P.M. Kunhimuhammed and Bros. vs Commissioner of Income Tax

Balakrishna Eradi, C.J.—The Income Tax Appellate Tribunal, Cochin Bench, has referred to this court, u/s 256(1) of the I.T. Act, 1961 (for short "the Act"), the following question of law :

"Whether the Inspecting Assistant Commissioner had jurisdiction to impose the penalty in question u/s 271(1)(c) after the amendment by the Taxation Laws (Amendment) Act, 1975, vesting the power to impose the penalty on the assessing authority with effect from April 1, 1976 ?''''

The assessee is a firm having business in purchase and sale of vegetables. The relevant assessment year is 1972-73. While making the assessment, the ITO found that there were several remittances made by the assessee for purchases of vegetables, but those purchases were not reflected in the assessee''s books of account. Based thereon, he made an addition of Rs. 79,801 as business income and a further addition of Rs. 50,000 under other sources. On appeal by the assessee to the AAC, the additions under the two heads were reduced to Rs. 35,801 and Rs. 40,000, respectively. The assessee, thereafter, took up the matter in second appeal before the Tribunal and ultimately the Tribunal held that the addition of Rs. 35,801 as business income was correct and fair but the addition under other sources should be reduced to Rs. 14,000.

Penalty proceedings were initiated by the ITO on March 29, 1975, that being the date on which he finalised the assessment. Under the provisions of Section 274(2) of the Act as it then stood, the ITO referred the matter to the IAC who after hearing the assessee passed an order on December 4, 1976, imposing a penalty of Rs. 76,000. The assessee took the matter in appeal before the Tribunal and one of the principal contentions urged was that in view of the amendment effected to Section 274(2) by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, the IAC had no jurisdiction to impose the penalty in the instant case and it was only the assessing authority who was competent to exercise the powers u/s 271(1)(c) of the Act. The Tribunal rejected this contention holding that the competence of the authority to exercise the power u/s 271(1)(c) is to be determined with reference to the law in force on the date on which the assessee filed his return. It is the correctness of this view taken by the Tribunal that is called in question by the assessee, at whose instance, this reference has been made.

More or less the same question has been considered in detail by this court in the judgment recently delivered in ITR No. 42 of 1976 Commissioner of Income Tax Vs. Varkey Chacko, , wherein after a review of the case law on the subject, this court has held that the competence of the authority to exercise the power u/s 271(1)(c) is to be determined with reference to the law in force on the date of initiation of the penalty proceedings. The Tribunal was not, therefore, right in its view that the date of filing of the return is the material date with reference to which the law relating to the matter has to be gathered. The said error committed by the Tribunal has not, however, affected the conclusion reached by the Tribunal in the present case, because on the date of initiation of the penalty proceedings, it was the IAC of Income Tax who was the authority competent u/s 274(2) of the Act as it then stood to exercise the power u/s 271(1)(c) in relation to the assessee in this case. We, accordingly, answer the question referred in the affirmative, that is, against the assessee and in favour of the Department. The parties will bear their respective costs.