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Commissioner of Income-tax Vs. Shri Ram Prakash Saraf - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. Civil Case No. 228 of 1981
Judge
Reported in(1986)51CTR(MP)236; [1986]160ITR860(MP)
ActsIncome Tax Act, 1961 - Sections 271(1) and 274(2); Taxation Laws (Amendment) Act, 1975
AppellantCommissioner of Income-tax
RespondentShri Ram Prakash Saraf
Appellant AdvocateB.K. Rawat, Adv.
Respondent AdvocateB.L. Nema, Adv.
Excerpt:
.....conviction of appellant is liable to be set aside. - , march 31, 1976), of the income-tax officer's order recording satisfaction about the concealment of income before the change of law on april 1, 1976 ? 2. whether, on the facts and in the circumstances of the case, the tribunal was right in law in holding that the inspecting assistant commissioner acted without jurisdiction in passing the penalty order under section 271(1)(c) read with section 274(2) of the income-tax act, 1961, and that the said order is bad in law ? '2. this reference relates to the assessment year 1975-76. the assessee derives income from purchase of old silver ornaments and the sale thereof after converting them into new ones......and in the circumstances of the case, the tribunal was right in law in holding that the inspecting assistant commissioner acted without jurisdiction in passing the penalty order under section 271(1)(c) read with section 274(2) of the income-tax act, 1961, and that the said order is bad in law ' 2. this reference relates to the assessment year 1975-76. the assessee derives income from purchase of old silver ornaments and the sale thereof after converting them into new ones. there was a search in the business and residential premises of the assessee on october 8 and 9, 1974, when certain articles were seized from his possession. in the assessment order passed by the income-tax officer on march 31, 1976, he held that the assessee concealed an income of rs. 80,697. accordingly, the.....
Judgment:

J.S. Verma, J.

1. This reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue is to decide the following questions of law, namely :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the list (sic) to levy penalty under Section 271(1)(c) read with Section 274(2) of the Income-tax Act, 1961, arose on the date (i. e., March 31, 1976), of the Income-tax Officer's order recording satisfaction about the concealment of income before the change of law on April 1, 1976 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Inspecting Assistant Commissioner acted without jurisdiction in passing the penalty order under Section 271(1)(c) read with Section 274(2) of the Income-tax Act, 1961, and that the said order is bad in law '

2. This reference relates to the assessment year 1975-76. The assessee derives income from purchase of old silver ornaments and the sale thereof after converting them into new ones. There was a search in the business and residential premises of the assessee on October 8 and 9, 1974, when certain articles were seized from his possession. In the assessment order passed by the Income-tax Officer on March 31, 1976, he held that the assessee concealed an income of Rs. 80,697. Accordingly, the Income-tax Officer, by the same order, initiated penalty proceedings against the assessee under Section 271(1)(c) of the Income-tax Act. The Income-tax Officer, after giving an opportunity to the assessee to show cause against the imposition of penalty, as required by Sub-section (3) of Section 274, made a reference to the Inspecting Assistant Commissioner on July 15, 1977, under Sub-section (2) of Section 274 of the Act, even though Sub-section (2) of Section 274 of the Act had been deleted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, and according to the proviso to Sub-clause (iii) of Clause (c) of Sub-section (1) of Section 271 of the Act, the Income-tax Officer himself was empowered to impose penalty with the previous approval of the Inspecting Assistant Commissioner where concealment of income was in excess of Rs. 25,000. The Inspecting Assistant Commissioner, after issuing a fresh notice to the assessee and considering his reply, imposed a penalty of Rs. 80,00 under Section 271(1)(c) read with Section 274(2) by his order dated August 23, 1978.

3. Aggrieved by the Inspecting Assistant Commissioner's order, the assessee preferred an appeal to the Tribunal contending that the Inspecting Assistant Commissioner had no jurisdiction to impose penalty after the amendments made with effect from April 1, 1976. This contention of the assessee has been accepted by the Tribunal and the penalty imposed by the Inspecting Assistant Commissioner has been set aside. Hence, this reference at the instance of the Revenue to answer the aforesaid questions.

4. The question really is whether the Income-tax Officer was empowered to make a reference to the Inspecting Assistant Commissioner after the amendments made in the Act with effect from April 1, 1976, enabling the Inspecting Assistant Commissioner to impose the penalty in the present case. Admittedly, as a result of the omission of Sub-section (2) of Section 274 with effect from April 1, 1976, the provision enabling the Income-tax Officer to make such a reference to the Inspecting Assistant Commissioner ceased to exist. Obviously, such a provision was unnecessary when with effect from the same date, i.e., April 1, 1976, the Income-tax Officer was empowered to impose penalty in all cases subject only to the condition of the Inspecting Assistant Commissioner's previous approval, where concealment of income exceeded a sum of Rs. 25,000, according to the proviso toSub-clause (iii) of Clause (c) of Sub-section (1) of Section 271 of the Act. Section 274(2) providing for reference by the Income-tax Officer to the Inspecting Assistant Commissioner in cases where concealment of income exceeded Rs. 25,000 was necessary prior to April 1, 1976, on account of the fact that it was the Inspecting Assistant Commissioner and not the Income-tax Officer who was then empowered to make the order imposing penalty in those cases. The plain language of the proviso to Sub-clause (iii) of Clause (c) of Sub-section (1) of Section 271 indicates that the point of time indicated thereby is the time when the order imposing penalty has to be made and not the time of initiation of penalty proceedings. This also indicates that the law applicable in the present case for this purpose is the law as it existed after the amendments made with effect from April 1, 1976, since the only thing done in the present case prior to that date on March 31, 1976, was to initiate penalty proceedings and even the reference to the Inspecting Assistant Commissioner was made by the Income-tax Officer only on July 15, 1977.

5. The above view taken by us is also in accord with the earlier view of this court dealing with a similar question as a result of similar amendments made with effect from April 1, 1971, in Sections 271(1)(c) and 274(2) of the Act. As a result of these amendments made with effect from April 1, 1971, the question arose whether the reference made by the Income-tax Officer to the Inspecting Assistant Commissioner before April 1, 1971, was invalidated by the amendment or not. In CIT v. A. N. Tiwari : [1980]124ITR680(MP) it was held that references validly made by the Income-tax Officer before April 1, 1971, according to the law as it then stood, were not invalidated by the amendments made with effect from April 1, 1971, and the same were governed by the unamended provisions. In other words, it was the date of making the reference and not the date of initiation of penalty proceedings which was taken as the determining factor for this purpose. That decision was followed subsequently in Addl. CIT v. Nand Kishore : [1983]143ITR182(MP) and CIT v. Fakirchand Dayaram : [1983]143ITR184(MP) . The ratio of these earlier decisions supports the conclusion we have reached in the present case.

6. Consequently, this reference is answered in favour of the assessee and against the Revenue as under :

' The Tribunal was justified in holding that the Inspecting Assistant Commissioner had no jurisdiction in the present case to make an order imposing penalty under Section 271(1)(c) read with Section 274(2) of the Income-tax Act, 1961.'

7. In view of this answer to question No. 2 referred to us, which alone really arises for decision, there is no need to give any answer to theabove-quoted question No. 1 which also appears to be wrongly framed. Parties shall bear their own costs.


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