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Ram Gopal Neotia Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Kolkata
Decided On
Judge
Reported in(1982)1ITD160(Kol.)
AppellantRam Gopal Neotia
Respondentincome-tax Officer
Excerpt:
1. these appeals by the assessee, ram gopal neotia of calcutta, an individual, directed against four different orders of the iac, range vii, calcutta, each dated 31-3-1977 under section 271(1)(c), levying penalties of rs. 2,600 for the assessment year 1958-59, rs. 5,279 for the assessment year 1959-60, rs. 2,304 for the assessment year 1960-61 and rs. 3,189 for the assessment year 1961-62, for having concealed the particulars of his income or furnishing inaccurate particulars thereof for each of the said years, have been consolidated, heard together and are being disposed of by a common order for the sake of convenience. as already stated, the years of assessment involved are 1958-59, 1959-60, 1960-61 and 1961-62 for which the respective previous years ended 31-3-1958, 31-3-1959,.....
Judgment:
1. These appeals by the assessee, Ram Gopal Neotia of Calcutta, an individual, directed against four different orders of the IAC, Range VII, Calcutta, each dated 31-3-1977 under Section 271(1)(c), levying penalties of Rs. 2,600 for the assessment year 1958-59, Rs. 5,279 for the assessment year 1959-60, Rs. 2,304 for the assessment year 1960-61 and Rs. 3,189 for the assessment year 1961-62, for having concealed the particulars of his income or furnishing inaccurate particulars thereof for each of the said years, have been consolidated, heard together and are being disposed of by a common order for the sake of convenience. As already stated, the years of assessment involved are 1958-59, 1959-60, 1960-61 and 1961-62 for which the respective previous years ended 31-3-1958, 31-3-1959, 31-3-1960 and 31-3-1961.

2. The admitted facts in the present appeals and/or found by us are that on the returns originally filed by the assessee for the years under consideration, the ITO completed the assessment as detailed below :------------------------------------------------------------------------------------Year of Date of Total income Date of Totalassessment filing returned by assessment income return the assessee by the ITO assessed------------------------------------------------------------------------------------1958-59 26-10-1969 29,492.06 28-12-1961 33,8641959-60 18-11-1960 50,463.22 30-6-1962 51,0011960-61 31-1-1961 47,611.00 30-8-1962 60,7491961-62 29-9-1962 56,060.07 11-10-1965 58,870------------------------------------------------------------------------------------ 3. Later on, the ITO came to know that certain loans which had been accepted by him as genuine in the aforesaid assessments of the assessee were bogus. He, accordingly, reopened the assessments of the assessee for the aforesaid four years under Section 147(a). The reassessments for the first three years were completed under Section 144/147(a). The details about the dates of the issuance of the notice under Section 148/147(a) and their service on the assessee and the total income assessed for those three years under Section 144/147(a) are as under :----------------------------------------------------------------------------------Year of Date of Date of Total Date ofassessment issuance of service income reassessment notice under of the assessed order Section 148/ said notice----------------------------------------------------------------------------------1958-59 21-3-1967 21-3-1967 54,020 22-1-19711959-60 26-3-1968 26-3-1968 2,05,053 19-1-19721960-61 31-3-1969 31-3-1969 1,60,749 30-3-1973---------------------------------------------------------------------------------- 4. In the appeals filed by the assessee against these reassessments, in so far as the accounting period relevant to the assessment year 1958-59 is concerned, the AAC, Range I, Calcutta, vide his order dated 27-6-1974, set aside the said reassessments in order to enable the ITO to make a fresh assessment giving effect to the terms of the settlement reached between the assessee and the department to which we will be making a reference in a latter part of this order by observing as under : The learned representative of the appellant has filed before me a copy of the settlement petition reached with the department covering the assessment years 1958-59 to 1967-68 in terms of which the department and the assessee will pray for setting aside the order pending before the appellate authorities, in order to give effect to the terms of the settlement. The appellant, accordingly, prays that this assessment be set aside.

Coming to the accounting period relevant to the assessment year 1959-60, we find that application of the assessee under Section 146 to set aside the ex parte assessment of the assessee for that year was rejected by the ITO. Thereafter, the assessee had filed an appeal before the AAC challenging the correctness of the order of the ITO rejecting the said application under Section 146. This appeal of the assessee as also the appeal of his against the quantum of total income determined in the reassessment under Section 144/147(a) was dismissed by the AAC. Against those orders, the assessee brought the matter by way of appeals before the Tribunal (Calcutta Bench 'C') bearing IT Appeal Nos. 1012 (Cal.) of 1973-74 and 4750 (Cal.) of 1972-1973 decided on 4-7-1974. The Tribunal in the said order has brought out the settlement between the assessee and the department referred to above and then cancelled the ex parte assessment made against the assessee under Section 144/147(a) and directed the ITO to make fresh assessment in accordance with law after giving the assessee a reasonable opportunity for adducing of evidence in support of his case because the assessee's authorised representative and the departmental representative have agreed before us that we have to pass orders in these appeals giving effect to the aforementioned terms in this settlement. As a corollary to the order just mentioned hereinbefore, the Tribunal allowed the appeal of the assessee against the order of the AAC confirming the ex parte assessment. The best judgment assessment of the assessee under Section 144/147(a), accounting period relevant to the assessment year 1960-61, was cancelled by the ITO by allowing the application of the assessee under Section 146 vide his order dated 18-7-1973.

5. The ITO prior to the completion of the assessment proceedings for the first two years, had issued show cause notices to the assessee as to why penalties be not levied against him under Section 271(1)(c) for having concealed the particulars of his income and/or furnishing inaccurate particulars thereof. The said notice for the first year was issued by the ITO on 19-1-1971 and the same was served on the assessee on 27-1-1971. For the second year, the said notice was issued on 18-1-1972, which was served on the assessee on that very date. Pursuant to the said notices, the IAC, Range VIII, Calcutta, vide his orders dated 20-1-1973, levied penalties of Rs. 20,000 for the assessment years 1958-59 and Rs. 1,00,000 for the assessment year 1959-60 against the assessee under Section 271(1)(c). The penalty order for the first year was set aside by the Tribunal (Calcutta Bench 'C'), vide its order dated 30-8-1974, in IT Appeal No. 5601 (Cal.) of 1972-73, as the reassessment order for that year had been set aside by the AAC, as already stated in para 4 above. Penalty order for the second year was also set aside by the Tribunal (Calcutta Bench 'C'), vide its order dated 4-7-1974, in IT Appeal No. 5777 (Cal.) of 1972-73 as the appeal of the assessee against the order of the AAC dismissing the appeal of the assessee pursuant to the reopening of the reassessment under Section 146 had been allowed as mentioned in para 4 above.

6. At this stage, we will like to state that the assessee and his brother Shri P.K. Neotia, had made an application dated 29-3-1966, much after the completion of the aforesaid original assessments of the assessee for the years under consideration, under Section 271 (4A) wherein they had made voluntary disclosure of income not disclosed but shown as cash credits in various firms as detailed therein totalling Rs. 2,77,823.25. The said application was rejected by the Commissioner, W.B. II, Calcutta, vide his letter dated 2-4-1969. Therein, the Commissioner had informed the assessee that if he so desired he could come up with a settlement petition which would be considered on merits.

This led to the making of the settlement petition by the assessee and his brother-leading to the settlement as contained in the terms and conditions for agreed assessments between the assessee and his brother on one hand and the Commissioner, W.B. V, Calcutta, dated 30-3-1974 (a copy of the said terms and conditions for agreed assessments are at pages 12 to 15 of the paper book filed by the assessee). The relevant terms thereof are as under : 2.1 In the petitions aforesaid S/Shri R.G. Neotia and P.K. Neotia, two brothers, disclosed their investments in the shape of loans and pseudonyms appearing in the books of (I) M/s Geekay Corporation, (2) M/s Auco Finance Corporation, (3) M/s Allied Finance Corporation, and (4) M/s Geekay Transport Corporations (as per Rotation statement -marked Annexure A). Both of them happened to be and are still partners in the firm M/s Geekay Transport Corporation, while in the other three firms Shri R.G. Neotia alone has been a partner with other persons. The amounts involved in such loans were withdrawn from the firms when no longer needed and reintroduced in the like manner in different names.

2.2 The assessee surrendered a sum of Rs. 2,55,000--the peak of such investments as on 20-10-1961-and another sum of Rs. 22,823 representing interest charged on such bogus loans.

3.1 The agreement related to the said peak of Rs. 2,55,000 of bogus loans disclosed by S/Shri R.G. Neotia and P.K. Neotia and amounts of interest charged on such loans after the peak was reached on 20-10-1961, viz., Rs. 22,823 (marked Annexure B) and Rs. 33,110 (marked Annexure 'C') for the periods from (j) 21-10-1961 to 29-3-1966, and (ii) 30-3-1966 to 1-4-1967, respectively. The peak of Rs. 2,65,000 reached on 28-3-1966 as per Rotation statement (Annexure 'A') is inclusive of Rs. 10,000 reintroduced out of the said sum of Rs. 22,823 and the balance amount of interest, i.e., Rs. 12,823 the assessee held in cash. On 1-4-1967 the amounts standing at credit were transferred to the accounts of the above-named assessees.

3.2 Besides, an amount of Rs. 4,053 representing 20 per cent of Rs. 20,265 (amount of interest charged before the peak was reached-marked Annexure 'D') will be treated as commission paid to name-lenders and taxed in the respective assessment years.

4. In the course of hearing the assessee wanted to have the benefit of the following amounts by way of deduction from the disclosed amount : (i) Intangible additions to the tune of Rs. 77,534 and Rs. 19,800 (total Rs. 97,334) made to the trading A/c of M/s Geekay Transport Corporation for the assessment years 1960-61 and 1961-62 respectively and sustained by the ITAT, and (ii) Addition of Rs. 10,000 made in the assessment of M/s Geekay Transport Corporation for the assessment year 1961-62 and sustained by the ITAT. The benefit of deduction sought for against (i) above cannot be allowed as no such prayer was made either in the disclosure petitions dated 29-3-1966 or in the settlement petitions submitted in 1969. Since the benefit claimed has arisen out of an afterthought and the addition was reached its finality the assessee's request in this respect is not entertainable. As regards (ii) above, since the addition of Rs. 10,000 made in the assessment of M/s Greekay Transport Corporation for the year 1961-62 represents bogus loan in the name of M/s Jain Finance Distributors (India) (P.) Ltd. on 30-3-1961 before the peak was reached (vide Annexure 'A') and it has been sustained in appeal, the assessee's request in this respect is conceded to avoid taxation of the same amount twice over.

5. The amount of Rs. 3,04,986 (Rs. 2,55,000-Rs. 10,000+ Rs. 4,053+ Rs. 22,823 + Rs. 33,110) will be assessable in the following assessment years :------------------------------------------------------------------------------------Assessment Amount of Interest Total year loans------------------------------------------------------------------------------------ Rs. Rs. Rs.1958-59 45,000 - 45,0001959-60 75,000 468 75,4681960-61 30,000 999 30,9991961-62 35,000 1,740 36,7401962-63 60,000 846* 70,3791963-64 - 3,759 3,7591964-65 - 2,671 2,6711965-66 - 3,942 3,9421966-67 - 11,413 11,4131967-68 - 24,615 24,615 ------------ ------------ ------------ 2.45,000 59,986 3,04,986 ------------ ------------ ------------------------------------------------------------------------------------------------ The amounts of credits and interest mentioned above will be apportioned between S/Shri R.G. Neotia and P.K. Neotia in equal shares and assessed to tax in the assessment years involved.** ** ** 8. Penalties under Section 271(1)(r), will be payable by the assessees at 20 per cent of the tax sought to be avoided.** ** ** 11.1 To give effect to the terms of this settlement the assessments of the assessees and those of the firms mentioned before will be reopened, rectified or modified under Section 146/147/154 or 264, as the case may be. The department and the assessees will pray for setting aside the orders pending before the appellate authorities, viz., AAC or ITAT, in respect of the appeals of the assessees and the said firms pertaining to the loans and interest covered by this settlement.

11.2 The ITO will concede before the AAC/Tribunal to the reduction of the amount of penalty under Section 271(1)(c), if any, in terms of this settlement.

11.3 The assessees and/or the said firms will not press before the appellate authorities for any relief other than what has been settled in this agreement, i.e., with regard to loans and interest covered by this agreement.

13. Matters not covered by this agreement will be disposed of in accordance with law. With regard to non-filing or delay in filing of returns in response to notices under Section 139(2)/148 or under the corresponding section of the Indian Income-tax Act, 1922, the assessees have explained that they could not file the returns or delay occurred in the filing of returns due to non finalisation of disclosure/settlement petitions. The ITOs will examine this aspect carefully. If there are no suspicious circumstances, no penalty under Section 271(1)(c) will be levied for the assessment years 1938-59 to 1962-63.

7. Having stated about the aforesaid settlement in the preceding parapraph, we once again resume the narration in continuation of the facts brought out in paragraphs 2 to 5 above. After the reassessment proceedings for the first three years were restored to the ITO pursuant to the orders by him, the AAC and the Tribunal and in the reassessment proceedings for the accounting period relevant to the assessment year 1961-62, which was pending before him pursuant to the reopening of the assessment in view of the issuance of the notice by the ITO under Section 148/l47(a) on 4-2-1970, which was duly served on the assessee on 16-2-1970, it appears that the assessee on his own accord filed fresh returns for each of those four years on 20-9-1974. Admittedly, these returns were filed pursuant to the notices issued under Section 148. The income disclosed by the assessee in these returns for the years under consideration are as under :-----------------------------------------------------------------------------------Year of Income disclosed Head under which the incomeassessment disclosed----------------------------------------------------------------------------------- Rs. Rs.1958-59 56,364 (a) Business income as per original assessment 33,861959-60 88,735 (a) Business income as per original assessment 51,001960-61 1,04,672.26 (a) Business income as per original assessment 2,001961-62 1,09,944 (a) Salary 5,500----------------------------------------------------------------------------------- On the basis of these returns, the ITO completed the reassessment of the assessee for the years under consideration accepting the incomes returned, vide reassessment orders dated 30-11-1974.

8. Prior to the completion of the reassessments referred to in the immediately preceding paragraphs, the ITO issued show cause notices to the assessee as to why penalties be not levied against him under Section 271(1)(c) for each of the said years under consideration for having concealed the particulars of his income and/or furnishing inaccurate particulars thereof. These notices for all the years under consideration were issued on 27-11-1974 and were served on the assessee on 7-12-1974. It appears that on the latter fresh notices were issued by the ITO under Section 271(1)(c)/274 for all the years under consideration on 22-2-1977 for showing cause against the said penalties fixed for 28-2-1977 (sic). It was recorded that "1TO did not hear the case as files transferred to IAC who will hear the proceedings".

Pursuant thereto, the matter came up before the IAC who has levied the impugned penalties vide his orders dated 31-3-1977 by observing for each year as under : As per settlement order of CIT, W.B. V, Calcutta, dated 20-3-1974 minimum penalty under Section 271(1)(c) of the Income-tax Act, 1961 will be imposable at the rate of 20 per cent of the tax sought to be avoided, in terms and conditions for agreed assessments laid down in paragraph 8 of the aforesaid settlement.

It is a fact that the IAC before levying penalty did not give a hearing to the assessee.

9. Before the representative for the assessee, Mr. G.P. Agarwalla, could advance arguments before the Tribunal in respect of the appeals filed by the assessee, the senior departmental representative, Mr. A.K.Ghosh, has raised a preliminary objection as to the maintainability of these appeals by the assessee. According to Mr. A.K. Ghosh, the penalties against the assessee for each of the years under consideration have been levied by the IAC in accordance with the settlement order of the Commissioner dated 23-3-1974 to which the assessee had expressly agreed to. The assessee in these appeals cannot turn round and say that the penalties so levied were bad in law. The assessee agreed to this minimum penalties being imposed at the rate of 20 per cent of the tax sought to be avoided in terms and conditions of the aforesaid settlement and the penalties have been levied by the IAC, accordingly. The assessee cannot be said to be aggrieved against these penalty orders.

Further, the departmental representative pressed into service the principle of promissory estoppel as approved by the Supreme Court in Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. [1979] 118 ITR 326, and urged that where one party by his words or conduct makes to another a clear and unequivocal promise which is intended to create legal relations or effect a legal relationship to arise in the future, knowing or intending that it would be acted upon by the other party to whom the promise is be binding on fact so acted upon by the other party, the promise would made and it is in the party making it and he would not be entitled to go back upon it, if it would be inequitable to allow him to do so having regard to the dealings which have been taken place between the parties, and this would be so irrespective of whether there is any pre-existing relationship between the parties or not. To buttress the arguments that the assessee having been not aggrieved from the penalty orders, as these penalty orders are in accordance with the terms and conditions of the agreed settlement between the Commissioner and the assessee, and so these appeals by the assessee were not competent, the departmental representative has relied on the following decisions: CIT v. Army & Navy Stores Ltd. [1957] 31 ITR 959 (Bom.), Jivatlal Purtupshi v. CIT [1967] 65 ITR 261 at page 267 (Bom.), M.N. Annaiah v. CIT [1970] 76 ITR 582 at page 586 (Mys.), Ramanlal Kamdar v. CIT [1917] 108 ITR 73 at page 75 (Mad.), CIT. v. Ram Kumar Agarwalla & Bros. [1977] 108 ITR 457 at page 461 (Cal.), CIT v. Chrestian Mica Industries Ltd. [1977] 109 ITR 324 at page 332 (Cal.), India Sea Foods v. CIT [1978] 114 ITR 124 (Ker.) and Banta Singh Kariar Singh v. CIT [1980] 125 ITR 239 (Punj. & Har.).

10. According to the senior departmental representative Mr. Ghosh, since the penalty orders have been passed in accordance with the terms and conditions of the settlement between the Commissioner and the assessee, the procedure followed in the matter of levy of penalty is irrelevant. Whether the IAC or the ITO ought to have levied the penalty or whether the assessee prior to the levy of the penalty was given an opportunity of hearing or not is of no consequence. Any such flaw will not make the penalty orders appealable.

11. In reply, the learned representative for the assessee, Mr.

Agarwalla, has vehemently criticised the aforesaid approach of the departmental representative. According to Mr. Agarwalla, the IAC did not have the jurisdiction to levy the penalties under Section 27l(1)(c) for the assessment years 1958-59, 1960-61 and 1961-62 inasmuch as assuming, without admitting that Section 274(2) deleted with effect from 1-4-1976 by the Taxation Laws (Amendment) Act, 1975 was to be considered to decide the jurisdiction of the IAC to levy the impugned penalties for the years under consideration, the jurisdiction to so act was absent as the amount of the income (as determined by the ITO on reassessment as detailed in paragraph 7 above) on reassessments for the said three years, in respect of which particulars have been allegedly concealed, did not exceed the sum of Rs. 25,000 in each of those years.

To put in other words, Mr. Agarwalla argued that assuming without admitting that Section 274(2), though omitted with effect from 1-4-1976, prior to the making of the impugned orders of the IAC on 31-3-1977 for the aforesaid three years was to be considered to decide the authority who had the inherent jurisdiction to levy the impugned penalties for those years ; that was absent in the present case. The IAC would have had that jurisdiction if the amount of the income as determined by the ITO on reassessment for those three years in respect of which the particulars have been concealed exceeded the sum of Rs. 25,000 in each of those years. That was not so in the present case because the amounts so allegedly concealed in each of the said three years stood at Rs. 22,500 (assessment year 1958-59), Rs. 15,000 (assessment year 1960-6!) and Rs. 18,570 (assessment year 1961-62).

Since the IAC did not have the inherent jurisdiction to levy the penalty for these three years, the assessee in these appeals can challenge the validity of these penalty orders because there being an inherent lack of jurisdiction, the penalty orders for each of the three years is a nullity. Insofar as the 4th year, i.e., 1959-60, and other three years under consideration are concerned, each of the said penalty orders is a nullity because the IAC levied the penalty against the assessee for those years without following the principle of natural justice, inasmuch as, the IAC levied the penalty without giving an opportunity of being heard to the assessee against the proposed penalty orders and the assessee can challenge these penalty orders in these appeals filed by him. Mr. Agarwalla has further urged that there cannot be an estoppel against law. In support of these arguments, Mr.

Agarwalla has relied on the following decisions-Shaik Ibrahim v. CIT [1968] 69 ITR 117 at page 120 (AP), B.B. Bamsi v. CIT [1972] 83 ITR 223 (Bom), Continental Commercial Corpn. v. ITO [1975] 100 ITR 170 (Mad.), Shakuntala Mehra v. CWT [1976] 102 ITR 301 at page 308 (Delhi), Mariam Aysha v. C.Ag.IT [1976] 104 ITR at page 384 (Mad.), Chhat Mull Aggarwal v. CIT [1979] 116 ITR 694 at page 697 (Punj. & Har.), Addl. CIT v. P.Nammalvar Naiclu & Sons [1979] 116 ITR 863 at page 867 (Mad.), Rathnam & Co. v. IAC 1980 124 ITR 376 at page 379 (Mad.), Ferozilal Jain v. Man Mall AIR 1970 SC 794 at page 2327 (Vol. ?), Asstt. Custodian v. Brij Kishore Agarwala 1971 AIR SC 2325, Excise Commissioner v. Ram Kumar AIR 1976 SC 2237 at page 2241 and Hon. Secy. Keniyara Seva Samaj v. State of Mysore [1969] 23 STC 155 (Mys.).

Mr. Agarwalla, the representative for the assessee, in respect of his arguments that the penalty orders were a nullity for each of the years under consideration because the assessee was not given an opportunity of hearing against the penalty orders, has relied on the following decisions Banarsi Das v. CIT [1936] 4 ITR 216 (Lahore), M. Chockalingam & M. Mevyappan v. CIT [1963] 48 ITR 34 at page 40 (SC), CIT v. Narang & Co. [1975] 98 ITR 462 at page 467 (Delhi), Tandata Shyam v. Ag. ITO [1975] 99 ITR 532 (Gauhati) and C.Ag.IT v. Smt. P. Parukutti Amma [1977] 105 ITR 79 (Ker.).

12. In reply, the departmental representative took us through the ratio of the aforesaid decisions detailed in paragraph 11 above, relied upon by the representative for the assessee, and urged that all these cases are distinguishable and these decisions have no application to the facts and circumstances of the present case. Insofar as the arguments of the representative for the assessee detailed in the preceding paragraph is concerned, the stand of the senior departmental representative, Mr. Ghose, is that since the penalties have been levied in accordance with the terms and conditions of the aforesaid settlement between the Commissioner and the assessee and further because the ITO had issued the show cause notices to the assessee as to why penalties be not levied against him for the years under consideration under Section 271(1)(c) prior to the reference to the IAC, the IAC. in the facts and circumstances of the case, had no option but to levy the penalty even without giving a fresh notice of hearing. In support of these arguments, the departmental representative has relied on the decision of the Calcutta High Court in CIT v. Wesman Engineering Co.

(P.) Ltd. [1976] 104 ITR 605 (Cal.) and Moot Chand Mahesh Chand v. CIT [1978] 115 ITR 1 (All.) at pages 6 & 7.

13. We have given consideration to the above arguments. When we talk of "jurisdiction" of the court or an authority, it, in effect, means the authority which a court/officer has to decide matters that are litigated before it/him or to take cognizance of matters presented in a formal way for its/his decision. The limits of this authority are imposed by the statute, charter, or commission under which the court/authotity is constituted and may be extended or restricted by the like means. A limitation may be (1) as to the subject-matter ; (2) as to the person ; (3) as to the pecuniary value of the suit ; or (4) as to place or it may partake of two or more of these characteristics.

14. Taking the limitation as to the subject-matter, we like to mention that subject-matter depends upon the nature of the cause of action and the relief prayed for. Take for example, a Presidency/Provincial Small Cause Court has no jurisdiction to entertain certain suits, e.g., suits for recovery or partition of immovable property, suits for the foreclosure or redemption of a mortgage of immovable property, etc. To say in other words, these types of suits are excepted from the cognizance of Presidency/Provincial Small Cause Court. If a Presidency/Provincial Small Cause Court agreed to entertain a suit, which is excluded from its cognizance, its decree is a nullity. We say so because it is a fundamental rule that a judgment of a court without jurisdiction is a nullity : Where by reason of any limitation imposed by statute, charter, or commission, a court is without jurisdiction to entertain any particular action or matter, neither the acquiescence nor the express consent of the parties can confer jurisdiction upon the court nor can consent give a court jurisdiction if a condition which goes to the jurisdiction has not been performed or fulfilled. Where a limited court takes upon itself to exercise a jurisdiction it does not possess, its decision amounts to nothing"-United Commercial Bank Ltd. v. Their Workmen AIR 1951 S.C. 230. To put in other words, the general rule, therefore, is that consent cannot give jurisdiction and want of jurisdiction cannot be waived.

15. It would not be out of place to add over here that distinction has to be clearly kept between cases of want of jurisdiction and irregularity in the exercise of jurisdiction, or to use the another phrase well-known in law as to irregularity in the assumption of jurisdiction. To illustrate our point we like to refer to the leading case on the subject in Ledgard v. Bull [1887] 13 1A 134 decided by the Privy Council. The suit was for damages and an injunction for infringement of a patent. Under the Patents and Designs Act, as they were in force, such a suit can only be brought in a District Court, but it was brought in the court of a subordinate judge who had no jurisdiction to entertain it. The suit was eventually transferred from the subordinate judge's court to the District court, and there heard and decided. The defendant contended that an order for transfer of a suit from one court to another under Section 24 of the Code of Civil Procedure could not be made unless the suit had been brought in a court having jurisdiction, but this contention was over-ruled. The same view was taken by the High Court on appeal. The matter then reached to the Judicial Committee and it held that the suit having been instituted in a court which had no jurisdiction, no order of transfer could be made, but that the District Court being competent to entertain and try the suit if it was competently brought, the defendant could waive the objection to the irregularities of its institution, but that he had not done so and the decree of the District Court could not, therefore, stand and it ought to have been set aside by the High Court. Lord Watson in delivering the judgment of the Board said : The District Judge was perfectly competent to entertain and try the suit if it were competently brought, and their Lordships do not doubt that, in such a case, a defendant may be barred, by his own conduct, from objecting to irregularities in the institution of the suit. But when the judge has no inherent jurisdiction over the subject-matter of a suit, the parties cannot, by their mutual consent convert it into a proper judicial process, although they may constitute the judge their arbiter, and be bound by his decision on the merits when these are submitted to him. But there are numerous authorities which establish that when in a cause which the judge is competent to try, the parties without objection join issue, and to trial upon the merits, the defendant cannot subsequently dispute his jurisdiction upon the grounds that there were irregularities in the initial procedure, which, if objected to at the time, would have led to the dismissal of the suit.

16. The above principles laid down in Ledgard v. Bull (supra) were illustrated by their Lordships of the Privy Council in Meenakshi Naidu v. Subramania Sastri [1887] 14 IA 160. That was a case in which the High Court of Madras had entertained an appeal from an adjudication from which no appeal was provided for by any enactment. Their Lordships of the High Court held that the decree of the High Court was a nullity.

In the course of the judgment their Lordships of the Privy Council said "in the present case there was an inherent incompetency in the High Court to deal with the question brought before it and no consent could have conferred upon the High Court that jurisdiction which it had never possessed." 17. These two cases illustrate the distinction between the want of jurisdiction and irregularities exercised or assumption of jurisdiction. Irregular exercise or assumption may be waived as it might have been done in Leilgard v. Bull (supra) and if a court erroneously assumes jurisdiction to try a suit over which it has inherent jurisdiction, its decree may be set aside but it cannot be treated as a nullity. But when the court is not competent to entertain or try the suit there is a want of inherent jurisdiction which cannot be waived, and its decree/decision may be set aside on appeal by the appellate authority, being a nullity.

18. Having examined the matter from the angle of inherent lack of jurisdiction by the court/authority competent to entertain or try the suit or proceedings before it/him, let us come to the principle of promissory estoppel on which great emphasis has been laid by the senior departmental representative, Mr. A.K. Ghose, and examine as to whether the said principle of promissory estoppel impinges on the right of an appellate authority, like the Tribunal, in a case like the one before us, to examine whether there was an inherent lack of jurisdiction in the IAC to pass the impugned penalty orders for the assessment years 1958-59, 1960-61 and 1961-62 and so those penalty orders were a nullity. This principle of equity-promissory estoppel -has been restated in the leading case on the subject reported as High Trees' [1966] 1 All. ER 256 (King's Bench). The facts in that case were as follows : The plaintiffs leased out to the defendants, a subsidiary of the plaintiffs, in 1937 a block of flats for 99 years at a rent of 2,500 a year. Early in 1940 and because of the war, the defendants were unable to find sub-tenants for the flats and unable in consequence to pay the rent. The plaintiffs agreed at the request of the defendants to reduce the rent to 1,250 from the beginning of the term. By the beginning of 1945, the conditions had improved and tenants had been found for all the flats and the plaintiffs, therefore, claimed the full rent of the premises from the middle of that year. The claim was allowed because the court took the view that the period for which the full rent was claimed fell outside the representation. The matter reached the King's Bench and Mr. Justice Denning, as he then was, considered obiter whether the plaintiff could have recovered the covenanted rent for the whole period of the lease and observed that in equity the plaintiffs could not have been allowed to act inconsistently with their promise on which the defendants had acted. It was pressed upon the Court that, according to the well settled law, beng laid down in Jorden v. Money [1854] 1R 5 HL Cas 185 (HL), no estoppel could be raised against the plaintiff since the doctrine of estoppel by representation is applicable only to representations as to some state of facts alleged to be at the time actually in existence and not to the promises de futuro which, if binding at all, must be binding only as contracts and here there was no representation of an existing state of facts by the plaintiffs but it was merely a promise or representation of intention to act in a particular manner in the future. Mr. Justice Denning, as he then was, while brushing aside these arguments formulated the principle ; to quote in his own words "that a promise intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply".

19. The above principle enunciated by Mr. Justice Denning, as he then was, has not only been approved by various decisions in England but recently by the Supreme Court of India in Motilal Padampat Sugar Mills Co. v. State of U.P. (supra). The facts in this case are : On the basis of an announcement in a newspaper that the State of U.P. had decided to grant exemption from sales tax for a period of three years to all new industrial units in the State, the appellant wrote a letter in October 1968, to the Director of Industries of its intention to set up an industrial unit for the manufacture of vanaspati, in reply to which the director confirmed that there will be no sales tax on the finished product of the appellant's vanaspati factory from the date it gets power connection for commencing production. Thereupon the appellant approached financiers for financing the project and initiated negotiations with manufacturers for the purchase of machinery for the factory. In December 1968, the Chief Secretary to Government and Advisor to the Governor reiterated the assurance that the appellant would be entitled to the tax holiday. On the appellant's request for confirmation, the Chief Secretary in a reply dated December 22, 1968, confirmed that the State Government will be willing to consider your request for grant of exemption from U.P. Sales Tax for a period of three years from the date of production and asked the appellant to apply formally to the Secretary in the Industries Department and in the meantime to 'go ahead with the arrangements for setting up of the factory'.

Since the financial institutions were not satisfied with that reply, the appellant approached the Chief Secretary again and the latter wrote a letter dated January 23, 1969, to the effect that the appellant 'will be entitled to exemption from U.P. Sales Tax for a period of three years from the date of going into production', the exemption being applicable to vanaspati sold in the State, and in view of this assurance the appellant went ahead with the setting up of the vanaspati factory. Thereafter, the State Government took a policy decision in January 1970, that new vanaspati units will be given only a graded partial concession during the first three years of production and once again the State Government revised its policy in August 1970, rescinding even the partial exemption. In the meantime, the appellant had written a letter to the effect that it would be availing of the partial exemption. The appellant thereupon filed a writ petition which it amended and in the amended petition raised the plea that the Chief Secretary, acting on behalf of the State Government, had given an unequivocal assurance that the appellant would be entitled to exemption from payment of sales tax for a period of three years from the date of commencement of production, intending or knowing that it would be acted upon by the appellant, and the appellant, relying on that assurance, established the factory by investing a large amount, and, therefore, the State Government was bound to honour the assurance and exempt vanaspati manufactured and sold by the appellant for a period of three years from July 2, 1970. The High Court rejected the plea.(p. 327) 20. On appeal to the Supreme Court, their Lordships of the Supreme Court reversed the decision of the High Court holding that the fact necessary for invoking the doctrine of promissory estoppel were clearly present and the Government was bound to carry out the representation and exempt the appellant from sales tax in respect of sales of vanaspati effected by it in Uttar Pradesh for a period of three years from the date of commencement of production and was not entitled to recover such sales tax from the appellant. While so holding their Lordships have observed, as brought out in the headnote, that : It is elementary that waiver is a question of fact and it must be properly pleaded and proved. No plea of waiver can be allowed to be raised unless it is pleaded and the factual foundation for it is laid in the pleadings. Waiver means abandonment of a right and it may be either express or implied from conduct, but its basic requirement is that it must be 'an intentional act with knowledge'.

There can be no waiver unless the person who is to have waived is fully informed as to his right and with full knowledge of such right, he intentionally abandons it.

Where one party by his words or conduct makes to another a clear and unequivocal promise which is intended to create legal relations or effect a legal relationship to arise in the future, knowing or intending that it would be acted upon by the other party to whom the promise is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it would be inequitable to allow him to do so having regard to the dealings which have taken place between the parties, and this would be so irrespective of whether there is any preexisting relationship between the parties or not.

It is not necessary, in order to attract the applicability of the doctrine of promissory estoppel, that the promisee, acting in reliance on the promise, should suffer any detriment. What is necessary is only that the promisee should have altered his position : the alteration of position need not involve any detriment to the promisee. The detriment in such a case is not some prejudice suffered by the promisee by acting on the promise, but the prejudice which would be caused to the promisee, if the promisor were allowed to go back on the promise.

Where the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee, acting in reliances on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution.

Since the doctrine of promissory estoppel is an equitable doctrine, it must yield when equity so requires. If it can be shown by the Government that having regard to the facts as they have subsequently transpired, it would be inequitable to hold the Government to the promise made by it, the court would not raise an equity in favour of the promisee and enforce the promise against the Government, because, on the facts, equity would not require that the Government should be held bound by the promise made by it. When the Government is able to show that in view of the facts which have transpired since the making of the promise, public interest would be prejudiced if the Government were required to carry out the promise, the court would have to balance the public interest in the Government carry out the promise made to a citizen which has induced the citizen to act upon it and alter his position and the public interest likely to suffer if the promise were required to be carried out by the Government and determine which way the equity lies. It would not be enough for the Government just to say that public interest requires that the Government should not be compelled to carry out the promise or that the public interest would suffer if the Government were required to honour it. The Government cannot claim to be exempt from the liability to carry out the promise on some indefinite and undisclosed ground of necessity or expediency ; nor can the Government claim to be the sole judge of its liability and repudiate it on an exparte appraisement of the circumstances. The Government will have to disclose to the court what are the subsequent events on account of which the Government claims to be exempt from the liability and it would be for the court to decide whether those events are such as to render it inequitable to enforce the liability against the Government. Mere claim of change of policy would not be sufficient to exonerate the Government from the liability : the Government would have to show what precisely is the changed policy and also its reason and justification so that the court can judge for itself which way the public interest lies and what the equity of the case demands. It is only if the court is satisfied, on proper and adequate material placed by the Government that overriding public interest requires that the Government should not be held bound by the promise but should be free to act unfettered by it, that the court would refuse to enforce the promise against the Government. The court would insist on a highly rigorous standard of proof in the discharge of the Government's burden in this regard.

But even where there is no such overriding public interest, it may still be competent to the Government to resile from the promise on giving reasonable notice which need not be a formal notice, giving the promisee a reasonable opportunity of resuming his position provided of course it is possible for the promisee to restore status quo ante. If, however, the promisee cannot resume his position, the promise would become final and irrevocable. (p. 328) Their Lordships of the Supreme Court have also laid down in the said decision that the doctrine of promissory estoppel cannot be applied in the teeth of an obligation or liability imposed by law. Promissory estoppel cannot be invoked to compel the Government or even a private party to do an act prohibited by law. There can also be no promissory estoppel against the exercise of legislative power. The Legislature can never be precluded from exercising its legislative function by resort to the doctrine of promissory estoppel. Their Lordships also went on to observe that if the U.P. Sales Tax Act did not contain a provision enabling the Government to grant exemption, it would not be possible to enforce the representation against the Government, because the Government cannot be compelled to act contrary to the statute ; but since Section 4A of the U.P. Sales Tax Act, 1948, confers power on the Government to grant exemption from sales tax, the Government can legitimately be held bound by its promise to exempt the appellant from payment of sales tax. It is true that taxation is a sovereign or governmental function, but no distinction can be made between the exercise of a sovereign or governmental function and a trading or business activity of the Government, so far as the doctrine of promissory estoppel is concerned.

21. Their Lordships of the Supreme Court in arriving at the above conclusion have followed the following decisions :Union of India v. Anglo-Afghan Agencies AIR 1968 SC 718, Century Spg. & Mfg. Co. Ltd. v. Uthasnagar Municipal Council AIR 1971 SC 1021, State of Kerala v. Gwalior Rayon Silk Mfg. & Wvg. Co. Ltd. AIR 1973 SC 2734 and Emmanuel Ayodeji Ajayi v. R.T. Briscoe (Nigeria) Ltd. [1964] 3 All. ER 556 (PC).

Their Lordships also noticed that this principle of promissory estoppel has been applied and recognised in earlier decisions reported as Gangas Mfg. Co. v. Sourujmull [1880] ILR 5 Cal. 669 and by the Bombay High Court in Municipal Corporation of Bombay v. Secretary of State for India [1904] ILR 29 Bom. 580.

22. Similar principle of promissory estoppel can also be deduced from the decisions relied upon by the departmental representative and detailed in para 10 above 23. The aforesaid decision of the Supreme Court in Motilal Padampat Sugar Mills Co. v. State of U.P. (supra) while approving the principle of promissory estoppel as formulated by Mr. Justice Denning, as he then was, in the High Trees' case (supra), "that a promise intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply" has, however, made it abundantly clear that the principle of promissory estoppel cannot prevail in the teeth of an obligation or liability imposed by law. To say in other words, there is never an estoppel against law. This principle is also supported from the ratio of the following decisions, relied upon by the representative for the assessee Mr. G.P. Agarwalla : Shaik Imbrahim v. CIT (supra), Continental Commercial Corpn. v. ITO (supra), Mariam Aysha v. C.Ag.IT (supra), Chat Mull Agarwal v. CIT (supra) and Ferozilal Jain v. Man Mall (supra).

24. Having stated the law in the preceding paragraph, we now come to the provision of Section 274(2) (assuming without admitting at this stage whether the said provision can be made use of by the revenue because the said provision stand omitted by the Taxation Laws (Amendment) Act, 1975, with effect from 1-4-1976 prior to the passing of the impugned penalty orders by the IAC for the assessment years 1958-59, 1960-61 and 1961-62), reading as under : Notwithstanding anything contained in Clause (Hi) of Sub-section (1) of Section 271, if in a case falling under Clause (c) of the 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.

A perusal of this provision makes it abundantly clear that the IAC will have the jurisdiction over the subject-matter of a penalty proceeding if and only if the amount of income (as determined by the ITO on estimate) in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceeds the sum of Rs. 25,000 ; otherwise not. To say in other words, the condition precedent for involving the jurisdiction of the IAC in penalty proceedings will be that the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished exceeds a sum of Rs. 25,000. If that much quantum of income concealed, etc., is not there, there is inherent lack of jurisdiction in the IAC to impose a penalty against the assessee before him for an offence under Section 271(1)(c). As already brought out above, the amount of income (as determined by the ITO on reassessments) in the present case in respect of which particulars have been allegedly concealed or inaccurate particulars have been furnished did not exceed a sum of Rs. 25,000 in any of the assessment years 1958-59, 1960-61 and 1961-62 inasmuch as, the said amount of income in each of those years stood at Rs. 22,500 (assessment year 1958-59), Rs. 15,000 (assessment year 1960-61) and Rs. 18,370 (assessment year 1961-62) as brought out in paragraph 7 above.

That being the position, there was an inherent lack of jurisdiction on the part of the IAC to take cognizance of the penalty proceedings against the assessee for the assessment years 1958-59, 1960-61 and 1961-62, if the penalties are purported to have been levied in accordance with the terms and conditions of the settlement between the Commissioner and the assessee, as brought out in para 6 above. The principle of promissory estoppel sought to be invoked by the departmental representative cannot, however, go against law, which is to the effect that the penalty orders for those three years if they are to be passed in accordance with the aforesaid settlement should be by an authority competent to levy the penalty for those three years.

As we have brought out above, the IAC, in view of the provisions of Section 274(2), relied upon by the parties before us, did not have the inherent jurisdiction to levy the penalties against the assessee under Section 271(1) (c) the amount of income in respect of which the particulars are stated to be allegedly concealed or inaccurate particulars have been furnished in each of those three years, i.e., 1958-59, 1960-61 and 1961-62, was less than the sum of Rs. 25,000.

Since the principle of promissory estoppel cannot apply against law, and the law must prevail, we have no other alternative but to hold that the imposition of the penalties by the IAC against the assessee under Section 271(1)(c) for each of those three years, i.e., 1958-59, 1960-61 and 1961-62, is a nullity. It would not be correct, as has been argued by the senior departmental representative, Mr. A.K. Ghosh, that the question as to whether the IAC had the jurisdiction to levy these penalties or not, when the penalty for each of those years, i.e., 1958-59, 1960-61 and 1961-62, is levied in accordance with the aforesaid settlement between the Commissioner and the assessee as detailed in para 6 above, is irrelevant. We cannot agree with this proposition canvassed by the departmental representative, Mr. A.K.Ghosh, before us. The order to be a valid order must be passed by authority competent to pass it. If that authority lacks inherent jurisdiction to pass a penalty order like the one involved herein, then the principle of promissory estoppel will not make an order of such authority to be a valid one, when, in law, the order by an authority having no inherent jurisdiction is one which does not exist in law, being a nullity. We hold likewise. The Tribunal in these appeals can go into this part of the case of the assessee.

25. We next come to the penalty order by the IAC against the assessee for the assessment year 1959-60. As for the other three years, the ITO for this year, i.e., assessment year 1959-60, had issued a show cause notice to the assessee dated 22-2-1977 as to why penalty be not levied against him under Section 271(1)(c). As in the case of other three years, the hearing against the show cause notice issued to the assessee for the assessment year 1959-60 was fixed by the ITO for 28-2-1977. On that day, as is clear from the endorsement on the show cause notice, photostat copies whereof are at pages 43 to 46 of the paper book filed by the assessee, the ITO did not hear the cases for all the four years, including the assessment year 1959-60, as the file containing penalty proceedings had been transferred by the ITO to the IAC who, according to the ITO, was to hear the penalty matters. It is a fact that after the matter for the levy of penalty came to the IAC, he levied penalties for all the four years including the assessment year 1959-60 under Section 27l(1)(c) without giving any opportunity of hearing to the assessee, who also as brought out above, did not get an opportunity to show cause to the ITO because of his not hearing the penalty cases on 28-2-1977 as the files stood transferred to the IAC who, according to the ITO, was to hear the penalty cases. As such, the present case for the assessment year 1959-60 and for the other three years is one where penalty has been levied by the IAC under Section 271(1)(c) against the assessee without giving an opportunity of hearing to him.

It is also a case where, though a show cause notice was issued by the ITO as to why penalty be not levied against the assessee under Section 271(1)(c) the assessee never got an opportunity to show cause before him also, because on the date fixed, i.e., 28-2-1977, the ITO did not hear the cases on the plea that the file stood transferred to the IAC who was to hear the penalty cases. It is thus a case of levy of penalty by the IAC for the assessment year 1959-60 under Section 271(1)(c) against the assessee without giving an opportunity to show cause against the penalty imposed. At the same time, it is not in dispute that if Section 274(2) was applicable in the present case, then the IAC had the inherent jurisdiction to levy penalty because the amount of income (as determined by the IAC on reassessments) in respect of which particulars alleged to have been concealed or inaccurate particulars alleged to have been furnished for the accounting period relevant to the assessment year 1959-60 exceeded the sum of Rs. 25,000 that amount, as brought out in para 7 above, stood at Rs. 37,734. It is thus a case where the IAC did not lack inherent jurisdiction to levy penalty. The IAC had the inherent jurisdiction to levy penalty. He has, however, levied the penalty for the assessment year 1959-60 without giving an opportunity to show cause to the assessee as to why penalty under Section 271(1)(c) be not levied against him for having allegedly concealed his income or furnishing inaccurate particulars of his income for the year. In law, as laid down in the following authorities relied upon by the representative for the assessee, Mr. G.P. Agarwalla, it was incumbent on the IAC before the levy of penalty for the assessment year 1959-60 to issue the said show cause notice or give an opportunity of hearing to the assessee and it is a case where due to that irregularity in the exercise of jurisdiction, the penalty order of the IAC under Section 271(1)(c) for this year (assessment year 1959-60) becomes invalid in law and not a nullity on account of inherent lack of jurisdiction as seems to be the case of the assessee in course of the arguments before us-Banarsi Das v. CIT (supra), M. Chockalingam & M.Meyyappan v. CIT (supra), CIT v. Narang & Co. (supra), Tarula Shyam v.Ag. ITO (supra) and C. Ag. IT v. Smt. P. Parukutti Amma (supra).

The present case for the assessment year 1959-60 is a case of irregular exercise of jurisdiction and not inherent lack of jurisdiction by the IAC as we have held for the assessment years 1958-59, 1960-61 and 1961-62 in para 24 above. We may also like to add that had the IAC the inherent jurisdiction to levy penalty against the assessee under Section 271(1)(c) for those three years also, i.e., 1958-59, 1960-61 and 1961-62 we Would have held as we have held in the case of the assessee for the assessment year 1959-60, that there was an irregularity in the exercise of jurisdiction for those penalty orders also making them invalid but not nullity.

26. In arriving at the above conclusion, we have duly considered the two decisions relied on by the senior departmental representative, Mr.

A.K. Ghosh, who urged that there was no irregularity in the exercise of jurisdiction in the present case by the IAC (assessment year 1959-60) even if he did not issue the show cause notice or give an opportunity of hearing to the assessee. These arguments of the departmental representative, in view of what we have stated in the preceding paragraph, cannot be accepted. We now come to the two decisions relied upon by the departmental representative in support of his above stand.

The first case is reported as CIT v. Wesman Engineering Co. (supra).

That was a case of levy of penalty under Section 140A(3). Their Lordships considered the provisions of Section 140A(3) and observed that the said provisions of law did not cast any absolute duty on the ITO to levy a penalty on the failure of the assessee to pay the tax due on self-assessment within 30 days of furnishing his return. Under that provision, the assessee is given an opportunity of being heard before any penalty is imposed. This decision rather supports the assessee and not the revenue. The other decision relied on by the departmental representative, viz., Mool Chand Mahesh Chand v. CIT (supra) is distinguishable. It was a case of levy of penalty under Section 273A and their Lordships of the Allahabad High Court, in view of the language used therein, have observed that the said provision did not provide for an opportunity of hearing to be given to the assessee who filed application for waiver or reduction of penalty imposed or imposable. That is not so in the case of levy of penally under Section 271(1 )(c), as Section 274(2) specifically states that no order imposing penalty under Section 271(1)(c) shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard. Raether, this provision supports our above conclusion.

27. Having come to the above conclusions that the penalty orders by the IAC for the assessment years 1958-59, 1960-61 and 1961-62 are nullity, on account of lack of inherent jurisdiction by the IAC to levy penalties against the assessee under Section 271(1)(r), in view of the provisions of Section 274(2) and that the penalty order under Section 271(1)(c) against the assessee for the assessment year 1959-60 was invalid and not a nullity on account of irregular exercise of jurisdiction by levying the penalty without giving an opportunity of hearing to the assessee in the shape of show cause notice, we next address ourselves to the question as to whether we should quash the penalty proceedings, as argued before us very vehemently by the representative for the assessee, Mr. G.P. Agarwalla, or whether we should send the matters back to the ITO for the assessment years 1958-59, 1960-61 and 1961-62 and to the IAC for the assessment year 1959-60, so as to reconsider these proceedings from the stage where the illegality stepped in for the assessment years 1958-59, 1960-61 and 1961-62, i.e., at the stage at which the ITO referred these proceedings to the IAC who having validly initiated those proceedings and to restore the proceedings to the IAC, who validly assumed jurisdiction to levy penalty under Section 27l(1)(c), in view of the provisions of Section 274(2) for the assessment years 1959-60 (sic) to proceed from the stage where the irregularity intervened, i.e., the stage prior to the levy of the penalty order when he (the IAC) should have issued a show cause notice to the assessee before the levy of penalty, as argued by the senior departmental representative, Mr. A.K. Ghosh. Both the sides, we must stage in fairness, have argued their respective cases with great vehemence and clarity.

28. The representative for the assessee, Mr. G.P. Agarwalla, has, basing himself on the decision of the Calcutta High Court in Jaswanta Rai v. ITO [1975] 1 CLJ 372, strenuously argued that these penalty orders by the IAC should be quashed. In reply, the senior departmental representative, basing himself on the ratio of the following decisions, has argued that since the IAC for the assessment year 1959-60 and the ITO for the assessment years 1958-59, 1960-61 and 1961-62 had validly assumed the jurisdiction and had the inherent jurisdiction to initiate the penalty proceedings, for the years concerned and because the illegality/irregularity, as brought out in paras 24 and 25 above, has intervened thereafter, we should set aside the penalty orders with the directions to the IAC and the ITO for the assessment year 1959-60 and the assessment years 1958-59, 1960-61 and 1961-62, respectively, to proceed from the stage interior to the intervention of the said illegality/irregularity : Guduthur Bros. v. ITO [1960] 40 ITR 298 (SC), CIT v. National Taj Traders [980] 121 ITR 535 (SC) and Order of the Tribunal ('D' Bench Calcutta)-IT Appeal Nos. 4521 & 4522 (Cal.) of 1977-78, decided on 31-3-1979.

29. In reply, the representative for the assessee, Mr. G.P. Agarwalla, has argued that the decisions relied on by the departmental representative are distinguishable. In the case reported as Guduthur Bros. v. ITO (supra) the facts were that the ITO passed an order without giving any opportunity of being heard. The AAC set aside the said order and the same very ITO continued the proceedings after the order of the AAC. In these circumstances the Supreme Court has held that since the proceedings were validly started by the ITO, the order of the AAC setting aside the first order of the ITO and to restore the matter to him for deciding it afresh after giving due opportunity of hearing to the assessee was correct. In that case, there was no question of any annulment of the first order of the ITO. Further, the same very ITO, who did not give any opportunity of being heard, carried on the proceedings. Coming to the other case reported as CIT v.National Taj Traders (supra), the question before the Supreme Court was whether the order of remand passed by the Commissioner in accordance with the direction of the Tribunal, although beyond the period of limitation prescribed by the Act, was valid or not. The Supreme Court on these facts has held that since the order was passed by the Commissioner pursuant to the order of the Tribunal, the period of limitation did not apply.

30. G P. Agarwalla further urged that in none of these two cases the Court had sent back the cases to an authority other than the one who had exercised the jurisdiction initially. In the cases under consideration before the Tribunal, the impugned penalty orders for the assessment years 1958-59, 1960-61 and 1961-62 were passed by the IAC.In case the Tribunal comes to the conclusion that the penalty order by the IAC for those years were nullity because he lacked inherent jurisdiction to levy the penalties, then the Tribunal will have to send these matters to the ITO, who was the authority other than the IAC, to levy the penalties for those years. Such an order, according to Mr.

G.P. Agarwalla, would be contrary to the ratio of the decision of the Calcutta High Court in Jaswanta Rai v. ITO (supra).

31. We have given consideration to the above arguments. Admittedly, the ITO prior to the completion of the reassessments of the assessee for the accounting periods relevant to the assessment years 1958-59, 1960-61 and 1961-62, in accordance with the terms and conditions of the settlement between the Commissioner and the assessee, as brought out in para 6 above have initiated the penalty proceedings under Section 271(1)(c). Pursuant thereto, he had also issued show cause notices to the assessee as to why penalties under Section 271 (1)(c) be not levied against him for those years. As such, the ITO for all these three years had validly assumed the jurisdiction to levy the penalties against the assessee under Section 271(1)(c). What do we find next? We find that on the date fixed by him (the ITO) to hear the penally proceedings pursuant to the show cause notices issued to the assessee, i.e., on 28-2-1977, he instead of proceeding with the penalty proceedings, declined to take any further action in the matter by not hearing the same on the ground that the files for the years concerned had since been transferred to the IAC who was, according to him, to levy the penalties. We have held above that the IAC, in view of the provisions of Section 274(2), lacked inherent jurisdiction to proceed with the penalty proceedings, and so the illegality in the proceedings intervened at this stage. As far as the assessment year 1959-60 is concerned the IAC, in view of the provisions of Section 274(2) had the jurisdiction, and he proceeded to levy the penalty against the assessee under Section 271(1)(c) but committed an irregularity by levying penalty without giving an opportunity of hearing to the assessee as required by Section 274(1). For this year, i.e., 1959-60, we find that the irregularity intervened in between the assumption of jurisdiction by the IAC to levy penalty and his penalty order. Since the aforesaid illegality and irregularity have intervened, after the ITO and the IAC had correctly assumed jurisdiction, it would be in the fitness of things that instead of quashing these penalty orders, we should only set aside these penalty orders and restore the penalty proceedings to the !TO for the assessment years 1958-59, 1960-61 and 1961-62 to proceed from the stage at which the penalty proceedings stood at the stage immediately after the issue of the show cause notice to the assessee as to why penalty be not levied against him under Section 271(1 )(c) and prior to 28-2-1977 when he did not proceed further with the penalty proceedings and to restore the penalty proceedings to the IAC for the assessment year 1959-60 to proceed from the stage prior to the passing of the levy of penalty order when he should have issued a show cause notice to the assessee as to why penalty be not levied against him, under Section 271(1)(c). We are taking this course because these cases are cases where the penalty proceedings were validly initiated by the competent authority concerned and the penalty orders have become nullity/invalid on account of the intervention of the illegality/invalidity after the assumption of the jurisdiction and at the stage before transfer of the penalty proceedings by the ITO to the IAC and irregularity on account of passing penalty order without issuing the show cause notice. This action of ours is in accordance with the ratio of the decisions relied upon by the senior departmental representative Mr. A.K. Ghosh. In Guduthur Bros. v. ITO (supra) the facts are as follows : For the assessment year 1948-49, the appellants failed to file the return within the prescribed time and the ITO acted under Section 28(1 )(a) of the 1922 Act, issued a notice to them to show cause why penalty should not be imposed. In answer to this notice, the appellants filed a written reply and the ITO proceeded to levy penalty of Rs. 16,000 without affording a hearing to them as required under Section 28(3) of the 1922 Act. The matter was taken up in appeal before the AAC who, pointing out that an opportunity of being heard was not granted to the appellants held that the order was defective. He, therefore, set aside that order. On receipt of the order, the ITO issued a further notice calling upon the appellants to appear before him, so that they might be given an opportunity of being heard. He also intimated that if no appearance was made, then he would proceed to determine the question of penalty, taking into consideration only the written statement which had been filed earlier. Before, however, the ITO could decide the case, the appellants filed a petition under Article 226 of the Constitution for the issuance of the writs of prohibition or some other appropriate writ against the ITO. The matter went up to the Supreme Court and their Lordships of the Supreme Court upheld the action of the ITO. While so holding, their Lordships have observed that as the AAC pointed out only to an illegality, which vitiated the proceedings after they were lawfully initiated, the notice issued under Section 28(1)(a) of the 1922 Act did not cease to be operative and it was open to the ITO to take up the matter at the point at which the illegality supervened and to correct his proceedings The notice under Section 28(1)(a) of the 1922 Act having remained still to be disposed of, the proceedings started after the order passed by the AAC could be described as during the course of the assessment proceedings, because the action would relate back to the time when the first notice was issued. The ITO had jurisdiction to continue the proceedings from the stage at which the illegality had occurred. The ratio of this decision fully supports our above view. This view also finds support from the decision of the Tribunal (Calcutta Bench 'D') (supra) relied on by the departmental representative.

32. We now come to the other decision relied on by the senior departmental representative, in CIT v. National Taj Traders (supra).

The facts in that case are that on or about 5-8-1960, the respondent-assessee submitted voluntary returns, inter alia, for the assessment years 1957-58 and 1958-59 along with a declaration dated 8-8-1960. The assessments of the respondent-assessee for the assessment years 1957-58 and 1958-59 were completed on 12-8-1960 by the ITO on total income of Rs. 7,000 and Rs. 7,500 and the same having been made in the status of unregistered firm consisting of three partners, viz., Asha Devi Vaid, Santosh Devi Vaid and Sugni Devi Vaid with equal shares. On 2-8-1962, the Commissioner issued a notice to show cause to the assessee-respondent as to why the said assessments should not be cancelled under Section 33B of the Act as he felt that the completed assessments were erroneous as being prejudicial to the interests of the revenue and that the ITO concerned had no territorial jurisdiction over the case. The notice was served on the assessee-respondent on 3-8-1962 and the hearing was fixed by the Commissioner for 6-8-1962. On the ground that none appeared and that there was no application for adjournment, the Commissioner passed his order under Section 33B ex pane on that date. By his said order, the Commissioner cancelled the assessments made by the ITO on 12-8-1960 on three grounds as stated at page 537 of the report.

33. In the appeals preferred to the Appellate Tribunal under Section 33B(3) the respondent-assessee challenged the said order of the Commissioner on various grounds. The Tribunal, negativing all the contentions of the respondent-assessee, came to the conclusion that on merits the facts justified the assumption of jurisdiction under Section 33B by the Commissioner but held that the Commissioner had not conformed to the requirements of natural justice by putting to the respondent-assessee what case it had to meet and by giving due opportunity for explaining the same. The Tribunal, therefore, allowed the appeals, vacated the Commissioner's order dated 6-8-1962 and remanded the case to him with the direction to dispose it of afresh after giving due opportunity to the respondent-assessee.

34. Feeling aggrieved by the Tribunal's aforesaid order dated 5-7-1965, the respondent sought to refer a set of six questions of law said to arise out of the said order to the Calcutta High Court but the Tribunal referred the following two questions only for the opinion of the High Court : 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assumption of jurisdiction by the Commissioner under Section 33B of the Indian Income-tax Act, 1922, was valid in law ?" 2. Whether, on the facts and in the circumstances of the case, the Tribunal acted properly by vacating the order of the Commissioner under Section 33B of the said Act and in directing him to dispose of the proceedings under the said section afresh after giving due opportunity to the assessee 35. The High Court by its judgment dated 9-3-1972 answered Question No.1 in the application against the assessee. As regards the second question, the High Court was of the view that it comprised of two aspects one relating to the vacating of the Commissioner's order and the other relating to the giving of a direction to him to dispose of the case under Section 33B afresh after giving due opportunity to the assessee and the High Court held that in exercise of its appellate powers the Tribunal acted properly in directing him to dispose of the case afresh under Section 33B(1) because the period of limitation of two years prescribed under Section 33B(2)(6) for him to act under Section 33B(1) had expired and answered the question accordingly.

36. The revenue challenged the order of the High Court on this aspect of the second question before the Supreme Court and the Supreme Court upheld the view of the Tribunal. This decision is, therefore, an authority for the proposition propounded by the senior departmental representative which has been duly upheld by us.

37. We now come to the decision of the Calcutta High Court relied upon by the representative for the assessee, i.e., Jaxwanta Rai v. ITO (supra). The facts in that case are as follows : In the assessment of the assessee for the assessment year 1962-63, the ITO had recorded that the assessee-firm was guilty of furnishing inaccurate particulars and/or concealment of income and in the premises the officer was satisfied prior to the completion of the assessment that the assessee was so guilty and proceedings for penalty should be taken. Accordingly, on 22-3-1967, the ITO who in that case was the ITO, A Ward, Distt.

III(3), Calcutta, issued a notice to the assessee-firm that whereas it appeared to him that the assessee had concealed the particulars of his income or deliberately furnished inaccurate particulars of such income he was referring the penalty proceedings to the 1 AC, Range-IV, Calcutta according to Section 274(2). The assessee was further informed that further proceedings with reference to the levy of penalty would take place before the said IAC. On 29-7-1967, there was an order of transfer parsed by the Commissioner, W.B.I., Calcutta under Section 127 of the Act. By the said order of transfer the IT case of the assessee was transferred, from ITO, Ward, Distt. III(3) Calcutta to ITO, C Ward, Hundi Circle. Inasmuch as, the ITO, C Ward, Hundi Circle was under the IAC Range V, Calcutta, the said IAC issued a notice dated 21-1-1969 under Section 274(2) to the assessee-firm asking him to appear before him to show cause why penalty should not be imposed. The assessee thereupon challenged the validity and propriety of the said penalty proceedings and in particular the said notice by the IAC, Range-V, Calcutta. Before the High Court the point which came for consideration was that when a case was transferred by the Commissioner from one ITO to another, whether such transfer includes the case referred to the IAC of IT under Section 274(2) read with Section 271(1)(c) pending before him pursuant to the reference made to him by the ITO competent to make reference and whether when such reference has been made by a referring authority, the subsequent loss of jurisdiction by the referring authority affects jurisdiction of the referred authority and whether the Commissioner has power to transfer pending esses from one IAC to another. The matter was examined in the light of the proceedings under Sections 123, 124, 127, 128, 129, 271(1)(c), 274(2) and 275 and their Lordships of the Calcutta High Court have held that after a reference has been made by a referring authority to another authority properly, the subsequent loss of jurisdiction by the referring authority does not affect the jurisdiction of the referred authority.

The jurisdiction of a court or an authority is generally determined with reference to the point of time when the court or authority takes decision of the matter or the case, subject to any contrary provision in the statute or the authority. Accordingly, assumption of jurisdiction by the IAC, Range-V, Calcutta in place of IAC, Range-IV, Calcutta, to whom the penalty proceedings were validly referred by the ITO, A Ward, Distt. 111(3), Calcutta was illegal and so the notice issued by him to the IAC, Range V, Calcutta was quashed. This decision is clearly distinguishable, more so when the question as to whether the IAC of IT Range-IV, Calcutta, to whom the reference was validly made by the ITO, A Ward, Distt. III(3), Calcutta, could restart the penalty proceedings from the stage prior to the transfer of the penalty proceedings to the IAC, Range V, Calcutta, does not appear to have examined and decided in this case.

38. We, therefore, in view of our discussions, subject to what we are going to state hereinafter, set aside the impugned penalty orders by the IAC, Range-VII, Calcutta dated 31-3-1977 for the assessment years 1958-59, 1960-61 and 1961-62 and restore the penalty proceedings to the file of the ITO concerned with a direction to proceed further in these matters at which they stood immediately after the issue of the show cause notice to the assessee on 22-2-1977 and prior to 28-2-1977 and to decide the matter afresh in accordance with law after granting due opportunity of hearing to the assessee, who in these proceedings will be free to take the pleas available to him in law against the proposed penalties for those years under Section 271(1)(c). In so far as the penalty proceedings under Section 271(1) (c) for the assessment year 1959-60 are concerned, the IAC, Range VII, Calcutta, as held above had validly assumed the jurisdiction and we, while setting aside his impugned penalty order under Section 27l(1)(c) for that year, restore the matter to his file with direction to proceed from the stage prior to the passing of the penalty order and after assumption of jurisdiction and to decide this matter afresh in accordance with law after giving due opportunity of hearing to the assessee who will be free to raise the pleas available to him in law against the proposed penalty under Section 271(1)(c).

39. We next address ourselves to the arguments canvassed by the representative for the assessee, Mr. G.P. Agarwalla, that the penalty orders by the IAC for all the four years were bad in law because on the date when he passed the impugned penalty orders, i.e., 31-3-1977, in view of the omission of Section 274(2) with effect from 1-4-1976 by the Taxation Laws (Amendment) Act, 1975, he had ceased to have jurisdiction or requisite power to pass the penalty orders. In support of this argument, the representative for the assessee Mr. G.P. Agarwalla has relied on the following decisions : Case reported in AIR 1943 Cal. 573, Case reported in AIR 1952 Bom. 365, Rayala Corpn. (P.) Ltd. v. Director of Investigation AIR 1970 SC 494 at page 502 col. 2, CIT v. Dhadi Sahu [1976] 105 ITR 56 at page 60 (Ori.), C. Ag. IT v. Smt. P. Pamkutti Amma (supra), Radheshyam Agarwalla v. CIT[1978] 113 ITR 196 (Ori.), CIT v.Om Sons [1979] 116 ITR 215 (All.), CIT v. Pearey Lal Radhey Raman [1979] 117 ITR 319 (All.), R. Abdul Azeez v. CIT [1981] 128 ITR 547 at page 559 (Kar.) and CIT v. Ramlal Vohra [1981] 129 ITR 473 (All.).

These arguments of the representative for the assessee have been vehemently controverted by the senior departmental representative Mr.

A.K. Ghosh, who, on the strength of the following decisions, has very strenuously urged that the IAC, if he has had initially the inherent jurisdiction, would not lose the power to impose the penalty after 1-4-1976 in a case where he has validly assumed the jurisdiction prior to 1-4-1976 merely because the provisions of Section 274(2) stand omitted with effect from 1-4-1976 by the Taxation Laws (Amendment) Act, 1975 : 1. The Calcutta Bench 'A' in IT Appeal No. 1010 (Cal.) of 1977-78 in the case of Shri Bhabesh Chandra Mukherjee decided on 16-9-1978, to which one of us (the J.M.) was a party, at pages 26 to 31 of the paper book filed by the ITO. 2. CIT v. Eastern Development Corpn. 5 CTC 33, copy whereof is at pages 32 to 35 of the paper book filed by the Deptt. (Calcutta High Court) ; and 40. We have given consideration to the above arguments. The decisions of the Calcutta High Court relied upon by the senior departmental representative on the point at issue are binding on us. Respectfully following the said decisions of the Calcutta High Court, which approved the aforesaid decision of the Tribunal (Calcutta Bench 'A') in IT Appeal No. 1010 (Cal.) of 1977-78, we hold that the IAC for the assessment year 1959-60, having validly assumed the jurisdiction prior to 1-4-1976 in the penalty proceedings referred to him by the ITO under Section 271(1)(c) has the power to impose the penalty in these proceedings even after 1-4-1976 with effect from which date the provisions of Section 274(2) stood omitted. This question, however, does not arise in the cases before us for the assessment years 1958-59, 1960-61 and 1961-62. We hold likewise.

41. The next argument of the representative for the assessee is that since the earlier penalty orders for the assessment years 1958-59 and 1959-60 referred to in para 5 above have been cancelled by the Tribunal (Calcutta 'C' Bench) as brought out in para 5 above, it was not competent in law for the authority competent to levy the penalties once again under Section 271(1)(c) for these two assessment years. In this connection Mr. G.P. Agarwalla referred to para 11.2 of the settlement between the Commissioner W.B.V. Calcutta and the assessee brought out in para 6 above and strongly urged that the said terms and conditions of the settlement has not been complied with in the present case.

Further, levying of penalties afresh for these two years would be in violation of Article 22 of the Constitution. These arguments of the assessee are strenuously controverted by the departmental representative. In this connection he has drawn our attention to the order of the Tribunal for these two years where the penalty orders have been set aside, in view of the aforesaid settlement between the Commissioner, W.B.V, Calcutta and the assessee and the fact that those penalty orders initially passed against the assessee were set aside at the instance of the assessee so that fresh penalty orders can be passed in accordance with the terms and conditions of the aforesaid settlement. The assessee cannot, therefore, turn round and take the above plea.

42. We have given consideration to the above arguments. Paras 11.1 and 11.2 of the terms and conditions of the aforesaid settlement read as under: 11.1 To give effect to the terms of this settlement the assessments of the assessees and those of the firms mentioned before will be reopened, rectified or modified under Section 146/147/154 or 264 as the case may be. The Deptt. and the assessees will pray for setting aside the orders pending before the appellate authorities, viz., AAC or ITAT in respect of the appeals of the assessees and the said firms pertaining to the loans and interest covered by this settlement.

11.2 The ITO will concede before the AAC/Tribunal to the reduction of the amount of penalty under Section 271(1)(c), if any, in terms of this settlement.

From the orders of the Tribunal for the assessment years 1958-59 and 1959-60 at pages 22 to 25, we find that the e penalty orders were set aside by the Tribunal on the request made by the assessee. In view of the aforesaid term 11.1 and in the light of the said term 11.2, the assessee had requested for the penalty orders for those two years to be cancelled. It was pursuant to the request by the assessee that the penalty orders were cancelled and this was in accordance with term 11.1 and the terms and conditions of the aforesaid settlement between the Commissioner and the assessee.

That being the position, the assessee cannot now turn round to say that the authority concerned cannot pass fresh penally orders for which reference is sought to be made by the authority concerned in view of the terms and conditions of the aforesaid settlement. The invocation of Article 22 of the Constitution by the assessee is misplaced. There is no double jeopardy for the offence committed. We say so, because the first penalty orders for the years under consideration stand cancelled.

For the same offence, penalties, if levied, for these two years will be tantamount to levy of penalty once and only once for the offence, if any, committed by the assessee. That being the position, the arguments of the representative for the assessee, as brought out in para 41 above, merit rejection. We hold likewise.

43. Of course the last argument of the assessee that the penalties levied were excessive being in excess of 20 per cent of the tax sought to be avoided for the years under consideration does not survive, as we have set aside the penalty orders as stated in para 38 above. We are sure that the IAC/ ITO, in case penalties are to be levied against the assessee, will levy the same in accordance with law.


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