1980 (11) TMI 14 - HC - Income Tax

Court upholds ITO's jurisdiction to impose penalty for income concealment under amended law

Commissioner Of Income-Tax, Kerala II Versus Varkey Chacko

Commissioner Of Income-Tax, Kerala II Versus Varkey Chacko - [1982] 136 ITR 733, 21 CTR 334, 6 TAXMANN 270 Issues Involved:1. Jurisdiction of the Income-tax Officer (ITO) to levy penalty.2. Applicability of the amended provisions of Section 274(2) of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Jurisdiction of the Income-tax Officer (ITO) to levy penalty:The core issue was whether the ITO had the jurisdiction to levy a penalty for concealment of income, or if the case should have been referred to the Inspecting Assistant Commissioner (IAC) as per the provisions of Section 274(2) of the Income-tax Act, 1961, prior to its amendment by the Taxation Laws (Amendment) Act, 1970.For the assessment year 1968-69, the assessee filed a return on April 16, 1970. The ITO completed the assessment on March 27, 1972, and initiated penalty proceedings on the same date, imposing a penalty of Rs. 10,000 for concealment of income. The Appellate Assistant Commissioner (AAC) set aside the ITO's order, stating that the ITO lacked jurisdiction since the minimum penalty exceeded Rs. 1,000, thus requiring the case to be referred to the IAC as per the pre-amendment provisions of Section 274(2).The Tribunal upheld the AAC's decision, asserting that the law governing the imposition of penalty is the one in force on the date the return was filed, and since the amendment was not expressly retrospective, it did not apply to the case. The Tribunal emphasized that the provision specifying the authority for penalty imposition is substantive, not procedural.2. Applicability of the amended provisions of Section 274(2) of the Income-tax Act, 1961:The court had to determine whether the penalty proceedings in this case were governed by the pre-amendment or post-amendment provisions of Section 274(2). The revenue argued that the jurisdiction should be determined by the law in force at the time of initiating the proceedings, while the assessee contended it should be based on the law as of the date of filing the return.The court referred to precedents, including the Madras High Court rulings in CGT v. C. Muthukumaraswamy Mudaliar and Continental Commercial Corporation v. ITO, which supported the assessee's contention. However, the court distinguished these cases, noting that they dealt with the quantum of penalty, not the jurisdiction to initiate penalty proceedings.The court cited the Supreme Court's observation in Jain Brothers v. Union of India, emphasizing that the crucial date for penalty purposes is the completion of assessment. The court concluded that the competence of the ITO to initiate penalty proceedings is governed by the law in force at the time of initiation, not the date of filing the return.The court also referred to rulings from the Gujarat High Court in CIT v. Balabhai & Co. and the Punjab High Court in CIT v. Raman Industries, which supported the view that the jurisdiction of the ITO/IAC is determined by the law in force at the time of initiating the proceedings.Conclusion:The court held that the Tribunal erred in concluding that the ITO lacked jurisdiction to levy the penalty. Since the amendment to Section 274(2) was in force before the initiation of the penalty proceedings and the amount of income concealed did not exceed Rs. 25,000, the ITO was competent to impose the penalty.Result:The question was answered in the negative, against the assessee and in favor of the department. The court directed a copy of the judgment to be forwarded to the Tribunal as required by law.