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TMI Blog1982 (4) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... oint names of the partners of the firm, M/s. Kundan Lal Madan Lal, had been sold for a sum of Rs. 30,000. This property had been originally purchased for Rs. 7,700 and the taxable capital gain after deductions was Rs. 10,380. As neither of the assessees had declared their proportionate capital gain in their respective returns, the ITO initiated penalty proceedings under s. 271 (1)(c) of the I.T. Act, 1961 (in short, " the Act "). The cases were referred to the IAC on 1st March, 1973, by the ITO as in his view the minimum penalty imposable exceeded Rs. 1,000. Show cause notices were issued to the two assessees by the IAC under s. 274(2) of the Act. In reply, the assessees submitted that the penalty proceedings were invalid as notices had not been received by them from the ITO under s. 271(1)(c). The IAC rejected this contention as the relevant assessment orders unequivocally mentioned the initiation of proceedings under s. 271 (1)(c) ; further, the show-cause notices were to be issued by the IAC's office and this had been done and duly served in March, 1973. On merits, the IAC held that as the assessees had omitted to indicate the capital gains anywhere in their respective ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... validly made then the IAC cannot proceed with the matter. In order to appreciate the contentions of the parties and ascertain the correct position, it is necessary to examine the relevant provisions of the Act. Section 271 provides for imposition of penalty on an assessee for failure to furnish returns and comply with certain notices without reasonable cause as also for concealment of income. Section 271(1)(c) as it stood at the relevant time reads : " If the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person- . ...... (c) has concealed the particulars of his income 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 but which shall not exceed twice, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income: ........" The question whether an act or an omission is an offence has to be examined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cealment takes place which is relevant. It is wholly immaterial that the income concealed was to be assessed in relation to an assessment year in the past. " It is, therefore, clear to us that an assessee who has concealed the particulars of his income would be liable to penalty under cl. (iii) of s. 271 (1), as it stood oil the date of concealment. In the present case, that was on 26th February, 1971, when the returns were filed. But the query that immediately arises for consideration is, who has the jurisdiction to impose the penalty, the ITO or the IAC ? Section 271 confers power on the ITO or the AAC to impose penalty. Bat this is subject to s. 274. Section 274, before its amendment by the Taxation Laws (Amendment) Act, 1970, read : " 274. Procedure.-(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 minimum penalty imposable exceeds a sum of rupees one thousand, the Income-tax Officer shall refer the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere are two streams of thought on these aspects as is apparent from the various decisions of the High Courts. With regard to pending matters, in a recent decision in CIT v. A. N. Tiwari [1980] 124 ITR 680, the Madhya Pradesh High Court has held, following the decisions of the Gujarat High Court in CIT v. Royal Motor Car Co. [1977] 107 ITR 753 and CIT v. Manu Engineering Works[1980] 122 ITR 306, as also the decision of the Andhra Pradesh High Court in Addl. CIT v. Dr. Khaja Khutabuddinkhan [1978] 114 ITR 905 and dissenting from the decisions in CIT v. Dhadi Sahu [1976] 105 ITR 56 (Orissa) and CIT v. Om Sons [1979] 116 ITR 215 (All), that the IAC continues to have jurisdiction to impose a penalty with regard to a valid reference pending before him on 1st April, 1971, even if the amount of income concealed does not exceed Rs. 25,000. The two views that emerge are : (i) that penalty proceedings pending with the IAC since before 1st April, 1971, cannot be continued unless the conditions of the amended law with regard to jurisdiction have been fulfilled; and (ii) that the change of forum brought about by the amended law does not affect pending matters, unless an intention to the contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the law had changed and it was really the ITO, who had the jurisdiction to impose the penalty, as the income concealed was less than RS. 25,000. On 1St March, 1973, the ITO could have made a valid reference to the IAC only if the concealed income, or of which inaccurate particulars had been furnished, exceeded Rs. 25,000. This not being the case no valid reference could be made. The source of the IAC's jurisdiction is a reference validly made. It is the condition precedent for the assumption of jurisdiction by the IAC. If the ITO fails to make a reference to the IAC, he cannot proceed ; similarly if the ITO makes an invalid reference, the IAC is not conferred with any jurisdiction. It would, therefore, appear to us that the date of the reference is very material. The language of s. 274(2) also seems to support this synthesis. The direction that the ITO " shall " refer the case to the IAC, if the condition indicated therein is satisfied, and the conferment on the IAC of the powers under Chap. XXI for the imposition of penalty are relevant. This is clearly indicative of the fact that the jurisdiction of the IAC, for the Purpose of the imposition of a penalty, is derived on a refer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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