1987 (12) TMI 27 - HC - Income Tax

Summary

Issues:
Jurisdiction of Inspecting Assistant Commissioner to levy penalties under section 271(1)(c) of the Income-tax Act, 1961 when reference under section 274(2) was made after April 1, 1976.

Analysis:
The High Court of Madhya Pradesh addressed the issue of jurisdiction of the Inspecting Assistant Commissioner to levy penalties under section 271(1)(c) of the Income-tax Act, 1961 in a case where the reference under section 274(2) was made after April 1, 1976. The case involved an assessee, a registered firm deriving income from the sale of tyres, tubes, and motor parts. The original assessments for the years 1966-67 to 1969-70 were completed before a search was conducted on October 19, 1974, resulting in proceedings under section 147(a) of the Act. The Income-tax Officer initiated penalty proceedings due to concealed incomes, referring the cases to the Inspecting Assistant Commissioner under section 274(2) after April 1, 1976, following the deletion of sub-section (2) of section 274 by the Taxation Laws (Amendment) Act, 1975.

The Inspecting Assistant Commissioner imposed penalties under section 271(1)(c) by orders dated March 28, 1978, for the assessment years in question. The assessee appealed, arguing that the Inspecting Assistant Commissioner lacked jurisdiction to impose penalties post the amendment that deleted section 274(2) on April 1, 1976. The Tribunal ruled in favor of the assessee, canceling the penalties imposed for all assessment years, holding that the Inspecting Assistant Commissioner had no jurisdiction due to the deletion of section 274(2).

The Department contended that since penalty proceedings were initiated before April 1, 1976, the Inspecting Assistant Commissioner had the authority to impose penalties. However, the Court, relying on precedents, including CIT v. A. N. Tiwari and Bankatlal Tody v. CWT, held that the Inspecting Assistant Commissioner lacked jurisdiction to levy penalties post the amendment, as the reference under section 274(2) was made after April 1, 1976. The Court concluded that the penalties imposed were illegal and without jurisdiction, answering the reference question in the affirmative and against the Department.

In light of the above analysis, the High Court of Madhya Pradesh determined that the Inspecting Assistant Commissioner did not have the jurisdiction to levy penalties under section 271(1)(c) of the Income-tax Act, 1961 when the reference under section 274(2) was made after April 1, 1976. The Court relied on legal precedents and the effect of the amendment brought by the Taxation Laws (Amendment) Act, 1975, to reach its decision, ultimately canceling the penalties imposed by the Inspecting Assistant Commissioner for the relevant assessment years.