Madhya Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the IAC had no jurisdiction to levy penalties and, hence, his penalty orders were illegal and without jurisdiction when the proceedings to levy penalties under s. 271(1)(c) of the IT Act, 1961, for the asst. yrs. 1966-67 to 1969-70 and 1973-74 to 1975-76, were initiated by the ITO before April 1, 1976, but the references to the IAC under s. 274(2) of the IT Act, 1961, were made by the ITO after April 1, 1976 ?

Counsel Appeared

R.C. Mukati, for the Revenue : K.B. Joshi, for the Assessee

R.K. VERMA, J.:

This reference by the Tribunal, Indore Bench, under s. 256(1) of the IT Act, 1961 (hereinafter referred to as ” the Act “), is made at the instance of the CIT, M.P.-I, Bhopal, whereby the following question of law has been referred for the opinion of this Court:

” Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the IAC had no jurisdiction to levy penalties and, hence, his penalty orders were illegal and without jurisdiction when the proceedings to levy penalties under s. 271(1)(c) of the IT Act, 1961, for the asst. yrs. 1966-67 to 1969-70 and 1973-74 to 1975-76, were initiated by the ITO before April 1, 1976, but the references to the IAC under s. 274(2) of the IT Act, 1961, were made by the ITO after April 1, 1976 ? “

2. The aforesaid reference has arisen in the following circumstances.

3. The non-applicant assessee is a registered firm deriving income from sale of tyres, tubes and other motor parts. The original assessments for the asst. yrs. 1966-67 to 1969-70 were completed prior to October 19, 1974, on which date a search was conducted at the business premises of the assessee-firm from where certain books and other documents were seized by the IT Department. After the search, proceedings under s. 147(a) of the Act were initiated for all the assessment years aforesaid and accordingly notices were issued under s. 148 of the Act and the assessee filed revised returns for all the above years. On assessments being made by the ITO, the assessee was held to have concealed incomes in respect of each year of assessment and the ITO, therefore, issued penalty notices and referred the cases to the IAC under s. 274(2) of the Act, since the amount of income as determined by the ITO on assessment in respect of each assessment year exceeded the sum of Rs. 25,000. The aforesaid reference to the IAC under s. 274(2) of the Act was made by the ITO after April 1, 1976, on which date the Taxation Laws (Amendment) Act, 1975, whereby sub-s. (2) of s. 274 of the Act was deleted, became effective. Sub-s. (2) of s. 274 before its deletion on April 1, 1976, read as under ; ” 274. (2) Notwithstanding anything contained iii cl. (iii) of sub-s. (1) of s. 271, if in a case falling under cl. (c) of that sub-section, the amount of income (as determined by the ITO 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 ITO shall refer the case to the IAC who shall, for the purpose, have all the powers conferred under this Chapter for the imposition of penalty.”

4. Consequent on the search and seizure being made by the Department on October 19, 1974, the assessee submitted revised returns in respect of the asst. yrs. 1973-74 to 1975-76. For these years also, the ITO initiated penalty proceedings and referred the cases to the IAC after April 1, 1976, for levy of penalty.

5. The IAC imposed penalties under s. 271(1)(c) of the Act by his orders dated March 28, 1978, in respect of all the cases of the assessee pertaining to the asst. yrs. 1966-67 to 1969-70 and 197374 to 1975-76.

6. Against the orders of the IAC imposing penalties for the various years, the assessee filed appeals before the Tribunal raising, inter alia, a legal contention that the reference by the ITO to the IAC under s. 274(2) of the Act after April 1, 1976, did not clothe the IAC with jurisdiction to impose penalty since the relevant sub-s. (2) of s. 274 had already become non- existent on April 1, 1976, having been omitted by virtue of the Taxation Laws (Amendment) Act, 1975.

7. The learned Tribunal allowed the appeals of the assessee and held that the IAC had no jurisdiction to levy penalties by reason of the fact that s. 274(2) of the Act was omitted by the amendment w.e.f. April 1, 1976. The learned Tribunal, therefore, cancelled the penalties imposed in the abovementioned cases of the assessee for all the seven assessment years.

8. The Department had contended before the Tribunal that since the assessments for the relevant years were completed by the ITO and he had initiated penalty proceedings before April 1, 1976, the provisions of sub-s. (2) of s. 274 of the Act were applicable to these cases and hence the IAC was quite competent to impose penalties in these cases.

9. On an application for reference under s. 256(1) of the Act made by the CIT, the learned Tribunal has referred a question of law as stated hereinabove for the opinion of this Court.

10. Learned counsel for the assessee has cited two decisions of this Court in support of his submission that the IAC had no jurisdiction to levy penalties and hence his penalty orders were illegal and without jurisdiction when the proceedings to levy penalties under s. 271(1)(c) of the Act for the asst. yrs. 1966- 67 to 1969-70 and 1973-74 to 1975-76 were initiated by the ITO before April 1, 1976, but the references to the IAC under s. 274(2) of the Act were made by the ITO after April 1, 1976.

11. The first decision relied upon by learned counsel for the assessee is CIT vs. A. N. Tiwari (1980) 15 CTR (MP) 142 : (1980) 124 ITR 680 (MP), wherein it has been observed thus (headnote) : ” Further, the words the ITO shall refer the case to the IAC who shall, for the purpose, have all the powers conferred under this Chapter for the imposition of penalty’ as they occur in s. 274(2) clearly signify that the jurisdiction of the IAC for the purpose of imposing the penalty is derived on a reference made to him by the ITO. Therefore, what is important is to see whether the reference was validly made to the IAC under s. 274(2).”

12. In the instant case, when the reference was made by the ITO to the IAC for the purposes of imposing penalty under s. 274(2) after April 1, 1976, the provision contained in sub-s. (2) of s. 274 had already been deleted by the Taxation Laws (Amendment) Act, 1975, and, therefore, the reference made to the IAC was not valid and as such it did not clothe the IAC with jurisdiction to impose penalty.

13. The other case cited by learned counsel for the assessee is Bankatlal Tody vs. CWT (1983) 35 CTR (MP) 245 : (1982) 138 ITR 754 (MP) (MCC No. 155 of 1979 decided on March 12, 1982) in which the effect of amendment of an analogous provision of s. 18(3) of the WT Act by the Taxation Laws (Amendment) Act, 1975, has been considered. In that case, the reference was made by the WTO on January 29, 1977, when the provisions of s. 18(3) of the Act requiring the WTO to refer the case to the IAC were substituted by the Taxation Laws (Amendment) Act, 1975. It was held that the Inspecting Asstt. CWT had no jurisdiction to impose penalty under s. 18(1)(c) of the WT Act after the amendment of s. 18(3) w.e.f. April 1, 1976, by the Taxation Laws (Amendment) Act, 1975.

14. Relying on the two decisions cited by learned counsel for the assessee as aforesaid, we hold that the IAC had no jurisdiction to levy penalties and hence his penalty orders were illegal and without jurisdiction when the proceedings to levy penalties under s. 271(1)(c) of the Act for the relevant assessment years wereinitiated by the ITO before April 1, 1976, but the reference to the IAC under s. 274(2) of the Act was made by the ITO after April 1, 1976.

15. Accordingly our answer to the question of law under reference is in the affirmative and against the Department. Reference answered accordingly.

16. The parties shall bear their own costs of this reference.

[Citation : 172 ITR 600]