The jurisdiction of the Inspecting Assistant Commissioner to impose a penalty under Section 271(1)(c) of the Income-tax Act, 1961, arises from a valid reference made by the Income-tax Officer under Section 274(2), and the date of reference determines who has jurisdiction to impose the penalty.

Headnote:
INCOME TAX - PENALTY - JURISDICTION - INSPECTING ASSISTANT COMMISSIONER - REFERENCE BY INCOME TAX OFFICER - VALIDITY - AMENDMENT OF SECTION 274(2) OF THE INCOME TAX ACT, 1961 - EFFECT - CONCEALMENT OF INCOME - QUANTUM - RELEVANT DATE - INTERPRETATION OF STATUTORY PROVISIONS.
Fact of the Case:

The assessee, a lady, filed her return of income for the assessment year 1968-69 on November 6, 1968, without disclosing taxable capital gains on the sale of part of her house property at Ghaziabad. The Income-tax Officer initiated penalty proceedings under Section 271(1)(c) of the Income-tax Act, 1961 (the Act) on December 7, 1970, for concealment of income. The assessment was completed on December 8, 1970. On January 29, 1973, the Income-tax Officer issued a notice to the assessee to appear before him on February 8, 1973, in connection with the penalty proceedings. On the same date, the Income-tax Officer made a reference to the Inspecting Assistant Commissioner for disposal of the case. The Inspecting Assistant Commissioner issued a notice to the assessee on February 15, 1973, requiring her to appear before him on February 24, 1973. After hearing the assessee, the Inspecting Assistant Commissioner imposed a penalty of Rs. 5,000 for concealment of income on March 24, 1973.
Finding of the Court:

The Tribunal held that the Inspecting Assistant Commissioner had no jurisdiction to impose any penalty under the amended Section 274(2) of the Act, as the reference of the penalty proceedings was made by the Income-tax Officer on February 8, 1973, after the amended provisions came into force with effect from April 1, 1971.
Issues: Whether the Inspecting Assistant Commissioner had jurisdiction to impose the penalty under Section 271(1)(c) of the Act, considering the amendment of Section 274(2) and the relevant dates of various actions taken during the assessment and penalty proceedings.
Ratio Decidendi: 1. The jurisdiction of the Inspecting Assistant Commissioner to impose a penalty under Section 271(1)(c) of the Act arises from a valid reference made by the Income-tax Officer under Section 274(2). 2. The reference is a condition precedent for the exercise of jurisdiction by the Inspecting Assistant Commissioner, and the date of reference determines who has jurisdiction to impose the penalty. 3. The amendment of Section 274(2) with effect from April 1, 1971, changed the threshold limit for the Inspecting Assistant Commissioner's jurisdiction from Rs. 1,000 to Rs. 25,000. 4. In the present case, the reference was made by the Income-tax Officer on February 8, 1973, after the amendment came into force, and the concealed income was less than Rs. 25,000. 5. Therefore, the Income-tax Officer had jurisdiction to impose the penalty, and the reference to the Inspecting Assistant Commissioner was invalid.
Final Decision: The Court answered the question in the reference against the Department and in favor of the assessee, holding that the Inspecting Assistant Commissioner had no jurisdiction to impose the penalty.

S. S. CHADHA, J.

( 1 ) THIS reference under Section 256 (1) of the Income-tax Act, 1961 (hereinafter called the Act) at the instance of the Department poses the following question of law for our opinion :

"whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Inspecting Assistant Commissioner had no jurisdiction to levy the penalty under Section 271 (1) (c) and thereby concelling the penalty of Rs. 5,000 ?"

( 2 ) THE facts mentioned in the statement of case lie in a very narrow compass and are these. The assessment year under reference is 1968-69 and the accounting period ended on March 31, 1968. The assessee is a lady deriving income from property, share income from the firm of M/s. Om Parkash Jitender Kumar and Company, dividends etc. In the return of income for the year under reference, the assessee did not disclose any capital gains in respect of her one-half portion in the Ghaziabad property sold for Rs. 15,000 during the relevant previous year. Her explanation was that the house in question was actually gifted to her by her mother and, therefore, its value as on January 1,. 1954 be estimated at Rs. 85,000. The Income-tax Officer rejected the theory of gift and worked out the capital gains at Rs. 13,500. After allowing statutory deductions, he brought to tax a capital gain of Rs. 4,675. The assessment was completed on a total income of Rs. 38,170 as against declared income of Rs. 30,624.

( 3 ) THE Income-tax Officer also initiated penalty proceedings by a notice under Section 271 (1) (c) of the Act, dated December 7, 1970 because in the return filed by the assessee on November 6, 1968, she did not disclose taxable capital gains on sale of part house property at Ghaziabad. The assessment was made by the Income-tax Officer vide order dated December 8, 1970. For the first time, a letter dated January 29, 1973 was issued by the Income-tax Officer to the assessee requiring her to appear before him on February 8, 1973. On the same date i. e. February 8, 1973 the necessary reference was made by the Income-tax Officer to the Inspecting Assistance Commissioner for disposal of the case. The Inspecting Assistant Commissioner issued a notice dated February 15, 1973 requiring the assesses to appear before him on February 24, 1973. After hearing the assessee ,the Inspecting Assistant Commissioner passed the penalty order on March 24, 1973. The Inspecting Assistant Commissioner imposed a penalty of Rs. 5,000 for concealment of income.

( 4 ) THE assessee went in appeal to the Income-tax Appellate Tribunal (for short called the Tribunal ). The Tribunal took the view that the Inspecting Assistant Commissioner had no jurisdiction to impose any penalty under the amended Section 274 (2) of the Act. The Tribunal observed that Section 274 was amended by the Taxation Laws (Amendment) Act, 1970 with effect from April 1, 1971. Under the amended Section 274 (2) the Inspecting Assistant Commissioner could impose penalty only in a case where the amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars had been concealed or inaccurate particulars had been furnished, exceeds Rs. 25,000. On facts it was common ground before the Tribunal that in the instant case the alleged concealed income was Rs. 4,675. The Tribunal held that since the reference of the penalty proceedings was made by the Income-tax Officer to the Inspecting Assistant Commissioner on February 8, 1973, after the amended provisions of Section 274 (2) came into force with effect from April 1. 1971, the amended law applied under which the Inspecting Assistant Commissioner had no jurisdiction in the case. The main argument of the department that the Inspecting Assistant Commissioner assumed jurisdiction the moment penalty proceedings were initiated by the Income-tax Officer was rejected on the ground that the Inspecting Assistant Commissioner assumed jurisdiction only after a reference was m

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1983 Supreme(Del) 324

High Court Of DelhiCOMMISSIONER OF INCOME TAX - AppellantVersusDAROPDI DEVI - RespondentDecided On : 11/18/1983

The jurisdiction of the Inspecting Assistant Commissioner to impose a penalty under Section 271(1)(c) of the Income-tax Act, 1961, arises from a valid reference made by the Income-tax Officer under Section 274(2), and the date of reference determines who has jurisdiction to impose the penalty.

High Court Of Delhi
COMMISSIONER OF INCOME TAX - Appellant
Versus
DAROPDI DEVI - Respondent
Decided On : 11/18/1983