Commissioner of Income Tax, Gajarat-IV vs Balabhai and Co.

P.D. Desai, J.—The question which arises for determination in this reference is covered by the decision of a Division Bench of this court in

Commissioner of Income Tax Vs. Royal Motor Car Co, . In order, however, to dispose of the reference, a few facts will have to be set out and

we proceed to do so.

The assessment year involved is assessment year 1970-71, the relevant previous year being S.Y. 2025. The assessee is a firm which deals in

cloth on wholesale basis. It appears that in the course of proceedings for assessment to Income Tax, for the relevant assessment year, the ITO

found on examination of the accounts of the assessee that it had not disclosed the closing stock. After further examination of the accounts, the ITO

found that the assessee had not accounted for the sale of four bales of cloth. The assessee asked for and was given time to explain the

discrepancy. The assessee thereupon filed a revised return including therein the sale price of four bales which came to Rs. 4,787. The ITO made

the assessment including within the total income the aforesaid amount of Rs. 4,787 and he also simultaneously initiated penalty proceedings. Since,

however, the minimum imposable penalty was more than Rs. 1,000, he referred the case to the IAC under the law then in force for taking further

proceedings. This order was made by the ITO on January, 30, 1971.

The IAC, upon receipt of the record and proceedings, issued a showcause notice to the assessee. The assessee submitted an explanation, but

the IAC rejected the same. A penalty of Rs. 5,000 came to be imposed upon the assessee by an order made in the said proceeding on March 23,

1973.

The assessee, feeling aggrieved by the order of penalty, preferred an appeal before the Tribunal. The impugned order was challenged before the

Tribunal on merits as well as on the ground that the IAC had no power, authority and jurisdiction to impose the penalty. In support of the latter

ground, it was urged that under s. 274 of the I.T. Act, 1961 (hereinafter referred to as ""the Act""), as it stood before the amendment, no order

imposing a penalty could be passed after the expiration of two years from the date of the completion of the proceedings in the course of which the

proceedings for the imposition of penalty had been commenced, and, that since, in the instant case, the order imposing penalty was passed outside

the said time limit, the said order was without jurisdiction. The Tribunal found that s. 274 came to be amended by the Taxation laws (Amend.) Act,

1970 (hereinafter referred to as ""the Amendment Act""), on and with effect from April 1, 1971, that is to say, before the expiration of two years

from the date of the completion of the proceedings in the course of which the proceedings for imposition of penalty had been commenced in the

instant case, and that under the amended provision no order imposing penalty could be passed after the expiration of two years from the end of the

financial year in which the proceedings, in the course of which action for imposition of penalty had been initiated, were completed. This amended

provision, according to the Tribunal, became applicable to the pending proceedings in the facts and circumstances of the present case, and since

the order imposing penalty was passed before the expiration of two years from the end of the financial year 1970-71, it could not be said that the

said order was without power, authority or jurisdiction. The Tribunal, however, proceeded to hold that by the Amend. Act, the IAC got

jurisdiction to impose penalty in cases only where the amount of income (as determined by the ITO on assessment) in respect of which the

particulars had been concealed or inaccurate particulars had been furnished exceeded a sum of Rs. 25,000, and in the light of the said amendment

read along with s. 271(1)(iii) as it then stood, he could impose penalty only in cases where the minimum imposable penalty amounted to Rs.

25,000. The IAC had, therefore, no jurisdiction in the present case to impose a penalty of Rs. 5,000. In view of these findings, the Tribunal set

aside the order imposing penalty.

At the instance of the revenue, the Tribunal has referred the following question of law for the opinion of this court :

Whether the inspecting Assistant Commissioner was not competent to impose a penalty of Rs. 5,000 u/s 274(2) of the Income Tax Act, 1961, as

it stood after its amendment by the Taxation Laws (Amendment) Act, 1970 ?

In Commissioner of Income Tax Vs. Royal Motor Car Co, , this court had an occasion to consider the effect of the Amend. Act on pending

proceedings before the IAC on and with effect from the date on which the said amendment became operative. This court, in the said decision,

treated the period of two years as a period of limitation and held that it was well-settled law that as regards matters of procedure, the Legislature

can make changes and those changes would apply so far as limitation is concerned to pending proceedings unless a vested right has accrued to any

party by reason of the old period of limitation having expired. In the case before the Division Bench, on the date on which the Amend. Act came

into force, namely, April 1, 1971, even under the old unamended section the time for passing the order of penalty had not expired and it was,

therefore, found that by the aforesaid well-recognised principle of interpretation the period of limitation stood enhanced or enlarged up to March

31, 1972. The Division Bench made the following pertinent observations in this context (p. 756) :

At least so far as the question of limitation is concerned, it is obvious that the old section cannot apply after the Amendment Act since the entire

old section was substituted by the new section and what we are concerned with in the present case is the application of the well-settled rule of law

that limitation is a matter of procedure and unless there is something in the context or by express words the legislature has expressed it, new period

of limitation would always apply to pending proceedings as well. Under these circumstances, at least on one out of the two alternatives, the

position is very clear, namely, that the order of the Inspecting Assistant Commissioner was within limitation.

This decision will entirely govern the present case. In the present case, as in the case before the Division Bench, the period of two years within

which the order of penalty had to be passed, under the unamended provision had not expired on the date on which the Amend. Act came into

force. Penalty proceedings were commenced in the instant case on January 30, 1971. The Amend. Act came into force on April 1, 1971. As a

result of the amendment, the order of penalty could have been passed within two years from the end of the financial year in which the proceedings,

in the course of which action for imposition of penalty had been initiated, were completed. The financial year in which the assessment proceedings

were completed in this case was 1970-71. The Period of two years from the end of the said financial year would end on March 31, 1973. The

order imposing penalty was passed herein on March 23, 1973. It would thus appear, applying the ratio of the Division Bench decision in

Commissioner of Income Tax Vs. Royal Motor Car Co, , that the Tribunal rightly treated the order of penalty as having been passed within the

prescribed time limit.

As regards the second aspect of the matter also the decision in Commissioner of Income Tax Vs. Royal Motor Car Co, covers the ground. It

was observed in the said decision that every litigant had a vested right in the procedural law so far as substance is concerned and that if the

substantive question of jurisdiction is to be affected by a new amendment the legislature must say so either in express terms or by necessary

implication. Reliance was placed upon the decision of the Privy Council in Colonial Sugar Refining Co. Ltd. v. Irving [1905] AC 369, in support of

this proposition. Basing itself on this proposition of law, the Division Bench observed that the IAC whose power and jurisdiction was affected by

the Amend. Act of 1970, neither in express words nor by implication indicated that the jurisdiction of the IAC even in pending matters, that is,

matters which were already referred to him, was to be affected. It would thus appear that in the instant case, the IAC retained jurisdiction to deal

with the penalty proceedings in accordance with the law which was prevalent at the time when the proceedings were initiated and that he,

therefore, had jurisdiction to impose the minimum or maximum penalty which the law prescribed when such proceedings were initiated. That is

exactly what the IAC has done in the present case and it could not, therefore, have been held by the Tribunal that he had no jurisdiction to impose

the penalty of Rs. 5,000 on the assessee after the Amend. Act came into force.

In the result, we are of the opinion that the Tribunal erred in law in holding that the IAC was not competent to impose the penalty of Rs. 5,000

under s. 274(2) of the Act, as it stood amended after the Amend. Act, on the assessee. The question referred to us will, therefore, stand answered

in the negative, that is to say, in favour of the revenue and against the assessee. The assessee will pay the costs of this reference to the

Commissioner.