ITR 733. On appeal against the Orissa High Court's decision in CIT v. Dhadi Sahu [1976] 105 ITR 56, the Supreme Court reversed it in [1993] 199 ITR 610. Similarly, the Supreme Court confirmed the decision in Varhey Chacko's case [1993] 203 ITR 885. Hence we have to hold that the Full Bench decision in CIT v. P. I. Issac [1987] 168 ITR 793 (Ker) has been impliedly overruled by the Supreme Court in CIT v. Dhadi Sahu [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Division Bench decision in Varkey Chacko's case [1982] 136 ITR 733 (Ker) at pages 798, 799 and 800, stating that "we are in agreement with the above proposition of law laid down by the Division Bench" (page 800). After that the Full Bench at page 802 went into the contrary view taken by the Orissa High Court (see [19761 105 ITR 56) and other courts and took a similar view. The Supreme Court in CIT v. Dhadi Sahu [1993] 199 ITR 610 has considered a similar question whether the amendment brought about in section 274(2) with effect from April 1, 1971, was not applicable to pending references. The Supreme Court has held that it is a general principle that a law which brings about a change in the forum does not affect pending actions unless an intention to the contrary is clearly shown. The Supreme Court further held that the previous operation of section 274(2), as it stood before April 1, 1971, and anything done thereunder continued to have effect under section 6(b) of the General Clauses Act, 1897, enabling the Inspecting Assistant Commissioner to pass orders imposing penalty in pending references. The Supreme Court concluded with the following words (at page 616) : " In our o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority is satisfied that there has been such concealment or furnishing of inaccurate particulars. A penalty proceeding, therefore, can be initiated only after an assessment order has been made which finds such concealment or furnishing of inaccurate particulars. Who at this point of time, has the authority to impose the penalty is what is relevant. Whoever this authority may be, he is obliged to impose such penalty as was permissible under the law in that behalf on the date on which the offence of concealment of income was committed, that is to say, on the date of the offending return. The two aspects must firmly be borne in mind, namely, who may impose the penalty and in what measure." The argument in the case before us was based on the question whether there was a valid reference in these cases. The Tribunal in paragraph 17 (of their order) found that the assessment order was made on March 30, 1976, and the Income-tax Officer initiated proceedings for the levy of penalty on the same day. The Tribunal found as a matter of record that the Income-tax Officer informed the assessee by a letter of even date that the case was being referred to the Inspecting Assistant Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r this Chapter, of imposition of penalty. In this context the learned Advocate General for Taxes referred to the decision of the Supreme Court in R. K. Upadhyaya v. Shanabhai P. Patel [1987] 166 ITR 163, wherein it has been held that (at page 165) : " Once a notice is issued within the period of limitation, jurisdiction becomes vested in the Income-tax Officer to proceed to reassess. " In CWT v. Kundan Lal Behari Lal [1975] 99 ITR 581, the Supreme Court, while interpreting the word "issued" occurring in section 18(2A) of the Wealth-tax Act, held that it would take in the entire process of sending notice as well as service thereof. The Supreme Court also held in that case quoting an earlier judgment in Banarsi Debi v. ITO [1964] 53 ITR 100, that the expressions "issued" and "served" are used as interchangeable terms and in the legislative practice of our country they are sometimes used to convey the same idea. In Jai Charan Lal v. State of U. P., AIR 1968 SC 5, the Supreme Court while dealing with the requirement of seven clear days intervening between the date of despatch of notice and the date of the meeting of a Municipal Council held that "the critical date according to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was in force. We are inclined to agree with the submission of Mr. Sen that the language contained in clause 2 of the Defence of India (Amendment) Rules, 1965, can only afford protection to action already taken while the rule was in force, but cannot justify initiation of a new proceeding which will not be a thing done or omitted to be done under the rule but a new act of initiating a proceeding after the rule had ceased to exist, On this interpretation, the complaint made for the offence under rule 132A(4) of the D. I. Rs., after 1st April, 1965, when the rule was omitted, has to be held invalid." (emphasis added). The Supreme Court is of the opinion that under the Rules, no further application of the rule can be permitted by instituting a new prosecution in respect of something already done. In that context, the Supreme Court held that section 6 of the General Clauses Act cannot apply on the omission of rule 132A of the D. I. Rs. The observation of the Supreme Court, in not allowing the continuance of proceedings, has to be considered in the context of the facts of the particular case. Learned counsel for the assessee also relied on the observation of the Supreme Court in CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be instituted, continued or enforced as if the repealing Act or regulation had not been passed. Section 6 provides for the continuance of the investigation and initiation of fresh proceedings. Section 6A of the General Clauses Act provides that whenever an Act is repealed by any enactment, the amendments made by omission, insertion or substitution shall be continued and the repealing of the Act will not have any effect on those amendments. By a closer look at these provisions, it is clear that an Act can be amended by omission, insertion or substitution and even though the original Act is repealed, those amended provisions would continue unless a different intention appears from the repealing Act. Therefore, the Taxation Laws (Amendment) Act, 1975, does not expressly bar the continuance of the proceedings initiated already. The distinction sought to be made on the expression " omission" does not improve the case of the petitioner. Whether it is a deletion or omission it is an amendment and the amendment ceased to be a procedure and has not taken away the jurisdiction of the Inspecting Assistant Commissioner retrospectively. The Amending Act does not make the proceedings pending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on account of any fraud or gross or wilful neglect on the part of the assessee, he shall be deemed to have concealed the particulars of the income. It is only a presumption. This interpretation can be discharged either by independent evidence led during the penalty proceedings or by a closer scrutiny or appraisal of the existing facts and data available. The findings arrived at were pure findings of fact and no question of law arose from it. The learned Advocate-General for Taxes submitted that the question as framed is self-destructive in the sense that, on the facts and circumstances of the case as found by the Tribunal, the penalty is exigible. Therefore, the question does not arise for consideration by this court. In that context, he referred to the Supreme Court decision in Karam Chand Thapar and Bros. P. Ltd. v. CIT [1971] 80 ITR 167, wherein the court held that the only question that the High Court was called upon to determine was whether, on the facts found by the Tribunal, the sum of Rs. 18 lakhs was a revenue receipt and it was not permissible for the High Court to disturb the findings of fact reached by the Tribunal. In CIT v. Bhageeratha Engg. Ltd. [1993] 199 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecluded from considering whether that finding entered by the Tribunal should stand or not. " In these circumstances, the question referred by the Tribunal is answered in the affirmative, in favour of the Revenue and against the assessee. Regarding Income-tax Reference No. 107 of 1983, the questions referred were mentioned in the beginning paragraph of this judgment. The first question that arose for consideration was regarding the quantum of penalty, viz., whether the amount in respect of which the assessee has concealed the income in the return filed by him for the assessment year is to be reckoned after allowing deductions under section 80T of the Income-tax Act, 1961. The Tribunal after considering the matter came to the conclusion that the assessee has concealed the particulars in respect of only that income which should have been disclosed in the return, viz., the capital gains arising from the transaction computed in accordance with the provisions of section 80T and section 48 of the Act. The contention raised on behalf of the Revenue is that deduction under section 80T could be allowed only after setting off the capital loss of Rs. 8,355 relating to the assessment year 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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