1. This is a reference made by the Tribunal at the instance of the assessee for answering the following questions:
'1. Whether, on the facts and in the circumstances of the case, the Explanation to Section 271(1)(c) of the Income-tax Act, 1961, is attracted ?
2. Whether, on the facts and in the circumstances of the case the Inspecting Assistant Commissioner has jurisdiction to levy the penalty ?'
2. The facts stated by the Tribunal in this reference are that the assessee is a partnership firm which carried on cloth business at Betul. For the assessment year 1970-71, corresponding to the previous year ending Diwali 1969, the assessee filed a return of income on August 31, 1970, declaring the total income at Rs. 24/154. Subsequently, however, a revised return was filed on February 11, 1972, showing an income of Rs. 29,718. The ITO, however, assessed the firm on a total income of Rs. 54,950. In computing this income, the ITO made an addition of Rs. 28,800 as income of the assessee from business not recorded in the books of account maintained by the firm including the unexplained investment in the said business. The ITO estimated the unexplained investment at Rs. 20,000 and the income from business at Rs. 8,800. On appeal, the AAC reduced the net profits from transactions outside the books to Rs. 5,500 and the unexplained investment to Rs, 8,000. The assessee preferred a further appeal to the Tribunal and there was a further reduction of Rs. 2,000 in the amount of unexplained investment in the business outside the books.
3. When the ITO made the assessment, he initiated penalty proceedings and since the minimum imposable penalty exceeded Rs. 25,000 on the basis of his assessment order, he referred the matter to the IAC for further proceedings. The IAC, after giving a show-cause notice, invoked the Explanation to Section 271(1)(c) of the Act, as the assessee had not discharged the burden of proof under the said Explanation to rebut the presumption raised against him. It was also held that there could not be any inadvertent omission on the part of the assessee in respect of the addition of Rs. 5,500 regarding the income from business carried on outside the books and considering all the circumstances, the IAC held that there was a concealment of Rs. 13,500 and, therefore, levied a penalty of Rs. 20,000 which was above the minimum penalty of Rs. 13,500.
4. Against this order of imposition of penalty by the IAC, the assessee took an appeal before the Appellate Tribunal and after hearing the parties, the Appellate Tribunal held that the total income as finally determined after giving effect to the order of the Tribunal in quantum appeal, amounted to Rs. 37,350 as against Rs. 24,154 shown in the original return filed on August 31, 19?0, and as against Rs. 29,718 as disclosed in the revised return. After excluding the inadmissible expenses, the balance of the income of the assessee amounted to Rs. 36,350 and 80% thereof was Rs. 29,800. Since the income returned by the assessee in the first return was Rs. 24,154 only, which was less than 80% of the correct income, i.e., Rs. 29,800, the Explanation to Section 271(1)(c) was applied. The Tribunal held that the assessee did not displace the burden which lay upon it and the Tribunal ultimately came to the conclusion that since no material was placed before them to displace the presumption raised against the assessee, the Explanation to Section 271(1)(c) was applicable.
5. The assessee submitted an application for making a reference to this court on the ground that in view of the ultimate order in the assessment proceedings passed by the Appellate Tribunal, the IAC will have no jurisdiction to impose the penalty as he will only have jurisdiction when the minimum penalty imposable exceeds Rs. 25,000 and it was also contended that the Explanation to Section 271(1)(c) will not be attracted and, therefore, the Tribunal has made this reference for answering these two questions.
6. So far as the first question is concerned, the Explanation to Section 271(1)(c) reads:
'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.'
7. This Explanation clearly provided that where the total income returned by the assessee is less than 80% of the total income ultimately assessed as correct income, it will be presumed that there is either concealed income or the assessee has furnished inaccurate particulars of such income, unless the assessee proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. It is, therefore, plain that by the addition of this Explanation, which was added by an amendment by the Finance Act of 1964, this Explanation shifted the burden on the assessee if the returned income was less than 80% of the total income which was assessed as the correct income of the assessee.
8. The Tribunal in its order considered the impact of this Explanation to Section 271(1)(c) and held that the assessee had no material to show that there was no intention on the part of the assessee to conceal the income or not to furnish the correct particulars. Neither there was any material placed before the Tribunal to show that there was no wilful neglect on the part of the assessee in submitting the correct income of return within the meaning of Section 271(1)(c). It is clear iron the language of the Explanation quoted above that in a case in which the assessee had shown the income in the return which is less than 80% of the correct income ultimately assessed, this Explanation is attracted and the burden lies on the assessee. It appears that before this Explanation was inserted, as the penalty proceedings are penal proceedings, it was laid down that it is for the Department to establish that the assessee is liable to penalty under Section 271(1)(c) of the Act, But by amendment, this Explanation has been inserted which clearly provides that in a case where the returned income is less than 80% of the correct income ultimately assessed, the Explanation is attracted. As the facts stated in the statement of the case quoted above clearly demonstrate that the income returned by the assessee was less than 80% of the correct income assessed, it could not be doubted that this Explanation was attracted and the Tribunal was, therefore, right in applying the Explanation to Section 271(1)(c) of the I.T. Act, 1961.
9. As regards the second question about the jurisdiction of the IAC, it could not be disputed that when the ITO completed the assessment, the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceed a sum of Rs. 25,000 and it is also not disputed that these penalty proceedings, therefore, could not be proceeded with by the ITO and, therefore, the ITO had no option but to initiate the proceedings for penalty and refer them to the IAC. What was contended by the assessee was that ultimately the assessed income which was assessed by the ITO has been reduced and in the ultimate judgment of the Appellate Tribunal in the quantum case (arising out of assessment proceedings) the total income which has been found not to have been disclosed does not exceed a sum of Rs. 25,000 and on this basis, it was contended before the Tribunal that the IAC will have no jurisdiction to impose the penalty against the assessee. Although in the appeal against penalty proceedings also, the Appellate Tribunal has reduced the penalty, yet this question of jurisdiction of the IAC was raised and, therefore, this question has been referred to this court.
10. It is not disputed that on the date on which the reference to IAC was made, the law as it stood conferred jurisdiction on the IAC to proceed with the proceedings for penalty as it could not be disputed that the penalty is imposed under Section 271(1)(c) for not having filed the correct return and, therefore, the relevant date will be the date when the return was filed and the law which was applicable on the date of the return will govern the penalty proceedings. This view of the matter finds support from the decision of the Hon'ble the Supreme Court of India in Brij Mohan v. CIT : 120ITR1(SC) and also from the decision of our High Court reported in Sulemanji Ganibhai v. CIT : 121ITR373(MP) .
11. As regards the question about the jurisdiction of the IAC, in view of the modification of the order of the ITO by the Appellate Tribunal in quantum appeal, the question was considered by this court in a decision in CIT v. A. N. Tiwari : 124ITR680(MP) . In this decision, the question that was considered was that after a reference was made to the IAC for imposition of penalty, Section 274(2), under which the reference was made, was amended and it was held that if on the date on which the reference was made, if it was a valid reference made to the IAC, by subsequent change of law, it could not be said that that reference became invalid. It was observed (p. 685):
'Now, Section 274(2) as it stood before 1st April, 1971, required the ITO to refer the case to the 1AC if the minimum penalty imposable exceeded a sum of Rs. 1,000. The IAC on a reference made by the ITO got jurisdiction to impose penalty in such cases. The references validly made by the ITO before 1st April, 1971, were not invalidated by the amendment. In such pending references, in our opinion, the 1AC continued to have jurisdiction to impose penalty even though the amount of income in respect of which the particulars were concealed did not exceed Rs. 25,000 and the case did not satisfy the requirement of Section 274(2) as amended. It is pertinent to notice that the Amending Act did not make any provision that the references validly pending before the IAC shall be returned without passing any final order if the amount of income in respect of which the particulars were concealed did not exceed Rs. 25,000. This supports the inference that in1 pending references, the IAC continued to have jurisdiction to impose penalty.'
12. It has been further observed :
'There is yet another way of looking at the matter. The words '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' as they occur in Section 274(2) clearly signify that the jurisdiction of the IAC for the purpose ofimposing penalty is derived on a reference made to him by the ITO. Therefore, what is important is to see whether the reference was Validly made to the IAC under Section 274(2). If the reference was valid in accordance with the provisions of Section 274(2) as it stood at the time of making the reference, it would not be invalidated by subsequent amendment in Section 274(2). The previous operation of Section 274(2) as it stood before 1st April, 1971, and anything done thereunder continued to have effect under Section 6(b) of the General Clauses Act, 1897, enabling the IAC to pass orders imposing penalty in pending references. In our opinion, therefore, what is material to be seen is as to when the reference was made. If the reference was made before 1st April, 1971, it would be governed by Section 274(2) as it stood before that date and the IAC would have jurisdiction to pass the order of penalty.'
13. And, in this decision, a reference has also been made to decisions of the Gujarat and the Andhra Pradesh High Courts. While considering the decisions of the Allahabad and the Orissa High Courts, it has further been observed that if the reference was validly made, it would not invalidate the reference and the IAC will have jurisdiction to impose the penalty even if ultimately it is found that the concealed income was, which will call for a penalty, not more than Rs. 25,000 as it was observed (p. 686) :
'We are respectfully unable to agree with the view taken by the Allahabad High Court in CIT v. Om Sons : 116ITR215(All) , and the Orissa High Court in CIT v. Dhadi Sabu : 105ITR56(Orissa) , that the IAC will not have jurisdiction to pass an order of penalty even in a pending reference if the amount of income in respect of which the particulars were concealed did not exceed Rs. 25,000. We are also respectfully unable to agree with the view taken by the Madras High Court in Continental Commercial Corpn. v. ITO : 100ITR170(Mad) , that Section 274(2), as it stood on the date of concealment, and not on the date when the reference was made or when the penalty order was passed, would be applicable for determining the jurisdiction of the IAC.'
14. It is not disputed that on the date when the ITO made the reference to the IAC the reference was valid and merely because in subsequent appeals in the quantum proceedings ultimately the quantum of concealed income was reduced where penalty could even be imposed by the ITO, it could not be said that the IAC could not impose that penalty as there is nothing in the provisions of Sub-clause (2) of Section 274 which now has been deleted that if after a reference is made to the IAC, the IAC will not have the jurisdiction to impose the penalty even if the concealed income is less than Rs. 25,000, Section 274(2), as it stood then, reads:
'(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.'
15. This provision empowers the TAG with all the powers in this chapter for imposition of penalty and it is, therefore, plain that if the reference made by the ITO was valid on the date on which it was made, by subsequent reduction of the amount of concealed income, it could not be said that the IAC will cease to have jurisdiction to proceed with the proceedings of penalty. In our opinion, therefore, the IAC had jurisdiction in this case to levy the penalty as was done.
16. In the light of the discussion above, therefore, our answers to the two questions are:
(1) That the Explanation to Section 271(1)(c) of the I.T. Act, 1961, is attracted; and
(2) The IAC has jurisdiction to levy the penalty. As nobody appeared for the assessee, parties are directed to bear their own costs.