Rajasthan 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 the impugned penalty on the assessee under s. 271 (1)(c) of the IT Act, 1961 ?

Counsel Appeared

B.R. Arora, for the Revenue

BY THE COURT :

This reference under s. 256(1) of the IT Act, 1961, at the instance of the Revenue was to answer the following question of law, namely:

” 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 the impugned penalty on the assessee under s. 271 (1)(c) of the IT Act, 1961 ? “

2. The relevant assessment year is 1972-73. The assessee filed a return declaring an income of Rs. 29,390. The ITO held that a sum of Rs. 40,550 was the assessee’s income from undisclosed sources. Accordinly, this amount was added to the total income of, the assessee and the assessment completed on a total income of Rs. 80,020. The ITO also initiated penalty proceedings under s. 271 (1)(c) of the Act on January 24, 1975, and referred the matter to the IAC on February 5, 1976, since the question of penalty was not within the ITO’s jurisdiction according to the law as it existed then. This reference made by the ITO for imposition of penalty was pending with the IAC when sub-s. (2) of s. 274 of the Act was deleted w.e.f. April 1, 1976, by the Taxation Laws (Amendment) Act, 1975. The IAC proceeded to decide the pending reference and imposed a penalty of Rs. 40,550 under s. 271(1)(c) of the Act by order dated March 22, 1977. The assessee preferred an appeal to the Tribunal which has been allowed. The Tribunal has held that the IAC had no jurisdiction to impose penalty on the date of the order passed by the IAC since sub-s. (2) of s. 274 had been deleted as aforesaid w.e.f. April 1, 1976. Aggrieved by the view taken by the Tribunal, this reference has been made at the instance of the Revenue.

It has been held in a number of decisions by now, following the decision in CIT vs. Shri Ram Prakash Saraf (1986) 51 CTR (MP) 236 : (1986) 160 ITR 860 (MP), that the question of jurisdiction of the IAC in such matters has to be decided on the basis of the date of reference made by the ITO to the Inspecting Assistant-Commissioner and not the date on which the ITO had initiated the penalty proceedings. It has been held that the date of making the reference to the IAC by the ITO and not the date of initiation of penalty proceedings is the determining factor in such a situation. In short, all such references made by the ITO to the IAC and pending before the IAC prior to April 1, 1976, when sub-s. (2) of s. 274 of the Act was deleted are saved and the IAC had the jurisdiction to decide the same on merits but not those references which were made by the ITO to the IAC after April 1, 1976. [See D. B. IT Ref. No. 34 of 1980, decided on August 7, 1987—CIT vs. Sri Niwas Rice and Oil Industries (1988) 68 CTR (Raj) 60 : (1988) 169 ITR 253 (Raj)]. In the present case, the ITO, after initiating the penalty proceedings, had referred the matter to the IAC on February 5, 1976, and, therefore, the reference was pending before the IAC prior to the deletion of sub-s. (2) of s. 274 of the Act w.e.f. April 1, 1976. Accordingly, the IAC had jurisdiction to levy penalty on the assessee in this pending reference under s. 271(1)(c) of the Act.

Consequently, the reference is answered in favour of the Revenue and against the assessee by holding that the Tribunal was not justified in taking the view that the IAC had no jurisdiction to levy penalty in the present case.

Since the Tribunal did not decide the appeal before it on merits, the matter shall be decided afresh by the Tribunal on merits.

No costs.

[Citation : 171 ITR 165]