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1973 DIGILAW 187 (KER)

T. D. Joseph v. The Income Tax Officer Kottayam

1973-07-24

MADATHIMYALLIL UTHUP ISAAC

body1973
JUDGMENT Isaac, J. 1. The petitioner is a dealer in petrol, diesel, etc. He has also other sources of income. Under the Income-tax Act, 1961, the made a return of his total income as Rs. 8,109 for the assessment year 1968-69. He stated that he was not maintaining any accounts for his business. His bank pass book showed a total remittance of Rs. 6,06,192, whereas according to the trading account prepared by him on estimates, the sales came to Rs. 5,12,051 only. There was a difference of Rs. 94,141. He gave certain explanations regarding this difference. The Income-tax Officer found them unacceptable. He fixed the petitioner's income from business at Rs. 25,000 and assessed his total income at Rs. 30,400 by his order, Ext. P-1 dated 13th March 1969. Then he referred the case to the Inspecting Assistant Commissioner under section 274 (2) of the Act, who issued a notice, Ext. P-2 dated 26th October 1970, to the petitioner requiring him to appear before the Inspecting Assistant Commissioner to show cause why an order imposing a penalty on him should not be made under section 271 (1) (c) of the Act. The petitioner submitted a statement, Ext. P-3, dated 4th November 1970, showing cause against the proposed action. The Inspecting Assistant Commissioner considered the explanation, and by his order Ext. P-4 dated 11th January 1971 imposed on the petitioner a penalty of Rs. 22,500. He filed a revision before the Commissioner of Income-tax, who by his order, Ext. P-6 dated 16th July 1971, confirmed the order of the Subordinate authority and rejected the revision. This Original Petition has been filed to quash the orders, Exts. P-4 and P-6. 2. Two points were urged by the petitioner's counsel before me. The first is that a finding that the explanation of the assessee is not acceptable is not sufficient to attract the liability under section 271 (1)(c) of the Act; there must be a finding on evidence that the concealment or furnishing of inaccurate particulars of the income was deliberate. The second point is that the Inspecting Assistant Commissioner has no jurisdiction to impose the penalty provided under section 271 (1) (c) of the Act. 3. It is necessary to read the relevant part, of subsection (1) of section 271 in order to appreciate the contention on the first point. The second point is that the Inspecting Assistant Commissioner has no jurisdiction to impose the penalty provided under section 271 (1) (c) of the Act. 3. It is necessary to read the relevant part, of subsection (1) of section 271 in order to appreciate the contention on the first point. It reads: "271 (1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person” * * * * * * * * * * * * * * (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty” (i) * * * * * * (ii) * * * * * (iii) in the case referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished. Explanation. ”Where the total income returned by any person is less than eighty per cent of the total income (hereinafter in this explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this sub-section." 4. Counsel for the petitioner cited a number of decisions in support of his contention; but all of them were with reference to section 28 of the Indian Income-tax Act, 1922, which corresponded to section 271 of the present Act. In the old Act, furnishing of inaccurate particulars of the income deliberately alone was penal. In clause (c) of subsection (1) of section 271, the word "deliberately" has been omitted; and it makes all the difference. In the old Act, furnishing of inaccurate particulars of the income deliberately alone was penal. In clause (c) of subsection (1) of section 271, the word "deliberately" has been omitted; and it makes all the difference. Further, an explanation has also been added to the above clause, which provides that, where the total income returned by any person is less than eighty per cent of the total income assessed, such person shall be deemed to have concealed the particulars of his income, or furnished inaccurate particulars of such income for the purpose of the said clause. The petitioner's case falls within the ambit of the Explanation. In the light of the aforesaid statutory provisions, the first point raised by the petitioner's counsel is devoid of any substance. 5. It is necessary to read section 274 of the Act for the purpose of appreciating the second point. It reads:” "274. Procedure.”(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 subsection (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. (3) An Appellate Assistant Commissioner on making an order under this Chapter imposing a penalty, shall forthwith send a copy of the same to the Income-tax Officer." The impugned order has been passed by the Inspecting Assistant Commissioner under section 274 (2). Under this provision, in a case where the minimum penalty imposable under clause (c) of section 271 (1) exceeds Rs. 1,000 he is bound to refer the case to the Inspecting Assistant Commissioner; and he is the competent authority to impose the penalty under section 271 (1) (c). There is no case that section 274 (2) is unconstitutional or invalid for any other reason. 1,000 he is bound to refer the case to the Inspecting Assistant Commissioner; and he is the competent authority to impose the penalty under section 271 (1) (c). There is no case that section 274 (2) is unconstitutional or invalid for any other reason. The argument is that, under section 271 (1), the condition precedent for the imposition of a penalty is the satisfaction of the Income-tax Officer that the assessee has done any of the things mentioned in clause (a), (b), or (c) thereunder, and that, though the power to impose the penalty under that section has been conferred on the Inspecting Assistant Commissioner by virtue of section 274 (2), there is no scope for him to be satisfied in the course of any proceeding that the assessee has done any of the aforesaid things, and that without such a satisfaction, the penalty is not attracted. The emphasis has been on the words "in the course of any proceedings under this Act'' in section 271 (1). There is some support for the above contention in the decision of a learned single Judge of the Calcutta High Court in Ram Chandra Sarda v. Income-tax Officer, "B" Ward District I (I) and others (1970) 78 I.T.R. 325 . The learned Judge stated: "The function or duty to form the satisfaction and the power to impose a penalty appear to be so closely interwoven and interlinked that it should be held to be a part of an integrated process. The formation of the satisfaction and the imposition of the penalty cannot, in any view, be bifurcated so that the satisfaction can be that of the Income-tax Officer, whereas the imposition of the penalty would be by the Inspecting Assistant Commissioner. Such a dichotomy or bifurcation of powers and functions is not warranted on the language of the statute." With great respect, I am unable to agree with the learned fudge. He is totally ignoring section 274 (2), and saying something opposite of what that section provides. Section 274 (2) is complimentary to section 271 (1) (c). Satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under the Act is the first stage and initiating proceedings on that basis for imposition of a penalty is the second stage in a proceeding under section 271 (1) (c) read with section 274 (1) and (2). Satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under the Act is the first stage and initiating proceedings on that basis for imposition of a penalty is the second stage in a proceeding under section 271 (1) (c) read with section 274 (1) and (2). Section 274 (2) demands that all cases falling under section 271 (1) (c), in which the minimum penalty imposable exceeds Rs. 1,000, shall be referred to the Inspecting Assistant Commissioner, on whom the power to impose the penalty is conferred. In other words, in such cases, the action is initiated on the basis of the satisfaction of the Income-tax Officer, and the adjudication of penalty is done by the Inspecting Assistant Commissioner. I am unable to find any vice in such a legislative provision. 6. Dealing with a somewhat similar argument as was accepted in the above case, the Supreme Court in D. M. Manasvi v. Commissioner of Income-tax (1972) 86 I.T.R. 557 stated: "We are also not impressed by the argument advanced on behalf of the appellant that the proceedings for the imposition of penalty were initiated not by the Income-tax Officer but by the Inspecting Assistant Commissioner when the matter had been referred to him under section 274 (2) of the Act. The proceedings for the imposition of penalty in terms of sub-section (1) of section 271 have necessarily to be initiated either by the Income-tax Officer or by the Appellate Assistant Commissioner. The fact that the Income-tax Officer has to refer the case to the Inspecting Assistant Commissioner if the minimum imposable penalty exceeds the sum of rupees one thousand in a case falling under clause (c) of sub-section (1) of section 271 would not show that the proceedings in such a case cannot be initiated by the Income-tax Officer. The Income-tax Officer in such an event can refer the case to the Inspecting Assistant Commissioner after initiating the proceedings. The Income-tax Officer in such an event can refer the case to the Inspecting Assistant Commissioner after initiating the proceedings. It would, indeed, be the satisfaction of the Income-tax Officer in the course of the assessment proceedings regarding the concealment of income which would constitute the basis and foundation of the proceedings for levy of penalty." The point raised by counsel for the petitioner arose for consideration before a Division Bench of the Madras High Court in R. M. Ayyathurai Muthuraja v. Commissioner of Income-tax, Madras (1973) 87 I.T.R. 449 wherein the aforesaid decision of the Calcutta High Court was dissented from. The learned Judges stated: "In our view, the formation of satisfaction by the Income-tax Officer in the course of the assessment proceedings is sufficient to form the basis of initiation of penalty proceedings; and once those proceedings are validly initiated, the Inspecting Assistant Commissioner, to whom the proceedings are referred to under section 274 (2) could validly continue those proceedings and proceed to decide the question of penalty exercising the power given to the Income-tax Officer or the Appellate Assistant Commissioner referred to in the opening part of section 271 (1)." The same view has been taken by the Allahabad High Court in Commercial Art Press v. Commissioner of Income-tax (1973) 87 I.T.R. 468, by the Bombay High Court in Padgilwar Brothers v. Commissioner of Income-tax (1971) 81 I.T.R. 258, by the Delhi High Court in Durga Timber Works v. Commissioner of Income-tax (1971) 79 I.T.R. 63 and by a Division Bench of the Calcutta High Court in Commissioner of Income-tax v. A. K. Das (1970) 77 I.T.R. 31 . It appears that the decision of the Single Judge of the Calcutta High Court in Ram Chandra Sarda's case, which has taken a contrary view, has been subsequently overruled by a Full Bench of that Court. The second point raised by the petitioner's counsel cannot also succeed. 7. In the result, this Original Petition is dismissed. There will be no order as to costs.