High Court: IAC lacked jurisdiction to impose penalty due to amendment in Income Tax Act

The High Court held that the Inspecting Assistant Commissioner (IAC) did not have jurisdiction to impose a penalty for the assessment year 1969-70 due to an amendment in section 274(2) of the Income Tax Act, which required cases with concealment exceeding Rs. 25,000 to be referred to the IAC. The Court emphasized that the IAC must not only have jurisdiction initially but also be empowered to decide the matter when the final order is passed. As the IAC's jurisdiction to pass the final order was taken away by the amendment, the penalty imposed by the IAC was deemed to be without jurisdiction. The Court ruled in favor of the assessee, awarding costs of Rs. 200.

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Issues involved: Jurisdiction of the Inspecting Assistant Commissioner of Income-tax to pass order of penalty for the assessment year 1969-70.

Summary:
The case involved the question of whether the Inspecting Assistant Commissioner (IAC) had jurisdiction to impose a penalty for the assessment year 1969-70. The assessee, engaged in retail business in woollen goods, filed a return showing a loss of Rs. 28,170, but the assessment was computed on a total income of Rs. 27,860. The Income Tax Officer (ITO) initiated penalty proceedings under section 271(1)(c) and referred the matter to the IAC under section 274 of the Income Tax Act. The IAC imposed a penalty of Rs. 15,000, which was challenged by the assessee before the Tribunal. The Tribunal held that the IAC did not have jurisdiction to impose the penalty due to an amendment in section 274(2) of the Act, which required cases with concealment exceeding Rs. 25,000 to be referred to the IAC.

The High Court discussed the divergent opinions of various High Courts on the interpretation of the amendment to section 274(2). While some courts held that the amendment did not affect the IAC's jurisdiction if a valid reference had been made, others held that the amendment took away the IAC's jurisdiction in cases where the amount involved was less than Rs. 25,000. The High Court emphasized the principle that a court or Tribunal deciding a matter must not only have jurisdiction initially but also be empowered to decide the matter when the final order is passed.

Referring to previous cases and Full Bench decisions, the High Court concluded that as the IAC's jurisdiction to pass the final order had been taken away by the amendment in section 274(2) at the time of the decision, the order passed by the IAC imposing the penalty was without jurisdiction. The Court answered the question in favor of the assessee, holding that the IAC had no jurisdiction to pass the penalty order. The assessee was awarded costs amounting to Rs. 200.

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