The provisions of Sub-section (2) of Section 274 of the Act relate to a question of jurisdiction rather than procedure, and the moment penalty proceedings are initiated by the ITO, the question of jurisdiction immediately arises.

M.R.Sharma, J.

1. For the assessment year 1971-72, the case of the assessee was taken up on January 28, 1974. It was found by the ITO that the assessee had prima facie concealed an income of Rs. 40,000. On August 6, 1974, the ITO referred the case to the IAC, Ludhiana Range, Ludhiana, on the ground that he only had the jurisdiction to impose a penalty as the income concealed exceeded Rs. 25,000. The IAC accepted the reference and vide his order, dated April 29, 1977, imposed a penalty of Rs. 20,000 on the assessee. The assessee went up in appeal before the Income-tax Appellate Tribunal, Amritsar Bench, which was dismissed. The assessee claimed a reference on the ground that with effect from April 1, 1976, the ITO had come to be vested with jurisdiction to impose penalty to the extent of unlimited amount and for that reason the order passed by the IAC was without jurisdiction. Its prayer was allowed and the Tribunal has referred the following question of law to us for our decision :

"Whether, on the facts and in the circumstances of the case, the IAC was competent in law to impose the penalty in view of the amended provisions of law, which were effective from April 1, 1976 ?"

2. A similar question came up for consideration before a Division Bench of this court in CIT v. Mela Ram Jagdish Raj & Co. [1981] 132 ITR 897. In that case, it was observed as under (p. 900) :

"Shri Gupta, the learned counsel for the assessee, relies on the decisions of the Orissa High Court in CIT v. Dhadi Sahu [1976] 105 ITR 56 and Radheshyam Agarwalla v. CIT [1978] 113 ITR 196 and also that of the Allahabad High Court in CIT v. Om Sons [1979] 116 ITR 215, in support of the contention that the jurisdiction of the authority to levy penalty is a matter of procedure and since the procedural law is retrospective, the view taken by the Tribunal in this case should hold the field. We are unable to agree with the view taken by the Orissa High Court and the Allahabad High Court in the cases referred to above. In Dhadi Sahus case [1976] 105 ITR 56 (Orissa), it was held that Sub-section (2) of Section 274 is admittedly a provision relating to procedure. This finding, in our considered opinion, has been arrived at on wrong premises. After having recorded the finding that Sub-section (2) of Section 274 of the Act relates to procedure, the learned judges of the Orissa High Court then proceeded to rely on a decision of their Lordships of the Supreme Court in Anant Gopal Sheorey v. State of Bombay, AIR 1958 SC 915, to hold that the procedural laws are retrospective. There is no dispute with this proposition, but the main question to be determined is as to whether the provisions of Sub-section (2) of s, 274 of the Act relate to procedure or to a question of jurisdiction. In our view, the moment penalty proceedings are initiated by the ITO, the question of jurisdiction immediately arises and, in that context, the provisions of Sub- Section (2) of Section 274 cannot be held to be a provision relating to procedure. We are, therefore, unable to agree with the view taken in the authorities relied upon by Shri Gupta, referred to above. We are unable to agree with the contention of Shri Gupta that when a reference is made by the ITO under Section 274(2) of the Act, only then, the penalty proceedings stand initialed. As already observed, reference under Section 274(2) of the Act is only a ministerial act. The moment the ITO passes an order for initiating the penalty proceedings, the proceedings stand initiated and at that .point of time the jurisdiction of the authority, who can pass the penalty order, has to he looked into in accordance with the prevailing provisions of law until and unless the amendment so made is with retrospective effect."

3. We are bound to follow this view with respect.

4. The question of law referred to us is, therefore, answered against the assessee and in favour of the Revenue. No order as to costs.