Kerala H.C : Whether, on the facts and in the circumstances of the case, the order of imposition of penalty by the IAC was invalid and without jurisdiction?

High Court Of Kerala (Full Bench)

CIT vs. M.A. Unneerikutty

Sections 256, 271(1)(c), 274(2)

Asst. Year 1972-73

Arijit Pasayat, C.J.; Mrs. K.K. Usha & K.S. Radhakrishnan, JJ.

IT Ref. No. 24 of 1995

18th December, 1999

Counsel Appeared

P.K.R. Menon & N.R.K. Nair, for the Applicant : P.G.K. Wariyar, for the Respondent

JUDGMENT

ARIJIT PASAYAT, C.J. :

Pursuant to directions given in O.P. No. 6144 of 1991, following question has been referred for opinion of this Court by Tribunal, Cochin Bench under s. 256(2) of IT Act, 1961 (in short “the Act”) :

“Whether, on the facts and in the circumstances of the case, the order of imposition of penalty by the IAC was invalid and without jurisdiction?”

2. Factual position, so far as undisputed, is as follows : Assessee is an individual deriving income mainly from business in purchase and sale of ‘copra’. Assessment for 1972-73 was completed on 23rd Aug., 1975, determining total income of assessee at Rs. 6,97,330. Addition on account of income from undisclosed sources was made, which, according to AO, represented unaccounted purchases of copra. The AO initiated proceeding under s. 271(1)(c) of the Act. As the minimum penalty leviable exceeded Rs. 25,000. AO referred the case to Inspecting Assistant Commissioner of Income-tax (in short IAC) for disposal. IAC, by order dt. 27th July, 1979, imposed penalty of Rs. 3,25,845. Assessee took the stand in appeal before Tribunal that order of penalty passed by IAC on 26th July, 1979 was bad in law. In essence, stand was that order having been passed after the amendment made in the Act relating to jurisdiction w.e.f. 1st April, 1976, IAC did not have jurisdiction to pass the order. Tribunal noticed that penalty was leviable in respect of following amounts : Rs. “1. Income from property in the name of wife 6,351 Unexplained credits in the name of 5 persons 1,66,456 Unexplained advance to M/s Kalpaka Tourist Home (P) Ltd. 9,780 Investment in unaccounted purchase of copra 1,43,258 3,25,845” It was concluded by Tribunal that property did not belong to assessee, but it belonged to his wife and, therefore, there could be no concealment in respect of Item No. 1. So far as the credit in the names of five persons is concerned, it noticed that only a sum of Rs. 1,00,000 out of Rs. 1,66,456 was ultimately added and, therefore, there was concealment in respect of only Rs. 1,00,000. Considering third item, it was held that as the amount was in the nature of an advance, it did not represent any cash credit and hence penalty was not imposable. Referring to fourth item, Tribunal rejected the explanation of assessee and held that penalty was imposable. After upholding the penalty in respect of some of the additions and deleting the penalty in respect of some others, Tribunal held that IAC did not have jurisdiction to impose penalty. For this purpose, reliance was placed on a Full Bench decision of this Court in CIT vs. P.I. Issac (1988) 67 CTR (Ker)(FB) 200 : (1987) 168 ITR 793 (Ker)(FB) : TC 49R.1167. Revenue sought for a reference and as stated above, question has been referred for the opinion of this Court.

3. When the matter was taken up for hearing by Division Bench, it was submitted by Revenue that in view of the decisions of apex Court in CIT vs. Dhadi Sahu (1992) 108 CTR (SC) 444 : (1993) 199 ITR 610 (SC) : TC 49R.1103 and Varkey Chacko vs. CIT (1993) 114 CTR (SC) 207 : (1993) 203 ITR 885 (SC) : TC 49R.1132, decision in Issac’s case (supra) was not correct. Reference was made by assessee to a decision of this Court in CIT vs. Late S.M. Syed Mohamed (1995) 128 CTR (Ker)(FB) 172 : (1995) 216 ITR 331 (Ker)(FB) : TC 49R.1109 contend that Revenue should establish that reference was in fact made on the date claimed to have been made, and whether there was a valid reference. Division Bench felt that though decision in Issac’s case (supra) was not good law, yet in view of Syed Mohammed’s case (supra), an important question of law arises for decision, which has to be dealt with by a larger Bench. It is true that no litigant has any vested right in the matter of procedural law but, where the question is of change of forum, it ceases to be a question of procedure only. Forum of appeal or proceedings is a vested right as opposed to pure procedure to be followed before a particular forum. Right becomes vested when proceedings are initiated in the Tribunal or the Court of first instance, and unless the legislature has, by express words or by necessary implication, clearly so indicated, that vested right will continue in spite of change of jurisdiction of different Tribunals or forums. This view was expressed in Ramesh Singh vs. Cinta Devi (1996) 3 SCC 142. Referring to earlier decision in Hoosein Kasam Dada (I) Ltd. vs. State of M.P. 1953 SCR 987, State of Bombay vs. Supreme General Films Exchange Ltd. (1960) 3 SCR 640 and Vitthalbhai Naranbhai Patel vs. CST AIR 1967 SC 344, it was observed that unless the new Act expressly or by necessary implication makes the provisions applicable retrospectively, right to appeal will crystallise in the appellant on the institution of the application in the Tribunal of first instance and that vested right of appeal would not be dislodged by enactment of the new Act.

In P.I. Issac’s case (supra), it was observed that after the amendment to s. 274 by Taxation Laws (Amendment) Act, 1975, by deletion of sub-s. (2) thereof, IAC is divested of jurisdiction of ITO under s. 271(1) of the Act. Prior to deletion, jurisdiction of IAC was only that of ITO. After amendment, that came into force on 1st April, 1976, authorities competent to impose penalty are those mentioned in s. 271(1) of the Act. It was held that change of forum is a matter of procedure and the Amendment Act is retrospective in regard also to matters pending before IAC. Relying on this decision, Tribunal cancelled the penalty.

In CIT vs. Smt. R. Sharadamma (1996) 133 CTR (SC) 136 : (1996) 219 ITR 671 (SC) : TC 49R.1194, apex Court held that once the IAC was seized of the matter, he did not lose seizin thereof on account of deletion of sub-s. (2) of s. 274 by Taxation Laws (Amendment) Act, 1975 w.e.f. 1st April, 1976, and the IAC did not lose the jurisdiction to continue with proceedings pending before him on 31st March, 1976. He was entitled to continue with those proceedings and pass appropriate orders according to law. Full Bench of this Court in P.I. Issac’s case (supra) mainly followed the reasoning of the Division Bench of Orissa High Court in CIT vs. Dhadi Sahu (1976) 105 ITR 56 (Ori) : TC 49R.1109 in support of their conclusion in preference to the view of Division Bench of this Court in the case of CIT vs. Varkey Chacko (1981) 21 CTR (Ker) 334 : (1982) 136 ITR 733 (Ker) : TC 49R.1136. On appeal, decision of Orissa High Court was reversed by apex Court in the case reported in (1992) 108 CTR (SC) 444 : (1993) 199 ITR 610 (SC) : TC 49R.1103 (supra) and in view of that, decision in Varkey Chacko’s case (supra) was confirmed. Inevitable conclusion, therefore, is that Tribunal was not justified in cancelling penalty. Residual question is whether Syed Mohamed’s case (supra) had application to the facts of the case. In that case, primary question was whether Full Bench decision in Issac’s case (supra) was impliedly overruled by apex Court decision in Dhadi Sahu’s case (supra). By majority, Full Bench declined to answer the question on the ground that validity of reference was not an issue in the earlier Full Bench decision. But majority took the stand that if reference was valid, then initiation was also valid. One of the learned Judges of the Division Bench, which made the reference, was of the view that Tribunal has proceeded on the basis that though reference was made in year 1975, still IAC has no jurisdiction. Therefore, there is no question of holding that IAC has no jurisdiction to pass the penalty order; but agreed to the reference to the larger Bench.

Learned counsel for Revenue submitted that there was no dispute, whatsoever, at any stage to the position that the references were made by IAC before 31st March, 1976. On the contrary, all the forums proceeded on the basis that same was the accepted position. Learned counsel for assessee, on the other hand, submitted that assessee did not have the benefit of knowing the view of Full Bench before judgment was actually pronounced. But nevertheless there was indirect reference to that factual question.

9. In the factual background, we do not think it necessary to consider correctness of the view in Syed Mohamed’s case (supra). A bare perusal of the orders passed by various authorities, including the Tribunal, makes it clear that parties proceeded on the accepted position that reference was made to IAC prior to 31st March, 1976. In fact, Tribunal’s conclusion, in para 6 reads as follows : “6. The Hon’ble High Court of Kerala in the case of CIT vs. P.I. Issac & Ors. (1988) 67 CTR (Ker) (FB) 200 : (1987) 168 ITR 793 (Ker)(FB) : TC 49R.1165, delivered a Full Bench judgment on 26th Aug., 1987 on the identical issue which is faced in the present appeal before us. In that case also the matter was referred to the IAC in 1975 and it was IAC who had jurisdiction to levy the penalty. The order of imposition of penalty was passed after 1st April, 1976. The question that their Lordships of the Hon’ble High Court considered was whether in these circumstances could it be said that the IAC who had initiated the penalty proceedings prior to the amendment of law which was effective from 1st April, 1976, could be said to have jurisdiction for levy of penalty even after 1st April, 1976. Their Lordships were of the view that by virtue of the amendment made to s. 271(1) (c) w.e.f. 1st April, 1976, the jurisdiction to levy penalty by an IAC had been divested of and once it is divested, we could not have passed the order at all and in case he passes such an order, that order would be an illegal order, and invalid in the eye of law. Accordingly they quashed the order of imposition of penalty as null and void. Respectfully following their Lordships view as above, we quash the penalty proceedings on the legal ground.” This shows the accepted position before Tribunal being that IAC had initiated proceedings prior to the amendment of law, which was prior to 1st April, 1976. Significant portion in the quoted portion of judgment is “in that case also the matter was referred to IAC in 1975 and it was IAC who had jurisdiction to levy the penalty”. We have underlined (italicised in print) the sentence for the purpose of emphasis. Furthermore, assessee’s contention has been taken note of by Tribunal in para 3, which reads thus :

“3. . . . . . . . . ..The assessee submitted that even on legal grounds, the order of penalty passed by the IAC on 26th July, 1979 was bad in law and has to be quashed as the order came to be passed much after the amendment made on 1st April, 1976. It was pleaded that even if initiation was earlier to 1st April, 1976, the IAC had no jurisdiction to pass the penalty order after 1st April, 1976.” Underlined (italicised) portion clearly shows that assessee had taken the stand that even after initiation prior to 1st April, 1976, IAC had no jurisdiction to pass the penalty order. That being the factual position, assessee cannot now turn round and say that the penalty proceedings were not initiated by IAC before 31st March, 1976. On facts, therefore, such a plea is not available to be taken. It may be pointed out that the question raised does not arise out of the order of Tribunal, and, in fact, no reference has been made to this Court in relation to that question. It is impermissible to deal with a question under s. 256 of the Act, if it does not arise out of the order of Tribunal. Out of the catena of decisions, only one, which is considered to be the leading one [CIT vs. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC) : TC 54R.114] needs reference on this aspect. The determinative tests as to when a question is said to arise out of the order of the Tribunal are :

(1) when a question is raised before the Tribunal and is dealt with it, it is clearly one arising out of its order;

(2) when a question of law is raised before the Tribunal, but it fails to deal with it, it must be deemed to have been dealt with it, and is, therefore, one arising out of its order;

(3) when a question is not raised before the Tribunal, but it deals with it, that will also be a question arising out of its order;

(4) when a question is neither raised before the Tribunal, nor considered by it, it will not be a question arising out of its order, notwithstanding that it may arise on the finding given by it. Case at hand falls into the fourth category of enumeration as done above.

Question referred to is answered in the negative, in favour of Revenue and against assessee.

[Citation : 243 ITR 294]

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