TMI Blog1983 (11) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 8,500. The ITO rejected the theory of gift and worked out the capital gains at Rs. 13,500. After allowing statutory deductions, he brought to tax 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. The ITO also initiated penalty proceedings by a notice under s. 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 of house property at Ghaziabad. The assessment was made by the ITO, vide order dated December 8,1970. For the first time, a letter dated January 29, 1973, was issued by the ITO 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 ITO to the IAC for disposal of the case. The IAC issued a notice dated February 15, 1973, requiring the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culars of such income ...... .." Section 274 before its amendment by the Taxation Laws (Amendment) Act, 1970, provided: " 274. (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard. (2) Notwithstanding anything contained in clause (iii) of sub-section (1) of section 271, if in a case falling under clause (c) of that sub-section, the minimum penalty imposable exceeds a sum of rupees one thousand, the Income-tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose, have all the powers conferred under this Chapter for the imposition of penalty. " The words "the minimum penalty imposable exceeds a sum of rupees one thousand " were substituted by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971, by the following words : "the amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceeds a sum of twenty-five thousand rupees. " It is now settled law that penalty is imposed on account of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. The question of jurisdiction to pass an order for levying the penalty has to be determined with reference to the moment the proceedings stand initiated by the ITO and in this case it is on December 7, 1970, when the jurisdiction gets vested in the IAC who had in fact imposed the penalty in the instant case. Reliance is heavily placed on CIT v. Mela Ram jagdish Raj Co. [1981] 132 ITR 897 (P H), wherein it was held by the Punjab High Court that a statute dealing with procedure is retrospective and the provisions apply to the proceedings pending at the time of its enactment, but where the provisions of the statute affect vested rights, the provisions are prospective in operation unless there is an indication in the statute to the contrary. It was held in that case that the provisions of s. 271(1)(c) read with s. 274(2) as they stood on February 20, 1971 (the relevant date in that case), were applicable because it was at that point of time that the ITO initiated the penalty proceedings and the IAC had jurisdiction to impose the penalty, It was immaterial that the ITO made the reference which is only a ministerial act to the IAC on December 29, 1972, after the provisions were am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceedings or may issue simultaneously with the conclusion of the assessment proceedings. The issue of the penalty notice would not determine the jurisdiction of the officer competent to impose the penalty. The notice under s. 271(1)(c) of the Act in the present case was issued on December 7, 1970. It is the first stage contemplated by sub-s. (1) of s. 271 and it is only the initiation of the penalty proceedings. The ITO in the assessment order dated December 8, 1970, merely states that the proceedings under s. 271(1)(c) have separately been initiated. The passing of the assessment order, therefore, does not determine the jurisdiction. The ITO for the first time on January 29, 1973, issues a notice to the assessee requesting her to appear before him on February 8, 1983, in connection with the penalty proceedings for the assessment years 1968-69 and 1969-70, under ss. 271(1)(c) and 271(1)(a) either personally or a reply may be submitted failing which the ITO would be constrained to impose penalty. This notice is issued by the ITO for the purpose of deciding jurisdiction to impose the penalty as to whether the jurisdiction is vested with the ITO or with the IAC. On the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Inspecting Assistant Commissioner and initiation of proceedings by him before the exercise of ' all the powers conferred under this Chapter (Chapter XXI) for the imposition of penalty'." The Punjab Haryana High Court in Smt. Dayawanti v. CWT [1981] 128 ITR 504, was concerned with a reference arising under s. 18(3) of the W.T. Act, 1957. It was held (p. 509) : " A plain reading of this section shows that the determination of the amount by the WTO in respect of which the penalty imposable exceeds sum of Rs. 25,000 is the condition precedent for the exercise of jurisdiction by the IAC. This determination has to be made by the WTO in accordance with all the provisions of the Act, including s. 35. The words `who shall, for the purpose, have all the powers conferred under this section for the imposition of penalty ' employed towards the penultimate part of the section clearly indicate that the section does not cast upon the IAC an absolute duty of proceeding with the case. All that the section provides is that he shall have the powers of imposing penalty. This implies that if at the time when the case comes up for final hearing, the IAC is satisfied that the conditions preced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. There was no validly pending reference before the IAC as on April 1, 1971. The reference is made by the ITO under s. 274(2) on February 8, 1973. On that day, the law had changed and it was really the ITO who had jurisdiction to impose penalty as the income concealed was less than Rs. 25,000. On February 8, 1973, the ITO could have made a valid reference to the IAC only if the concealed income of which inaccurate particulars had been furnished exceeded Rs. 25,000. This not being the case, no valid reference could be made. As held by the Division Bench of this court in Kundan Lal's case [1983] 144 ITR 547, the source of the IAC's jurisdiction is reference validly made, it is the condition precedent for the assumption of jurisdiction by the IAC and that if the ITO fails to make a reference to the IAC, he cannot proceed. Similarly, if the ITO makes an invalid reference, the IAC is not conferred with any jurisdiction. With great respect to the learned judges of the Punjab Haryana High Court who decided Mela Ram's case [1981] 132 ITR 897 (P H), we record our note of dissent. For the above reasons, we answer the question in the reference against the Department and in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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