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Commissioner of Income-tax Vs. C.K. Naha and Bros. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 87 of 1970
Judge
Reported in[1979]117ITR19(Cal)
ActsIncome Tax Act, 1961 - Sections 271(1) and 274(2)
AppellantCommissioner of Income-tax
RespondentC.K. Naha and Bros.
Appellant AdvocateDebi Pal and ;R. Murarka, Advs. as amicus curiae;Ajit Sengupta, Adv.
Respondent AdvocateNone
Excerpt:
- .....his jurisdiction, and accordingly, the penalty order passed by him was null and void ?'2. the penalty proceedings arose out of the assessment year 1963-64. the assessee is a firm. the facts stated by the tribunal may be briefly stated as follows :the ito brought rs. 10,263 to tax as the assessee's income from undisclosed sources and issued a notice under section 274 read with section 271(1)(c) of the act to the assessee for concealment of rs. 10,263 as its income. as the minimum penalty imposable on rs. 10,263 exceeded rs. 1,000, the ito referred the penalty proceeding to the iac before whom it was admitted by the assessee's representative that this amount was wrongly shown by the assessee's accountant in the balance-sheet without verifying the correct facts. the assessee's.....
Judgment:

Deb, J.

1. The following question is involved in this reference under Section 256(1) of the I.T. Act, 1961 :

'Whether, on the facts and in the circumstances of the case, theTribunal was right in holding that the IAC travelled beyond his jurisdiction, and accordingly, the penalty order passed by him was null and void ?'

2. The penalty proceedings arose out of the assessment year 1963-64. The assessee is a firm. The facts stated by the Tribunal may be briefly stated as follows :

The ITO brought Rs. 10,263 to tax as the assessee's income from undisclosed sources and issued a notice under Section 274 read with Section 271(1)(c) of the Act to the assessee for concealment of Rs. 10,263 as its income. As the minimum penalty imposable on Rs. 10,263 exceeded Rs. 1,000, the ITO referred the penalty proceeding to the IAC before whom it was admitted by the assessee's representative that this amount was wrongly shown by the assessee's accountant in the balance-sheet without verifying the correct facts. The assessee's explanation was that this amount was shown by mistake in the balance-sheet as a partner of the assessee-firm who was looking after the accounts died suddenly and the clerk who was entrusted with the maintenance of account books was not conversant with the accounts. The assessee's representative also filed a revised balance-sheet before the IAC who, on the basis of the said revised balance-sheet and on the materials placed by the assessee before him, recomputed the income and held that the assessee had understated Rs. 19,647 as its income and accordingly he imposed penalty of Rs. 16,300 on the assessee. The assessee appealed and it was found by the Tribunal that the charge of concealment of income of Rs. 10,263 made against the assessee by the ITO was washed away by the findings of the IAC who had made out a new case of concealment of a different sum of Rs. 19,647 against the assessee and had imposed penalty on it. Accordingly, the Tribunal set aside the penalty by holding that the IAC had no jurisdiction to impose penalty in respect of concealment of Rs. 19,677.

3. There is no decision of this court on the question involved in this reference in which no one has appeared for the assessee. In view of the contentions made on the 9th August, 1976, by Mr. Ajit Sengupta, the learned counsel for the revenue, we adjourned this matter and requested the learned counsel, Dr. Debi Pal, and his junior, Mr. Murarka, to assist us. They have done so and we record our appreciation to them.

4. Mr. Sengupta contended that since the validity of the penalty proceedings initiated by the ITO was not questioned by the assessee in the appeal filed before the Tribunal, it should be held that the ITO was satisfied in the course of the assessment proceeding that the assessee had concealed its income. He urged that the basis of charge of concealment was not altered by the IAC who, on the evidence adduced by the assessee, had altered the amount of concealment of its income and, therefore, the IAC had jurisdiction to impose the penalty. It was finally contended by him that at least to the extent of Rs. 10,263 the IAC had jurisdiction to impose the penalty.

5. On the other hand, Dr. Pal submitted that the revenue not having questioned the findings of the Tribunal, namely, that the charge of concealment of Rs. 10,263 made against the assessee by the ITO was washed away by the findings of the IAC and that the IAC had imposed penalty on a new case of concealment of Rs. 19,647 on the ground of perversity has accepted these findings and, therefore, according to Dr. Pal, it cannot be said that the ITO was satisfied in the course of the assessment proceeding that the assessee had concealed Rs. 19,647 as its income. Dr. Pal also submitted that the IAC had no jurisdiction to recompute the income of the assessee and to make out a new case of concealment of income in respect of Rs. 19,647.

6. Dr. Pal has cited a decision of the Allahabad High Court in the case of CIT v. Dwarka Prasad Subhash Chandra reported in : [1974]94ITR154(All) . In that case certain sums were added to the income of the assessee by the ITO, On appeal by the assessee the assessment was enhanced by the AAC upon notice to the assessee. The quantum appeal filed by the assessee before the Tribunal was dismissed. Meanwhile, the ITO initiated penalty proceedings and referred it to the IAC who levied penalty not only on the sums added by the ITO but also on the sums added by the AAC. The Tribunal in penalty appeal held that the IAC had no jurisdiction to impose penalty in respect of the concealed income added by the AAC. The High Court, on reference, upheld the decision of the Tribunal and held that the IAC had no jurisdiction to impose penalty on the sum enhanced by the AAC.

7. Dr. Pal has also cited a decision of the Punjab and Haryana High Court in the case of Niemla Textile Finishing Mills Ltd. v. CIT reported in . In that case, the ITO started penalty proceedings against the assessee for concealment of Rs. 8,000 and referred it to the IAC who levied penalty on Rs. 8,000 and also on Rs. 19,228 with a finding that this amount had also escaped assessment. On appeal, the Tribunal found that no penalty was leviable in respect of Rs. 8,000 and, after recomputing the income, added certain sums and directed the recomputa-tion of penalty on the basis of those additions. It was held by the High Court that since no penalty was leviable on Rs. 8,000, the Tribunal was wrong in directing the recomputation of penalty on the basis of those additions.

8. Now, the relevant portion of Section 271(1)(c) read with Section 274(2) of the I.T. Act, 1961, shows that there are three pre-conditions which must be satisfied before the IAC can be vested with jurisdiction to deal with a penalty proceeding arising out of concealment of particulars of income by an assessee. These conditions are : (1) the ITO must be satisfied in the course of the assessment proceeding that the assessee has concealed the particulars of his income; (ii) the penalty imposable on the concealed income must, in his opinion, exceed Rs. 1,000; and (iii) he refers the penalty proceeding to the IAC. Therefore, unless the income which is sought to be concealed and on which the penalty is sought to be levied is quantified by the ITO in the course of the assessment proceeding, it would not be possible for him to decide whether the penalty imposable would exceed Rs. 1,000. Hence, in our opinion, the concealed income must be quantified by the ITO in the course of the assessment proceeding.

9. We are also of the opinion that it is not the satisfaction of the IAC in the course of the penalty proceeding that the assessee has concealed a particular amount as his income but the satisfaction of the ITO in the course of the assessment proceeding that the assessee has concealed a particular sum as his income confers jurisdiction on the IAC to deal with the penalty proceeding against an assessee provided, however, the other two conditions stated earlier are also fulfilled. Therefore, the IAC can decide only the particular charge of concealment of a particular income which is referred to him by the ITO. The department must also prove that particular charge of concealment of that amount and if by the findings of the IAC the assessee is exonerated from that charge no penalty can be imposed by the IAC who must also drop the penalty proceedings against the assessee.

10. It is not the finding of the ITO that the assessee has concealed Rs. 19,647 as its income and no such case was referred by him to the IAC.

11. The fact found and stated by the Tribunal is that the assessee was charged with concealment of Rs. 10,263 as its income by the ITO who referred this particular charge against the assessee to the IAC. It has also been found and stated by the Tribunal that in view of the findings of the IAC the very basis of that charge was washed away. It has further been found and stated by the Tribunal that the IAC has imposed penalty on a different sum of Rs. 19,647 by making out a new case of concealment of that amount as the income of the assessee.

12. These findings of the Tribunal have not been questioned by the revenue on the ground of perversity. Therefore, it must be held that the ITO had no occasion to satisfy himself in the course of the assessment proceedings that the assessee had concealed Rs. 19,647. It is also not the finding of the Tribunal that Rs. 10,263 was included in Rs. 19,647. Hence, in view of the above decisions cited by Dr. Pal and the decision of the Special Bench of this court in the case of Mahabir Prosad Poddar v. ITO reported in [1972] Tax L.R. 711 , it must be held that the IAC had no jurisdiction to levy penalty on the assessee on a new charge of concealment of Rs. 19,647 as its income and accordingly it must also be held that the penalty order passed by him is null and void.

13. In the premises, we, are not impressed by the contentions of Mr. Sengupta and return our answer to the question in the affirmative and in favour of the assessee.

14. There will be no order as to costs.

Dipak Kumar Sen, J.

15. I agree.


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