PETITIONER: VIRKEY CHACKO Vs. RESPONDENT: C.I.T. DATE OF JUDGMENT24/08/1993 BENCH: BHARUCHA S.P. (J) BENCH: BHARUCHA S.P. (J) JEEVAN REDDY, B.P. (J) CITATION: 1994 SCC Supl. (1) 264 JT 1993 (5) 58 1993 SCALE (3)537 ACT: HEADNOTE: JUDGMENT:
The Judgment of the Court was delivered by
BHARUCHA, J.- This is an appeal on a certificate granted by
the High Court of Kerala. The judgment under appeal was
delivered on a reference under Section 256(2) of the Income
Tax Act, 1961. It answered in the negative, that is,
against the appellant (assessee) and in favour of the
Revenue (respondent), the following question:
“Whether on the facts and in the circumstances
of the case, the Income Tax Appellate Tribunal
is right in law in holding that the Income Tax
Officer had no jurisdiction to levy the
penalty and that he should have referred the
case to the Inspecting Assistant Commissioner
for imposition of penalty?”
2.The reference pertained to the Assessment Year 1968-69,
the relevant accounting period having ended on March 31,
1968.
3.The assessee filed his return on April 16, 1970. With
effect from April 1, 1971, sub-section (2) of Section 274 of
the Income Tax Act, 1961, was amended. Prior to the said
amendment where, in a case falling under clause (iii) of
sub-section (1) of Section 271, the minimum penalty
imposable exceeded the sum of Rs 1000, the Income Tax
Officer was obliged to refer the case to the Inspecting
Assistant Commissioner. By reason of the said amendment the
Income Tax Officer was obliged to refer to the Inspecting
Assistant Commissioner such cases falling under clause (c)
of sub-section (1) of Section 271 where the amount of
income, as determined by the ITO on assessment, in respect
of which particulars had been concealed or inaccurate
particulars had been furnished exceeded the sum of Rs
25,000. On March 27, 1972, the ITO made the orders of
assessment and initiated penalty proceedings against the
assessee on the basis of a finding recorded in the
assessment order that there had been concealment of income
in respect of an amount which did not exceed
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Rs 25,000. After considering the assessee’s objections, the
ITO, by order dated March 26, 1974, imposed a penalty of Rs
10,000.
4.The assessee appealed to the Appellate Assistant
Commissioner, who set aside the penalty order on the ground
that the ITO did not have the jurisdiction to levy the
penalty. The Revenue carried the matter to the Income Tax
Appellate Tribunal, which confirmed the order of the AAC.
It held that the law governing the imposition of penalty for
concealment of income was the law that was in force on the
date on which the return in which the concealment had been
made was filed and that the said amendment had no
application to the case because it had not been made
expressly retrospective.
5.Arising out of the order of the Tribunal, the question
quoted above was referred to the High Court. The High Court
noted that the question to be considered was whether the
proceedings for imposition of penalty taken in the case were
governed by the provisions of Section 274(2) as they stood
prior to the said amendment or whether it was the sub-
section as amended that would apply. It concluded that the
competence or jurisdiction of the authority to initiate the
penalty proceedings could be governed only by the law which
was in force on the date of initiation of such proceedings.
A combined reading of Section 271(1)(c)(iii) and Section
274(2) provided a clear indication that under the provisions
of Section 274(2) as they stood prior to the amendment of
1970 the competence of the ITO to exercise the power of
imposition of penalty against an assessee under Section 271
(1)(c) was to depend upon the findings arrived at by him in
the assessment proceedings as to the factum of concealment
and the amount of income in respect of which such
concealment had taken place. It was only on arriving at
such a finding that the question of initiation of penalty
proceedings could arise. In this connection, the High Court
referred to the judgment of this Court in Jain Brothers v.
Union of India’. Accordingly, the Tribunal was held to be
in error and the question referred to the High Court was
answered in the negative, that is, against the assessee and
in favour of Revenue.
6.Section 27 1 (1)(c) confers upon the assessing
authority the power to direct an assessee to pay a penalty
where he is satisfied that the assessee has concealed the
particulars of his income or has furnished inaccurate
particulars of his income. Section 274(2), before it was
amended by the Taxation Law (Amendment) Act, 1970, with
effect from April 1, 197 1, read thus:
“Notwithstanding anything contained in clause
(iii) of sub-section (1) of Section 271, 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
this Chapter for the imposition of penalty.”
After the said amendment, it read thus:
“Notwithstanding anything contained in clause
(iii) of sub-section (1) of Section 271, if in
a case failing under clause (c) of that 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
1 (1969) 3 SCC 311: (1970) 77 ITR 107
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Inspecting Assistant Commissioner who shall,
for the purpose, have all the powers conferred
under this Chapter for the imposition of
penalty.”
7.Learned counsel for the assessee submitted that the
offence of concealment had been committed when the return
had been filed; that, therefore, the unamended provisions of
Section 274(2) applied and the ITO had no authority to
impose the penalty. He relied upon the judgment of this
Court in CIT v. Onkar Saran and SonS2. Emphasis was laid
upon the statement in the judgment that, after the decision
of this Court in Brij Mohan v. CIT3 there could be no doubt
that the law applicable to penalty proceedings under Section
271(1)(a) or (c) was the law that was in force on the date
on which the offending return had been filed.
8.The issue in the cases of Onkar Saran2 and Brij Mohan3
related to the quantum of penalty that could be demanded,
and it was in that context that the statement that was
emphasised was made. In Brij Mohan case3 it was expressly
stated that a penalty was imposed on account of the
commission of a wrongful act and “it is the law operating on
the date on which the wrongful act is committed which
determines the penalty”.
9.Learned counsel for the Revenue drew our attention,
first, to this Court’s judgment in Jain Brothers’. It was
there held, inter alia that it was the satisfaction of the
income tax authorities that a default had been committed by
the assessee which attracted the provisions relating to
penalty. Whatever the stage at which the satisfaction was
reached, the order imposing the penalty had to be made only
after the completion of the assessment. The crucial date,
therefore, for purposes of penalty was the date of such
completion. In D.M. Manasvi v. CIT4 this was reiterated.
Counsel for the Revenue laid great stress upon the judgment
of this Court in CIT v. Dhadi Sahu5. In this case the
assessee had failed to disclose certain income falling to
the share of his minor children for the Assessment Years
1968-69 and 1969-70. The ITO passed assessment orders on
February 28, 1970 and initiated penalty proceedings under
Section 271(1)(c). Since the amounts of the penalty to be
imposed would exceed Rs 1000, the ITO referred the cases
under Section 274(2), as it then stood, to the IAC. Pending
the penalty proceedings, Section 274(2) was amended with
effect from April 1, 1971, as a result of which only cases
of penalty in which the income concealed was Rs 25,000 or
more were required to be referred to the IAC. In the
assessee’s case referred to the IAC the income concealed was
less than Rs 25,000. Even so, the IAC passed orders on
February 15, 1973, imposing penalty in the sums of Rs 24,000
and Rs 12,500 respectively for the Assessment Years 1968-69
and 1969-70. This Court held that the reference had been
validly made by the ITO to the IAC before April 1, 1971 and
the question was whether the amendment that came into effect
on April 1, 1971 divested the IAC of his jurisdiction
because the amount of concealed income did not exceed Rs
25,000 and the case did not fall within the ambit of Section
274(2) as amended. The amending Act, it was noted, did not
make any provision that references validly pending before
the IAC had to be returned without passing any final orders
if
2 (1992) 2 SCC 514
3 (1979) 4 SCC 118: 1979 SCC (Tax) 294: (1979) 120 ITR 1
4 (1973) 3 SCC 207: 1973 SCC (Tax) 155: (1972) 86 ITR 557
5 1994 Supp (1) SCC 257 :(1993) 199 ITR 610
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the amount of income in respect of which particulars had
been concealed did not exceed Rs 25,000. This supported the
inference that in a pending reference the IAC continued to
have jurisdiction to impose a penalty. The previous
operation of Section 274(2) as it stood before April 1, 1971
and anything done thereunder continued to have effect under
Section 6(b) of the General Clauses Act, 1897, enabling the
IAC to pass orders imposing penalty in pending references.
What was material was the date upon which the references
were initiated. If the references had been made before
April 1, 1971, they would be governed by Section 274(2) as
it stood before that date and the IAC had jurisdiction to
pass orders of penalty.
10.Learned counsel for the Revenue submitted that the ITO
had, in the instant case, satisfied himself that there had
been concealment of income on March 27, 1972, when he made
the order of assessment. Such satisfaction was a pre-
requisite to the initiation of the penalty proceedings,
which were initiated on the same day. On that day, under
the amended provisions of Section 274(2), the ITO had the
authority to impose the penalty upon the assessee.
Therefore, the High Court had answered the reference
correctly.
11.A penalty for concealment of particulars of income or
for furnishing inaccurate particulars of income can be
imposed only when the assessing authority is satisfied that
there has been such concealment or furnishing of inaccurate
particulars. A penalty proceeding, therefore, can be
initiated only after an assessment order has been made which
finds such concealment or furnishing of inaccurate
particulars. Who at this point of time has the authority to
impose the penalty is what is relevant. Whoever this
authority may be, he is obliged to impose such penalty as
was permissible under the law in that behalf on the date on
which the offence of concealment of income was committed,
that is to say, on the date of the offending return. The
two aspects must firmly be borne in mind, namely, who may
impose the penalty and in what measure.
12.In the instant case, when the ITO reached the
satisfaction that the assessee had concealed income and made
the assessment order on March 27, 1972, the amended
provisions of Section 274(2) were in operation and they
entitled the ITO to impose penalty in cases where the amount
of income in respect of which particulars had been concealed
was, as here, less than Rs 25,000.
13.We are, therefore, of the view that the High Court
answered the question referred to it correctly. The appeal,
therefore, is dismissed, with no order as to costs.
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