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TMI Blog1984 (3) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... ome derived from the truck plying to Rs. 24,260. The assessee took this matter further in appeal before the Tribunal. The Tribunal brought down the estimate of income derived from these two trucks to Rs. 11,000 only. The ITO, about whom we have already indicated, had initiated penalty proceedings and passed an order imposing penalty of Rs. 18,460. The order was passed on 31-3-1981. According to the ITO, the assessee had not made any reply to several notices issued by him under section 271(1)(c). Therefore, he held that the assessee had nothing to say in his defence, against the charge that he had concealed a part of his income, which was derived from plying of the aforementioned two trucks. He had detailed in his order several notices which he had caused to be served on the assessee in this respect. Therefore, he found him liable for concealment on the facts and in the circumstances of the case. He derived further support for his finding from Explanation 1 to section 271(1)(c), which formed part of the provision prior to the amendment of the Explanation in 1976. According to this Explanation, an assessee was deemed to have concealed the income if the income returned by him fell sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion did not form part of the section 271(1)(c). The amendment in the year 1976 had deleted that Explanation. Therefore, when the ITO initiated the penalty proceedings, the said Explanation was non-existent. Relying on the decision of the Punjab and Haryana High Court in CIT v. Raman Industries [1980] 121 ITR 405 that all procedural provisions are retrospective in nature, he found that the reliance of the ITO on the aforesaid Explanation was misconceived. Since the ITO had not considered the replies, referred to above, it cannot be said that his finding that the assessee was liable for concealment could be sustained. Accordingly, he cancelled the penalty. 4. The revenue is, therefore, in appeal before us. The revenue has made two pleas to discredit the finding of the Commissioner (Appeals). One of the pleas, advanced by the departmental representative, was based on the Supreme Court's decision in Brij Mohan v. CIT [1979] 120 ITR 1, which laid down that the provision existing on the date of filing of the return shall apply in the case of levying penalty. Therefore, the departmental representative submitted that the finding of the Commissioner (Appeals) was incorrect that the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the letters by the Commissioner (Appeals) which were not considered by the ITO. Although we were inclined to remand the issue back to the Commissioner (Appeals) on the basis of the submissions made by the departmental representative, we have realized only later that the present proceeding relates to imposition of penalty and not to assessment of liability. Section 271(1)(c) enjoins upon that the ITO 'in the course of any proceedings is satisfied that any person has concealed . .' This in effect means that it is the satisfaction of the ITO acquired during the course of proceedings, which is material and which forms the basis for the proceeding to levy a penalty upon the assessee. In other words, it is the satisfaction of the ITO acquired in the proceedings which is insisted upon as the sine quo non for proceeding for the levy of penalty. We cannot, therefore, hold that the satisfaction of the ITO can be substituted by the satisfaction of the Commissioner (Appeals). It is true that the Commissioner (Appeals) can interfere with the exercise of discretion made by the ITO. But that does not entitle him to sit in the chair of the ITO and exercise the discretion himself. Primaril ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on 28-9-1978 when the penalty proceedings under section 271(1)(c) were initiated. The income as assessed was reduced in appeals and the finally assessed income came to Rs. 43,157. The ITO noted that the assessee had not disclosed income from two trucks Nos. DHG 2180 and PNO 4955. Though the income from these two trucks was estimated by the ITO at Rs. 22,300 and Rs. 18,000, respectively, the estimate was reduced to Rs. 11,000 by the Tribunal. The ITO observed the difference between the returned and the assessed income and proceeded to hold that the income from these two trucks was concealed. He imposed a penalty of Rs. 18,460. While doing so, he further observed that besides the application of the Explanation to section 271(1)(c), which was on the statute book up to 1-4-1976, the law for the quantum of penalty would be the law which was there at the time of the filing of the return. 10. When the matter came before the Commissioner (Appeals), it was pleaded before him that the penalty had been imposed under Explanation to section 271(1)(c) and this Explanation was there prior to 1-4-1976. According to the contentions made before the Commissioner (Appeals), proceedings having been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmine the law which would be applicable for the purpose of imposition of penalty under section 271(1)(c) of the Income-tax Act at the relevant time. The principles which governed the application of law whether substantive or procedural, retrospectively or prospectively are to be determined differently for the purposes of assessments distinct from the penalty matters. There are various aspects regarding a penalty matter and it will not merely depend on whether a provision is substantive or procedural but also whether right and procedure are dealt with together and we will have to determine the law applicable for different purposes. It is a well-known principle of law that a purely procedural matter is governed by the law which applies when that process is started and when the final order is passed. For example, the question of limitation is purely procedural law. As regards the quantum of penalty, it is now settled law that it must be determined with reference to the law prevailing on the day when the act of concealment was committed, i.e., the date on which the return concealing the income was filed. This matter has been finally settled in Brij Mohan's case referred to above. Here, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -4-1964. Similar view was taken by that High Court in the case of CIT v. S. Devendra Singh [1977] 108 ITR 314 where it was held that the material date with reference to which the law applicable should be determined is the date of the filing of that return. The matter was again considered in the case of Addl. CIT v. Jiwan Lal Shah [1977] 109 ITR 474 (All.) and the same view as reiterated. 9. The question of application of Explanation to section 271(1)(c) came up for consideration of the Honourable Calcutta High Court in the case of CIT v. Champalal Jain [1978] 112 ITR 809 and it was held that where a return was filed after the introduction of the Explanation to section 271(1)(c) that Explanation would be applicable to the penalty proceedings irrespective of the assessment year. The same view was taken in the case of CIT v. Bankim Chandra Dutt [1979] 118 ITR 456 (Cal.). 10. The above discussion would show that in fact there are two different views and the third view expressed by the Kerala High Court in the case of Hajee K. Assainar cannot be considered to be good law in view of the decision of the Supreme Court in the case of Brij Mohan. The view taken by the Orissa High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed according to law in force at the time of the initiation of the proceedings and not on the date of reference to the IAC as we have already discussed above the principles of law regarding the question of jurisdiction would not be applicable to the question of either the quantum of penalty or the concept of concealed income as expanded in the Explanation to the main section of section 271(1)(c). 12. In view of the above discussion, we hold that the learned Commissioner (Appeals) erred in holding that the penalty orders passed in this case were illegal. The law applicable for this purpose would be the law which was in force on the date of the filing of the returns. Moreover, we agree with the departmental representative that the learned Commissioner (Appeals) should not have cancelled the penalty orders without considering whether the penalties were imposable under the main provisions of section 271(1)(c). The mention of Explanation to section 271(1)(c) does not mean that the main provisions have not been applied and it is necessary to give a finding whether the penalty was imposable under the main provisions itself. For this reason as well the order of the Commissioner (Appeals) c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of concealment of income as the penalty had been imposed under the provisions of section 271(1)(c) and that provision continued to be the same even at the time of imposition of penalty. The Explanation which was on the statute book was a rule of evidence and gave circumstances under which there was some presumption of concealment. If a particular rule of evidence is not applicable, it would not mean that the whole proceedings are vitiated and the Commissioner (Appeals) should have given a clear finding whether under the law which he considered to be applicable penalty was leviable or not. This the Commissioner (Appeals) has not done. 15. The Commissioner (Appeals) found that certain explanation has been given by the assessee. The two explanations referred to in his order are, in fact and in substance, only one explanation though repeated. As in this case, there was a presumption of concealment in the eyes of law and it was necessary for the Commissioner (Appeals) to consider the substance of those explanations and to hold whether that presumption stood rebutted by the submissions or the materials placed by the assessee. In not considering this aspect of the matter, the Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had not shown in his return. On the matter going on appeal the income from these two trucks was fixed by the Tribunal at Rs. 11,000. Treating the assessee as having concealed the income from the trucks, the ITO started penalty proceedings and by his order dated 31-3-1981 levied a penalty of Rs 18,460. On appeal, the Commissioner (Appeals) cancelled the penalty holding the penalty order to be bad in law. Inter alia, he held that the ITO did not follow the procedure for levying penalty laid down in the Act with effect from 1-4-1976 but the procedure 'which was no longer on the statute book as on the date on which the penalty proceedings were initiated and, therefore, imposed a penalty for a wrong reason'. He also held that the ITO had passed the order without taking into account the explanations filed by the assessee. The final decision of the Commissioner (Appeals) is as under : " For the aforementioned reasons, I quash the order under section 271(1)(c) imposing a penalty of Rs. 18,460 on the assessee. " 2. Before the Tribunal, the learned Judicial Member confirmed the order of the Commissioner (Appeals). According to him, who went on the basis that the penalty was levied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... countant Member's order, the learned counsel pointed out that the penalty had been correctly levied. Even if the explanations to the show-cause notice filed by the assessee were not treated as having been considered by the ITO, they were definitely considered by the Commissioner (Appeals) and to this extent the assessee's grievance did not exist. The law enforceable before 1-4-1976 was applicable and the penalty levied on that basis was, therefore, according to the learned counsel, to be sustained. 6. For the assessee it was pointed out that as validly explained by the assessee in his replies, there was no factual concealment. In fact none of the authorities pointed out that there was any factual concealment. Reliance was placed only on the Explanation to section 271(1)(c) and that too as a rule of evidence and procedural law not only to levy high quantum of penalty on the assessee but also to make him liable to the levy itself. It is pointed out that the assessee's explanations were never considered in the first place. Both for the purpose of making out a factual case of concealment and for attracting the deeming provisions of the Explanation, the assessee's explanations to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, the assessee must be deemed to have been given the requisite opportunity at least at that stage. Whether granting of an opportunity, at the initial stage is necessary or the granting of the same at any subsequent stage would be sufficient has also been considered in Smt. Maneka Gandhi's Case. Applying the principles laid down therein it cannot be held that the assessee had an opportunity. This argument of the departmental representative, therefore, cannot be upheld. 8. Even as a matter of fact while the issue of a show-cause notice would start proceedings, the ITO cannot come to any factual conclusion about the concealment unless he had seen the assessee's explanations. The assessee may have a valid reason for not indicating any particular income in his return or furnishing any particular type of particulars. Unless the ITO looks into it, even as a matter of fact, he cannot come to a conclusion about concealment. By holding erroneously that the assessee has not cared to reply to the show-cause notice and by not looking into the replies, the ITO, thus, has made an unjustified presumption that the assessee had no explanation to offer. Both as a matter of law and fact, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bros. v. ITO [1960] 40 ITR 298 (SC) and CIT v. National Taj Traders [1980] 121 ITR 535 (SC) indicate that in certain circumstances, even though there is a failure of the authorities to follow mandatory requirements, the appellate authorities can remit the matter back to the original authorities for the purpose of pursuing the matter from the stage where invalidity sets in. On account of the manner in which the matter has been dealt with by the original Bench of the Tribunal this question has not been considered by the Bench. The learned counsel for the assessee has pointed out that insofar as the mandatory requirements of law have not been complied with, the order of the ITO requires to be cancelled. According to the learned counsel an appellate authority can deal with a penalty order only by enhancing the penalty, reducing the penalty or altogether cancelling it. In the present case, the last action should be taken. There was, no scope for remitting the matter back to the ITO to proceed from the stage in which an invalidity set in. It is also pointed out that at any rate the time limit for levying the penalty having passed by remitting the matter back to the ITO, the period of li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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