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Commissioner of Income-tax, Gujarat-iii Vs. Manu Engineering Works - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 114 of 1975
Judge
Reported in[1980]122ITR306(Guj)
ActsIncome Tax Act, 1961 - Sections 143(3), 271(1), 274 and 274(2)
AppellantCommissioner of Income-tax, Gujarat-iii
RespondentManu Engineering Works
Appellant Advocate G.N. Desai, Adv.
Respondent Advocate K.C. Patel, Adv.
Cases ReferredColonial Sugar Refining Company v. Irving
Excerpt:
.....penalty on account of concealment of income by assessee - no finding regarding concealment of income - penalty imposed by not maintainable. - - the iac took not of the fact that the assessee had concealed its income or furnished inaccurate particulars of such income and its failure to return the correct income had arisen from fraud or gross or wilful neglect on its part, because if the assessee had been a little careful, it would have definitely come to know of the fact that the opening stock had been debited twice to the p & l a/c. 274 by the amendment act, that it was well- settled law that every litigant had a vested right in the procedural law so far as the substance was concerned and if the substantive question of jurisdiction was to be affected by a new amendment the..........case fell within the mischief of the explanation to s. 271(1)(c). he accordingly, initiated penalty proceedings and as the minimum penalty leviable exceeded rs. 1,000, he referred the matter to the iac, as required by s. 274 of the act. 3. against the order of assessment by the ito, the assessee preferred an appeal to the aac, and one of the grievances in the appeal was about the addition of the amount of rs. 21,619 made by the ito. however, before the appeal came up for hearing the assessee discovered that the accountant who was attending to the books of account of the assessee-firm had debited the opening stock value amounting to rs. 25,770 to the p & l a/c twice and thereby there was an understatement of the profits to the extent of rs. 25,770. it was contended on behalf of the.....
Judgment:

Divan, C.J.

1. In this case, at the instance of the revenue, the following question has been referred to us for our opinion :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the order of the Inspecting Assistant Commissioner of Income-tax imposing the penalty under section 271(1)(c) read with section 274(2) of the Income-tax Act, 1961, was without jurisdiction and illegal and in cancelling the same accordingly ?'

2. The facts giving rise to this reference as follows : We are concerned with the assessment year 1970-71. The assessee is a registered partnership firm and is engaged in the business of manufacturing of fans, electric motors, washing machines, etc. In the assessment made by the ITO for the year 1970- 71 under s. 143(3) of the I. T. Act, 1961, an addition of Rs. 21,691 was made by the ITO on the ground that the gross profit disclosed was not acceptable because of certain defects found in the accounts maintained by the assessee. As a result of the addition, the income assessed by him came to Rs. 57,776 as against the assessee's returned income of Rs. 26,025. In view of the difference between the assessed and returned incomes exceeding the permissible margin of twenty per cent., the ITO held that the assessee's case fell within the mischief of the Explanation to s. 271(1)(c). He accordingly, initiated penalty proceedings and as the minimum penalty leviable exceeded Rs. 1,000, he referred the matter to the IAC, as required by s. 274 of the Act.

3. Against the order of assessment by the ITO, the assessee preferred an appeal to the AAC, and one of the grievances in the appeal was about the addition of the amount of Rs. 21,619 made by the ITO. However, before the appeal came up for hearing the assessee discovered that the accountant who was attending to the books of account of the assessee-firm had debited the opening stock value amounting to Rs. 25,770 to the P & L a/c twice and thereby there was an understatement of the profits to the extent of Rs. 25,770. It was contended on behalf of the assessee that this was due to oversight and as soon as the mistake came to the knowledge of the assessee, the assessee made a clean breast of it before the AAC and surrendered the amount of Rs. 25,770 before the AAC for purpose of taxation, and it was further claimed on behalf of the assessee that if this addition was taken into account, there was no shortfall in the gross profit for which the ITO had made the addition of Rs. 21,691. In the appeal, as a result of the surrender, the assessment was enhanced by Rs. 4,079 representing the difference between Rs. 25,770 due to the understatement of the opening stock and Rs. 21,691 which was the addition made by the ITO for the shortfall in the gross profit.

4. When the IAC took up the hearing of the penalty proceedings, the facts concerning the understatement on account of double debit of the value of the opening stock and the enhancement of the income were brought to his notice. The IAC took not of the fact that the assessee had concealed its income or furnished inaccurate particulars of such income and its failure to return the correct income had arisen from fraud or gross or wilful neglect on its part, because if the assessee had been a little careful, it would have definitely come to know of the fact that the opening stock had been debited twice to the P & L a/c. The IAC, therefore, held that penalty was attracted both under the main section and under the Explanation to s. 271(1)(c) and imposed penalty of Rs. 26,000 on the assessee.

5. AGainst the order of the IAC imposing this penalty, the assessee preferred an appeal, and it contended that the penalty imposed was illegal and also without jurisdiction. One of the contentions was that the penalty proceedings were initiated by the ITO by his letter dated November 20, 1970, to the assessee, stating that since the minimum penalty leviable would exceed Rs. 1,000, the matter was being referred to the IAC for continuation of further proceedings in the penalty case. The IAC issued a show-cause notice some time in November, 1971, and ultimately imposed the penalty by his order dated March 20, 1973. Before the time, the IAC issued the show-cause notice, there was an amendment to the provisions of s. 274 of the Act with effect from April 1, 1971, and a s a result of the amendment, the jurisdiction of the IAC to levy penalty could arise only when the amount of income, as determined by the ITO, in respect of which particulars have been concealed or inaccurate particulars have been furnished, exceeds Rs. 25,000 and not, as it stood prior to the amendment, when the minimum penalty imposable exceeded Rs. 1,000. It was contended before the Tribunal that as the amount of income as determined by the ITO, in respect of which the particulars were held to be concealed or inaccurate particulars were held to have been furnished, was below Rs. 25,000, being the amount of Rs. 21,691, viz., the addition made by the ITO on account of low gross profit, the IAC did not have jurisdiction and, therefore, the order passed by him was not valid. It was further claimed that, after such amendment, the IAC did not have jurisdiction to impose the penalty and, therefore, his order of penalty was without jurisdiction. It was further claimed that although the addition ultimately sustained in the appeal by the AAC was the sum of Rs. 25,770, the addition was on altogether different ground, namely, the double debit of the value of the opening stock in the trading and P & L accounts, whereas the addition made by the ITO was an estimated amount and, therefore, when the ITO referred the penalty proceedings to the IAC, the amount in respect of which the reference was made or could have been made was the amount of Rs. 21,691 and not Rs. 25,770. The Tribunal came to the conclusion that the IAC had no difference of opinion so far as the merits of the case were concerned. The Accountant Member held that by substituting the addition on account of the understatement of the opinion stock, the very basis of satisfaction reached by the ITO for proceedings for levy of penalty had disappeared. Both the Accountant Member and Judicial Member agreed that, as a result of the amendment, which came into force with effect from April 1, 1971, a change in the jurisdiction of the IAC had taken place and in view of that change, the IAC had no jurisdiction to decide this particular matter.

6. Thereafter, at the instance of the revenue, the question hereinabove set out has been referred to us for our opinion. It may be pointed out that this very Bench has, in CIT v. Royal Motor Car Co. : [1977]107ITR753(Guj) , held on the point of jurisdiction of the IAC to pass the order of penalty in view of the amendment in s. 274 by the Amendment Act, that it was well- settled law that every litigant had a vested right in the procedural law so far as the substance was concerned and if the substantive question of jurisdiction was to be affected by a new amendment the legislature must say so either in express terms or by necessary implication. The Division Bench in CIT v. Royal Motor Car Co. : [1977]107ITR753(Guj) , relying on the decision of the Privy Council in Colonial Sugar Refining Company v. Irving [1905] AC 369, held that the principle had been well recognised that though the right of appeal was a procedural right, it was a vested right. The Division Bench held that the IAC whose power was affected by the Amend. Act would continue to have jurisdiction in matters which were then pending before him, since the Amend. Act of 1970, neither in express words nor by necessary implication, had indicated that the jurisdiction of the IAC, even in pending matters, i. e., matters which were already referred to him, was to be affected Since there is no such clear indication nor the necessary implication that the jurisdiction of the IAC was affected in pending matters, it follows that the jurisdiction of the IAC under the unamended s. 274 would continue and, therefore, he had jurisdiction to dispose of the penalty proceedings against the assessee-firm.

7. In CIT v. Balabhai and Co., ITR No. 63, 1975, decided on August 4, 1977, by a Division Bench of this High Court consisting of J. B. Mehta and P. D. Desai JJ. (since reported in : [1980]122ITR301(Guj) supra) the decision in CIT v. Royal Motor Car Co. : [1977]107ITR753(Guj) was followed.

8. Thus, it is obvious that so far as the position in law is concerned, the Tribunal's view cannot be upheld and it must be held that the view taken by the Tribunal regarding the result brought bout by the Amending Act of 1970, so far as jurisdiction of the IAC was concerned, was not correct.

9. However, the final order passed by the Tribunal in the appeal before it can be sustained on a different ground which also affects the jurisdiction of the IAC. We find from the order of the IAC in the penalty proceedings, that is, the final conclusion as expressed in para. 4 of the order : 'I am of the opinion that it well have to be said that the assessee had concealed its income and/or that it had furnished inaccurate particulars of such income'. Now, the language of 'and/or' may be proper in issuing a notice as to penalty order or framing of charge in a criminal case or a quasi- criminal case, but it was incumbent upon the IAC to come to a positive finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee. No such clear-cut finding was reached by the IAC was liable to be struck down.

10. We may also point out that so far as the order of the AAC in matters under appeal was concerned, he had not directed any penalty proceedings, though it was before him in the course of the appeal that the question of double debiting of the opening stock in the profit and loss account to the extend of Rs. 25,770 was brought to the notice of the department. It is surprising that, though the AAC did not recommend levying of any penalty in view of the change in the whole basis of assessment, yet the IAC treated the non- disclosure of the double debiting of Rs. 25,770 in the P & L a/c for the relevant year as concealment of income and/or furnishing of inaccurate particulars. The case before us is very much like the case in CIT v. Lakhdhir Lalji : [1972]85ITR77(Guj) . In that case also the appeal before the AAC had proceeded on a different basis altogether from the basis which was adopted by the ITO and the penalty proceedings were initiated by the ITO on the basis of the facts found by him. Under these circumstances, it was observed by the Division Bench (headnote) :

'Under the circumstances, it could not be said that the assessee had been given a reasonable opportunity of being heard before the order imposing the penalty was passed. The very basis for the penalty proceedings against the assessee initiated by the Income-tax Officer disappeared when the Appellate Assistant Commissioner held that there was no suppression of income by the assessee. The conclusion of the Tribunal that the Inspecting Assistant Commissioner had no jurisdiction to impose a penalty under section 271(1)(c) for concealment of income was correct.'

11. In the instant case also, we hold that the IAC had no jurisdiction to pass the order that he did in view of the facts that we have just now pointed out. Hence, though we come to the same conclusion as the Tribunal, namely, that the IAC had no jurisdiction to impose the penalty, our reasons for coming to that conclusion are different from the reasons of both the members of the Tribunal We, therefore, answer the question in the affirmative, that is, in favour of the assessee and against the revenue, though our reasons are different from the reasons which appealed to the Tribunal. The Commissioner will pay the costs of this reference to the assessee.


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