SOHANI J - By this reference under s. 256(1) of the I.T. Act, 1961, hereinafter called 'the Act', the Income-tax Appellate Tribunal, Indore Bench, has referred the following question of law to this court for its opinion :
'Whatever, on the facts and in the circumstance of the case, the Tribunal was justified in holding that the IAC was not competent to enlarge the scope of the penalty proceedings by referring to the original loss return of Rs. 18,000 and vacating the penalty levied under section 271(1)(c) of the Income-tax Act ?'
The material facts giving rise to this reference briefly are as follows :
For the assessment year 1965-66, the assessee, which is a registered firm deriving income from business in grains, oil seeds and kirana, filed a return on 30th June, 1965, disclosing a loss of Rs. 18,000. The assessee thereafter, filed a revised return disclosing an income of Rs. 84,282, which was further revised to Rs. 74,282. The assessee was, however, assessed on a total income of Rs. 98,100. The ITO initiated penalty proceedings against the assessee and as the minimum penalty imposable under the Act exceeded Rs. 1,000, the ITO referred the matter to the IAC who, after hearing the assessee, come to the conclusion that penalty could not be imposed on the charge of concealment or of furnishing inaccurate particulars of income, so far as the addition of Rs. 11,000 was concerned. The IAC, however, held that the assessee was guilty of concealment and of furnishing inaccurate particulars, and the IAC, accordingly, imposed upon the assessee a penalty of Rs. 19,500. Aggrieved by the order passed by the IAC, the assessee preferred an appeal before the Tribunal. The Tribunal observed that from a perusal of the ITOs order it was clear that the ITO was satisfied that penalty proceedings should be initiated against the assessee because a cash credit amounting to Rs. 11,000 was added to the income of the assessee as income from undisclosed sources. The Tribunal held that the IAC having found that no penalty could be imposed on the assessee on the charge of concealment or of furnishing inaccurate particulars of its income so far as the addition of Rs. 11,000 was concerned, the IAC had no jurisdiction to enlarge the scope of the penalty proceedings by referring to the original return filed by the assessee disclosing a loss of Rs. 18,000. In this view of the matter, the Tribunal held that no penalty could be imposed against the assessee in the instant case. At the instance of the department, the Tribunal has referred the aforesaid question of law to this court for its opinion.
Having heard learned counsel for the parties, we have come to the conclusion that the Tribunal was justified in holding that the IAC had no jurisdiction to enlarge the scope of the penalty proceedings by referring to the original return filed by the assessee. It is well settled that when the matter is referred to the IAC by the ITO under s. 274(1) of the Act, the IAC has no jurisdiction to impose a penalty on a ground different from that on which the ITO had started the penalty proceedings, nor can he take into account any further concealment discovered by himself. In the instant case, penalty proceedings were initiated by the ITO, as has been found by the Tribunal, on the ground that cash credit to the extent of Rs. 11,000 added by the ITO to the income of the assessee was income from undisclosed sources and as the assessee had concealed that income, he was liable to a levy of penalty. The IAC having found that there was no concealment of the income of Rs. 11,000, he had no jurisdiction to enlarge the scope of the penalty proceedings by referring to the original return. Therefore, in our opinion, the answer to the question referred to us is in the affirmative and against the department.
The reference is answered accordingly. In the circumstances of the case practices shall bear their own costs of this reference.