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Commissioner of Income-tax, Gujarat Vs. Khetshibhai Madhani - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 5 of 1969
Judge
Reported in[1972]85ITR315(Guj)
ActsIncome Tax Act - 1961 - Sections 271(1), 271(1), 274, 274(1) and 274(2)
AppellantCommissioner of Income-tax, Gujarat
RespondentKhetshibhai Madhani
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.V. Desai, Adv.
Excerpt:
.....concealed the particulars of his income or furnished inaccurate particulars of such income, the income-tax officer directed that a notice be issued under section 274(1) calling upon the assessee to show cause why penalty should not be imposed on the assessee for concealment of income under section 271(1)(c) of the income-tax act, 1961. now, according to the computation made by the income-tax officer, the income-tax payable by the assessee on the total income of rs. there are two sections material to the determination of the question :one is section 271, sub-section (1), clause (c), and the other is section 274, sub-section (2). section 271, sub-section (1), clause (c), provides -and here we are setting out the section as it stood during the assessment year 1961-62 prior to its..........on the total income of rs. 25,557 was rs. 5,851 and on the basis of this computation, the minimum penalty imposable on the assessee under section 271(1)(c) read with clause (iii) would exceed rs. 1,000. the income-tax officer, therefore, referred the case to the inspecting assistant commissioner as required by section 274(2) for imposing proper penalty on the assessee. the inspecting assistant commissioner issued a show-cause notice to the assessee and, after hearing the assessee, passed an other imposing a penalty of rs. 3,500 on the assessee under section 271(1)(c) read with clause (iii). the assessee appealed against the order of penalty to the tribunal. whilst the appeal was pending, it was found as a result of inspection by the revenue audit that there was an error in computing the.....
Judgment:

P.N. Bhagwati, C.J.

1. This reference arises out of an order of penalty made against the assessee in respect of an assessment to income-tax for the assessment year 1961-62. The assessee is a Hindu undivided family and during the relevant year of account, it carried on business in wool, goat-hair, etc. The assessee returned a total income of Rs. 6,533 but the Income-tax Officer assessing the assessee found that the total income returned by the assessee was false and that in fact the assessee had made a much larger profit in business. The Income-tax Officer, accordingly, assessed the assessee on a total income of Rs. 25,557 and since, in the course of the assessment proceedings, the Income-tax Officer was satisfied that the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income, the Income-tax Officer directed that a notice be issued under section 274(1) calling upon the assessee to show cause why penalty should not be imposed on the assessee for concealment of income under section 271(1)(c) of the Income-tax Act, 1961. Now, according to the computation made by the Income-tax Officer, the income-tax payable by the assessee on the total income of Rs. 25,557 was Rs. 5,851 and on the basis of this computation, the minimum penalty imposable on the assessee under section 271(1)(c) read with clause (iii) would exceed Rs. 1,000. The Income-tax Officer, therefore, referred the case to the Inspecting Assistant Commissioner as required by section 274(2) for imposing proper penalty on the assessee. The Inspecting Assistant Commissioner issued a show-cause notice to the assessee and, after hearing the assessee, passed an other imposing a penalty of Rs. 3,500 on the assessee under section 271(1)(c) read with clause (iii). The assessee appealed against the order of penalty to the Tribunal. Whilst the appeal was pending, it was found as a result of inspection by the revenue audit that there was an error in computing the amount of tax on the total income of Rs. 25,557; the tax should have been computed to be Rs. 3,762.53 instead of Rs. 5,851. On this error being pointed out by the revenue audit, the Income-tax Officer issued a notice to the assessee for rectification of the assessment order and on the assessee agreeing to the proposed rectification, the Income-tax Officer made an order rectifying the assessment order. The result of rectification was that the total income of the assessee remained unchanged, but the amount of tax was reduced by Rs. 2,088 from Rs. 5,851 to Rs. 3,762.53. Now, the consequence of reduction of the quantum of tax was that the minimum penalty imposable on the assessee fell below Rs. 1,000. The assessee, therefore, contended, when the appeal reached hearing before the Tribunal, that the Inspecting Assistant Commissioner had not jurisdiction to impose penalty since the minimum penalty imposable on the assessee did not exceed Rs. 1,000. The Tribunal accepted this contention and held that, since, on the basis of the tax as recomputed, the minimum penalty imposable on the assessee did not exceed Rs. 1,000, the Inspecting Assistant Commissioner had no jurisdiction to impose penalty and his order was, therefore, liable to be vacated as being without jurisdiction. The Commissioner was aggrieved by this decision of the Tribunal and he, accordingly, applied for a reference, but the Tribunal took the view that no question of law arose out of its order and the application was, therefore, not maintainable. The Commissioner, thereupon, applied to this court and, on his application, we directed the Tribunal to draw up a statement of the case and refer the following question for our opinion :

'Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the Inspecting Assistant Commissioner had not jurisdiction to impose penalty ?'

2. The present reference has been by the Tribunal pursuant to the requisition made by us.

3. The question arising in his reference lies in a very narrow compass and does not present any difficulty of solution. There are two sections material to the determination of the question : one is section 271, sub-section (1), clause (c), and the other is section 274, sub-section (2). Section 271, sub-section (1), clause (c), provides - and here we are setting out the section as it stood during the assessment year 1961-62 prior to its amendment by the Finance Act, 1968 - that if the Income-tax Officer, in the course of any proceedings under the Act, is satisfied that any person has concealed the particular on his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, in addition to any tax payable by him, a sum which shall not be less than twenty per cent. but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the amount as returned by such person had been accepted as the correct income. The minimum penalty imposable on the assessee in a case falling per cent. of the amount of the tax avoided and it is provided that the penalty shall be imposable by the Income-tax Officer. But, there is qualification to this rule enacted in section 274, sub-section (2). That sub-section provides that notwithstanding anything contained in section 271(1)(iii), if in a case falling under clause (c) of that sub-section, the minimum penalty imposable exceeds a sum of rupees one thousand, the Income-tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose, have all the powers conferred under Chapter XXI for the imposition of penalty. Where a case falls within section 271, sub-section (1), clause (c), and the minimum penalty imposable exceeds Rs. 1,000, the Income-tax Officer cannot proceed to impose penalty under section 271, sub-section (1), but he has to refer the case to the Inspecting Assistant Commissioner who is empowered to impose penalty in such a case. The Inspecting Assistant Commissioner derives jurisdiction to impose penalty on the assessee on a reference being made by the Income-tax Officer and the Income-tax Officer can validly make a reference to the Inspecting Assistant Commissioner only if the case falls within section 271, sub-section (1), clause (c), and the minimum penalty imposable on the assessee exceeds Rs. 1,000. Now the present case was admittedly one within section 271, sub-section (1), clause (c), and the only question which, therefore, requires to be considered is whether the minimum penalty imposable on the assessee was more than Rs. 1,000. If it was more than Rs. 1,000, the reference made by the Income-tax Officer would be valid and the Inspecting Assistant Commissioner would have jurisdiction to impose penalty on the assessee. But not so, if it was Rs. 1,000 or less.

4. Now it was common ground between the parties that if the income as returned by the assessee had been the correct income, the amount of tax payable by the assessee would have been Rs. 156. But the assessee concealed the particulars of his income or furnished inaccurate particulars of such income with the result that he avoided payment of the proper amount of tax. The correct amount of assessable income of the assessee as determined by the Income-tax Officer was Rs. 25,557 and on the basis of this assessable income, the correct amount of tax payable by the assessee was Rs. 3,762.53. The amount of tax which would have been avoided by the assessee had the income as returned by him been accepted as the correct income was, therefore, Rs. 3,606.53 and the minimum penalty imposable on the assessee calculated at the rate of twenty per cent. of the amount of such tax came to about Rs. 720. The minimum penalty imposable on the assessee thus did not exceed Rs. 1,000 and the Income-tax Officer had, therefore, no power to refer the present case to the Inspecting Assistant Commissioner and the reference being invalid, the Inspecting Assistant Commissioner had no jurisdiction to impose penalty on the assessee. The Income-tax Officer referred the present case to the Inspecting Assistant Commissioner on the basis of a wrong computation of tax made by him. We do not think that the Income-tax Officer can by a wrong computation of tax invest himself with power to refer a case to the Inspecting Assistant Commissioner and thereby confer jurisdiction on the Inspecting Assistant Commissioner to impose penalty when in fact, on the basis of correct computation of tax, the minimum penalty imposable on the assessee does not exceed Rs. 1,000. It is the existence of the objective fact that the minimum penalty imposable on the assessee exceeds Rs. 1,000 that gives jurisdiction to the Income-tax Officer to refer a case to Inspecting Assistant Commissioner and if, on the assessment of the total income made by the Income-tax Officer, this object fact does not exist, the Income-tax Officer cannot refer a case to the Inspecting Assistant Commissioner by making an error in regard to the existence of the objective fact by a wrong computation of the amount of tax.

5. We must of course make it clear that when we say this we must not be understood to express any opinion on the question as to what would be the position if the amount of assessable income determined by the Income-tax Officer is reduced as a result of rectification or in appeal or revision and, in consequence, the quantum of tax liability is diminished resulting in the minimum penalty imposable on the assessee falling below the sum of Rs. 1,000. Whether, in such a case, the reference made by the Income-tax Officer on the basis of the assessment order made by him could cease to be a valid reference or the Inspecting Assistant Commissioner would be deprived of his jurisdiction to impose penalty in such reference is question which may fall for consideration in a future case but it does not arise here. We are concerned here with a case, where the assessable income determined by the Income-tax Officer remains unchanged but the only error committed by the Income-tax Officer is in regard to the computation of tax on such assessable income. Such an error in computation of tax made by the Income-tax Officer cannot make valid a reference which is otherwise invalid on the basis of correct computation of tax.

6. We, therefore, answer the question referred to us in the affirmative. The Commissioner will pay the costs of the reference to the assessee.

7. Question answered in the affirmative.


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