Bhoomareddy Bros. vs Commissioner of Income Tax

K. Jagannatha Shetty, J.—These are references u/s 256(1) of the income tax Act, 1961 (''the Act'') on the following question of law:

Whether, on the facts and in the circumstances of the case, the Appellate Assistant Commissioner had the power to enhance the penalty levied by the income tax Officer under sections 271(1)(a) and 273(b) of the income tax Act, 1961 for the assessment years 1959-60 to 1961-62 ?

The assessee was an AOP. For the assessment years 1959-60 to 1961-62, the ITO levied penalty under sections 271(1)(a) and 273(b) of the Act. In appeals against that order of the ITO, the AAC as well as the Tribunal, it was held that the provisions of the Act were not applicable to the assessment years in question and the penalty levied was unauthorised. It was accordingly, set aside. On a reference to this Court in IT Reference Case Nos. 32 to 37 of 1968, the High Court held that penalty could be validly levied for the assessment years in question u/s 271(1)(a) and u/s 273(b).

Thereupon, the Tribunal took up the matter for final disposal. The assessee''s representative then pointed out that the AAC did not examine the merits of the matter before him and, therefore, the matter may be remitted back to him to decide the case on merits. That request was opposed by the departmental representative. The Tribunal, however, remitted the matter to the AAC observing thus:

It appears to us that the Appellate Assistant Commissioner took up this legal issue on his own, as he had every right to do, and decided the matter in favour of the assessee. But, now that issue has been decided against the assessee, it will result in injustice, it the merits of the assessee''s claim are not considered at all. We, accordingly, set aside the order of the Appellate Assistant Commissioner in all these six appeals and direct that the Appellate Assistant Commissioner should decide the appeals afresh according to law, after giving the assessee and the income tax Officer an opportunity of being heard.

Pursuant to the order of the Tribunal, the AAC took up the appeals for disposal. In the course of the proceedings, he found on verification that the quantum of penalty imposed u/s 271(1)(a) was less than the minimum prescribed under the Act. He, thereupon, issued a notice to the assessee why that penalty should not be enhanced up to the prescribed limit. The assessee raised several contentions in resisting the proposed action. The AAC, after considering the objections upheld the levy of penalty but enhanced it to the statutory minimum.

Against the said order of the AAC, the assessee preferred appeals to the Tribunal. Before the Tribunal, it was urged that the AAC has no jurisdiction to enhance the penalty after the decision of this Court in income tax Reference Case Nos. 32 to 37 of 1968. It was also urged that on the merit of the matters, the ITO ought not to have levied the penalty since the assessee had not disregarded the obligations under the law. On both the contentions, the Tribunal found no substance. The Tribunal found that the ITO failed to work out the correct quantum of minimum penalty as prescribed under sections 271(1)(a) and 273(b) and the decision of this Court in the earlier income tax Reference Case Nos. 32 to 37 of 1968 was no bar for the AAC to enhance penalty to bring it in conformity with the statutory provisions. On the merits of the matter, the Tribunal held that the assessee had consciously disregarded the obligations under the law and, therefore, penalty levied was justified.

The Question referred to this Court relates to the power of the AAC to enhance the penalty levied by the ITO under sections 271(1)(a) and 273(b). There cannot be any dispute as to that power of the AAC to enhance the penalty levied. That power has been conferred on him u/s 251(1)(b) of the Act. All that is required to be followed is that, the AAC shall afford a reasonable opportunity to show cause against such enhancement. In the instant case, it is not in dispute that such an opportunity has been afforded to the assessee.

Mr. Katageri, however, urged that the question is comprehensive enough for this Court to go into the justification for the AAC to enhance the penalty in view of the earlier decision of this Court in income tax Reference Case Nos. 32 to 37 of 1968. Even if we agree with this submission, we do not think that we could help the assessee. The power to enhance the penalty conferred on the AAC u/s 251(1)(b) has nothing to do with the view taken by this Court in income tax Reference Case Nos. 32 to 37 of 1968. The decision of this Court was only to the effect that the ITO has power under the provisions of the Act to levy penalty for the years in question. this Court did not go into the question as to the quantum of penalty leviable. this Court never observed that the quantum levied by the ITO was correct.

When the matter went back to the AAC, the validity of the penalty leviable under sections 271(1)(a) and 273(b) was left open. It is not in dispute and indeed cannot be disputed that the ITO himself has no power to levy penalty less than the minimum prescribed under the aforesaid sections. It is, therefore, not correct to contend that the AAC, in view of the decision of this Court in income tax Reference Case Nos. 32 to 37 of 1968, has no jurisdiction to enhance the penalty to the minimum prescribed.

On the other contentions relating to the cause shown by the assessee, the Tribunal has observed that there was no reasonable cause shown by the assessee for not furnishing the required returns and for non-payment of the advance tax within the prescribed time. The Tribunal after considering the material on record has recorded a finding that the assessee consciously disregarded the obligations under the Act. On the facts and in the circumstances of the case, we see no reason to disagree with that finding. In the result, the question is answered in the affirmative and against the assessee. In the circumstances of the case, we make no order as to costs.