P. A. MOHAMMED J. - These income-tax references arise from a common order passed by the Income-tax Appellate Tribunal, Cochin Bench, dated May 30, 1983, in R. A. No. 314/ (Coch) of 1980 at the instance of the assessee and R. A. No. 324/ (Coch) of 1980 at the instance of the Revenue. Both the applications are from the order in I. T. A. No. 150/ (Coch) of 1978-79 relating to the assessment year 1973-74.
The questions, referred to this court at the instance of the assessee, are as follows :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that penalty is exigible under section 271(1)(c) of the Income-tax Act for the assessment year 1973-74 ?
(2) Whether there was a valid reference by the Income-tax Officer under section 274(2) to the Inspecting Assistant Commissioner ?'
The questions, referred at the instance of the Revenue, are as follows :
'(1) Whether, on the facts and in the circumstances of the case, and also on an interpretation of section 271(1)(c) of the Income-tax Act, the Tribunal is right in law and fact in holding that he had concealed the particulars in respect of only that income which he should have disclosed in the return, namely, the capital gains arising from the transaction computed in accordance with the provisions of section 80T and section 48 ?
(2) Whether, on the facts and in the circumstances of the case, for the purpose of determining the quantum of concealment, should not the Tribunal in law first set off the capital loss of Rs. 8,355 relating to the assessment year 1972-73 against the capital gains for the assessment year 1973-74 ?
(3) Whether, on the facts and in the circumstances of the case, does the Inspecting Assistant Commissioner have the jurisdiction to impose penalty ?'
The assessee, who was doing business in the manufacture and sale of beedies, had sold 23 cents of land with a building thereon to his two daughters on July 24, 1972. The consideration for the sale was Rs. 1 lakh. The assessee filed the return for the assessment year 1973-74 disclosing an income of Rs. 28,320. The Income-tax Officer, in the course of assessment proceedings, noticed a debt of Rs. 50,000 in the capital account of the assessee. This was explained by the assessee as per his letter dated September 12, 1975, that the value of the property had been shown at Rs. 1,50,000 in the capital account for obtaining loans from banks and a debt of Rs. 50,000 was made in the capital account inasmuch as the property had been sold to his daughters for Rs. 1 lakh. However, the officer computed the capital gains arising from the above sale at Rs. 1,09,900. Ultimately, the Income-tax Officer determined the total income as Rs. 94,380 as per the assessment order for the year 1973-74. A penalty proceeding was also initiated for concealment of income and it was referred to the Inspecting Assistant Commissioner since the minimum penalty imposable was more than Rs. 25,000.
Though the assessee filed an appeal against the assessment order for the year 1973-74, the Appellate Assistant Commissioner confirmed the assessment. The assessee then filed a further appeal before the Tribunal. When the matter was pending before the Tribunal, the Inspecting Assistant Commissioner initiated proceedings for levy of penalty under section 271(1)(c). He finally came to the conclusion that the assessee had concealed the particulars of his income to the extent of Rs. 1,09,900. He, therefore, levied a penalty equal to the amount concealed as per order dated March 18, 1976 (annexure-A). In appeal, the Tribunal held that penalty was exigible, in view of the fact that the assessee had not disclosed the gains which arose from the sale of properly in the return. As for the amount of income concealed, the Tribunal held that the assessee could be said to have concealed only that income which he should have disclosed in the return, namely, capital gains arising farm the transaction computed in accordance with the provisions of section 80T and section 48. The Tribunal also observed that the assessee had concealed only an income of Rs. 68,185 in the return of income and that the minimum penalty imposable was only Rs. 68,185. However, following the decision of the Special Bench of the Tribunal in I. T. A. Nos. 40 to 42/ (Coch) of 1977-78 in the case of Joseph John, Thuravoor the Tribunal found that subsequent to the deletion of section 274(2) with effect from April 1, 1976, the Inspecting Assistant Commissioner had no jurisdiction to levy penalty for alleged concealment of income under section 271(1)(c) even in cases referred to him earlier to April 1, 1976. Consequently, the Tribunal set aside the order of the Inspecting Assistant Commissioner and cancelled the penalty as per the order dated August 16, 1980 (annexure-B).
When the reference cases came up for consideration before the Division Bench on July 6, 1993-S. M. Syed Mohammed v. CIT : [1994]206ITR269(Ker) T. L. Viswanatha Iyer J., on behalf of the Division Bench ordered thus (at page 270) :
'These references are at the instance of the assessee and the Revenue and concern the imposition of penalty on the deceased assessee under section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1973-74. While the assessee contended that he had not concealed particulars of any income, it was the case of the Department that the case squarely fell Within section 271(1)(c). The penalty had been imposed by the Inspecting Assistant Commissioner purporting to act under section 274(2) of the Act which had been repealed with effect from April 1, 1976. The assessee had raised a contention that the Inspecting Assistant Commissioner derives jurisdiction to impose penalty only if there is a valid reference to him by the Income-tax Officer under section 274(2). The assessment was completed on March 30, 1976, and the Income-tax Officer informed the assessee by a letter of even date that the case was being referred to the Inspecting Assistant Commissioner for the purpose of levy of penalty. The original of that letter was despatched to the Inspecting Assistant Commissioner on March 31, 1976, and was, admittedly, received by the Inspecting Assistant Commissioner on April 1, 1976. According to the assessee, this letter contained only a proposal to initiate penalty proceedings and did not actually make any reference of any question of penalty to the Inspecting Assistant Commissioner. The assessee, therefore, contended that there was no valid reference to the Inspecting Assistant Commissioner. It was this contention that resulted in the question mentioned earlier being referred to this court at the instance of the assessee.'
In view of the above background of the case, the Division Bench further observed (at page 271) :
'Consideration of the contention of the assessee as to whether there was a valid and proper reference depends very much on the reference, if any, made by the Income-tax Officer and also on the terms of the letter which he had written to the Inspecting Assistant Commissioner on March 31, 1976. A proper adjudication on the point requires perusal of that letter of March 31, 1976, as also on the existence of any other reference made by the Income-tax Officer to the Inspecting Assistant Commissioner on the question of penalty. Since these details are essential for proper decision of the case, we are inclined to call for a supplementary statement from the Tribunal on these aspects.'
Therefore, the Division Bench directed the Tribunal to furnish a supplementary statement of the case, incorporating the order of assessment made on the assessee, the order of the Income-tax Appellate Tribunal in I. T. A. No. 740/ (Coch) of 1977-78, dated March 31, 1980, and the letter of the Income-tax Officer dated March 31, 1976, sent to the Inspecting Assistant Commissioner.
Pursuant to the above direction of the Division Bench, the Tribunal had drawn up a supplementary statement wherein it has been stated thus :
'Neither the Revenue nor the assessee is able to furnish the letter of the Income-tax Officer dated March 31, 1976, mentioned as item No. 1 above. However, the Revenue has furnished the copy of a report of the Income-tax Officer dated August 18, 1977. It is represented before us that the miscellaneous records for the assessment year 1973-74 with the Income-tax Officer as also the Inspecting Assistant Commissioners file in respect of penalty proceedings would appear to have been weeded out.'
Subsequently, the income-tax reference cases with the supplementary statement dated July 29, 1993, came up for hearing again before the Division Bench.
The Division Bench, however, considered it necessary to refer the cases for decision by a Full Bench of this court. T. L. Viswanatha Iyer J., on behalf of the Division Bench, in the order of reference, has observed as below :
'One of the questions which arises for consideration in these references is whether the jurisdiction of the Inspecting Assistant Commissioner to levy penalty under section 274(2) of the Income-tax Act, 1961, is preserved after April 1, 1976, so as to justify his action in imposing penalty on the assessee in these cases. A Full Bench of this court had in the decision in CIT v. P. I. Issac : [1987]168ITR793(Ker) , held that the Inspecting Assistant Commissioner ceased to have any jurisdiction in the matter after 1st April, 1976. The Supreme Court had, in a recent decision in CIT v. Dhadi Sahu : [1993]199ITR610(SC) , occasion to consider section 274(2) in so far as it related to the period from April 1, 1971, when his jurisdiction was confined to cases where the concealed income exceeded Rs. 25,000. In that context, the Supreme Court observed that when there is a change in the forum it does not affect the pending action unless an intention to the contrary is clearly shown. The question is whether this decision applies to the instant cases where it was not merely a change of forum, but total abolition of the jurisdiction of the Inspecting Assistant Commissioner to impose penalty. Since the question whether this decision impliedly overrules the decision of the Full Bench of this court in CIT v. P. I. Issac : [1987]168ITR793(Ker) arises for consideration and since the decision of the Supreme Court cannot be stated to be directly in point, as stated by us earlier, we feel it appropriate that these cases are considered by a Full Bench of this court.'
That is how the above tax reference cases are coming up for hearing before us.
Clause (c) of section 271(1), as it stood at the relevant time, is as follows :
'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, - ...
(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than twenty per cent. but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income.
Section 271(1) confers power on the Income-tax Officer or the Appellate Assistant Commissioner to impose penalty under the said section on the satisfaction of the matters specified in clauses (a), (b) and (c). The procedure for levy of penalty is prescribed in section 274. During the relevant period the power to impose penalty is vested with the Inspecting Assistant Commissioner. He will get the jurisdiction to levy penalty only when the Income-tax Officer refers the case to him. The provision of section 274(1) and (2), as it stood at the relevant period, is extracted below :
'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 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, 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 above sub-section (2) authorising the Income-tax Officer to refer the case to the Inspecting Assistant Commissioner was however deleted with effect from April 1, 1976, as per the Taxation Laws (Amendment) Act, 1975. After the amendment the power has been conferred on the Income-tax Officer to levy penalty in cases of concealment.
The prime question which requires to be decided in the present case, in view of the aforesaid amendment, is whether the Inspecting Assistant Commissioner has jurisdiction to levy penalty on a reference received by him on April 1, 1976. In other words, the question is whether there is a valid reference by the Income-tax Officer or the reference made by him on March 31, 1976, is sufficient in law.
What is jurisdiction Jurisdiction is the power, right or authority to take cognizance and decide any matter according to law. In Subramania Pattar v. Narayana Pattar [1915] 28 IC 189, it is laid down that the word jurisdiction means 'the authority or power, which a court has, to do justice in the causes of complaint brought before him.' The Supreme Court in Ajit Kumar Palit v. State of West Bengal : AIR1963SC765 ,
'As soon as a special judge receives the orders of allotment of the case passed by the State Government, it becomes vested with jurisdiction to try the case and when it receives the record from the Government, it can apply its mind and issue notice to the accused and thus start the trial of the proceedings assigned to it by the State Government.'
Thus, it is abundantly clear that an authority can take cognizance of conferment of jurisdiction or power only when it is brought to its notice or when it is consciously made known to it. Without taking cognizance of conferment of power, no authority can be said to have assumed jurisdiction to do an act. The cognizance of conferment of jurisdiction is a prerequisite for the exercise of the power.
In the instant ease, the Income-tax Officer has power to refer the question of levying penalty to the Inspecting Assistant Commissioner under section 274(2) in case the concealment of income exceeds a sum of twenty-five thousand rupees. Under the above provision, the Inspecting Assistant Commissioner has power or jurisdiction to levy penalty but it is only a conditional power. In the absence of a reference by the Income-tax Officer, the Inspecting Assistant Commissioner has no power to levy penalty. The power of the Inspecting Assistant Commissioner to levy penalty under section 274(2) is dependent on the exercise of the power of reference by the Income-tax Officer. But the exercise of the power of reference by the Income-tax Officer does not ipso facto confer jurisdiction on the Inspecting Assistant Commissioner to levy penalty. The conferment of jurisdiction will be complete only when the order of reference is received by the Inspecting Assistant Commissioner or otherwise made known to him directly. In other words, the conferment of jurisdiction shall reach within his knowledge and as soon as it is known he is entitled to take cognizance of the powers conferred on him by virtue of the reference made by the Income-tax Officer under section 274(2).
The question whether the reference was pending before the Inspecting Assistant Commissioner on March 31, 1976, requires to be examined. No doubt, the reference was ordered by the Income-tax Officer on March 31, 1976. If, on the same day, the reference order was served on the Inspecting Assistant Commissioner, it would have been possible for the Revenue to contend that the reference was pending before him on March 31, 1976. It is the case of the Revenue that the letter stated to have been issued by the Income-tax Officer was received by the Inspecting Assistant Commissioner on April 1, 1976. As observed by the Division Bench in the order dated July 6, 1993 (see : [1994]206ITR269(Ker) ), the question whether there was a valid and proper reference depends very much on the reference, if any, made by the Income-tax Officer and also on the terms of the letter which he had written to the Inspecting Assistant Commissioner on March 31, 1976. It was for that reason the Division Bench directed the Tribunal to produce the letter of the Income-tax Officer dated March 31, 1976, sent to the Inspecting Assistant Commissioner. The burden is on the Revenue to produce the said letter in view of the direction issued by the Division Bench. That burden having not been discharged, it is difficult for the Revenue to argue that there was a valid reference in this case on the basis of the said letter. On the other hand, the assessee is justified in contending that there was no valid reference for the reason that the said letter was admittedly received by the Inspecting Assistant Commissioner only on April 1, 1976. There was no case for the Revenue that the Income-tax Officer, after ordering reference, communicated the same to the Inspecting Assistant Commissioner on the same day, namely, March 31, 1976, either directly or otherwise. That being so, we are constrained to hold that there was no valid reference by the Income-tax Officer to the Inspecting Assistant Commissioner under section 274(2) of the Act.
A Full Bench of this court in CIT v. P. I. Issac : [1987]168ITR793(Ker) held that the Inspecting Assistant Commissioner had no jurisdiction to levy penalty under section 271(1)(c) after March 31, 1976. That was a case where the Income-tax Officer completed the assessment on January 28, 1974, and later a revised assessment order was passed on October 21, 1975, on the ground that the assessee made certain concealment of income. After the revised assessment, the matter was referred to the Inspecting Assistant Commissioner prior to April 1, 1976, under section 274(2) of the Act for imposition of penalty. The Inspecting Assistant Commissioner, by order dated October 20, 1977, imposed penalty. The assessee filed an appeal before the Tribunal questioning the jurisdiction of the Inspecting Assistant Commissioner to impose penalty after section 274(2) was omitted with effect from April 1, 1976. The Tribunal set aside the order imposing penalty on the ground that the Inspecting Assistant Commissioner had no jurisdiction to impose penalty after the Taxation Laws (Amendment) Act, 1975, came into force. This view was affirmed by this court on the reference made at the instance of the Revenue. The Full Bench observed (at page 804) :
'As noticed earlier in this judgment, section 271(1) of the Income-tax Act confers jurisdiction on the Income-tax Officer to impose penalty on satisfaction of the conditions mentioned in sub-clause (a), (b) or (c). Section 274(2) of the Act had invested the Inspecting Assistant Commissioner with the power of the Income-tax Officer to impose penalty in cases mentioned therein. The jurisdiction of the Inspecting Assistant Commissioner under section 274(2) was only that of the Income-tax Officer under section 271(1) of the Act. By deletion of sub-section (2) of section 274 by the Taxation Laws (Amendment) Act, 1975, the Inspecting Assistant Commissioner is divested of the jurisdiction of the Income-tax Officer under section 271(1) of the Act and on such divestiture, the Inspecting Assistant Commissioner ceased to have jurisdiction to proceed under section 271 of the Act. After the amendment that came into force on April 1, 1976, the authorities competent to impose penalty are those mentioned in section 271 of the Act. The change of forum is a matter of procedure and the Amendment Act is retrospective in regard also to matters pending before the Inspecting Assistant Commissioner.'
However, it may be observed here that the validity of the reference or the correctness of the assumption of power by the Inspecting Assistant Commissioner on the basis of the reference were never in issue in the above case. Further, it was, admittedly, a case where the reference was validly made prior to April 1, 1976. In view of this distinction in facts, we do not propose to place reliance on the said decision of the Full Bench. That being so, it is inessential for us to decide the question urged by the Revenue that the above Full Bench decision has been impliedly overruled by virtue of the recent decisions of the Supreme Court in CIT v. Dhadi Sahu : [1993]199ITR610(SC) and Varkey Chacko v. CIT : [1993]203ITR885(SC) .
The Supreme Court in CIT v. Dhadi Sahu : [1993]199ITR610(SC) observed (at page 616) :
'In our opinion, therefore, what is material to be seen is as to when the references were initiated. If the reference was made before April 1, 1971, it would be governed by section 274(2) as it stood before that date and the Inspecting Assistant Commissioner would have jurisdiction to pass the order of penalty.'
That was a case where the Income-tax Officer initiated penalty proceedings under section 271(1)(c) after passing the assessment order on February 28, 1970. Since the penalty to be imposed would exceed Rs. 1,000, the Income-tax Officer referred the case under section 274(2), as it then stood, to the Inspecting Assistant Commissioner. Pending the proceedings, section 274(2) was amended with effect from April 1, 1971. On February 15, 1973, the Inspecting Assistant Commissioner passed orders imposing penalty for the assessment years 1968-69 and 1969-70. In this case, reference of the case was validly made by the Income-tax Officer before April 1, 1971, and the Inspecting Assistant Commissioner validly acquired jurisdiction to pass the order imposing penalty. Thus, there was no dispute that the reference was valid and that the conferment of jurisdiction on the Inspecting Assistant Commissioner was legal. Therefore, what the Supreme Court meant while saying 'when the references were initiated' was only the valid references and not the initiation of references invalidly made. If the reference was valid, then the initiation was also valid. In the present case before us, the initiation of reference was invalid as there was no valid reference. Therefore, the decision of the Supreme Court in Dhadi Sahus case : [1993]199ITR610(SC) , has no application in this case.
The factual situation in Varkey Chacko v. CIT : [1993]203ITR885(SC) , is in no way different. That was a case where the Income-tax Officer made the order of assessment and initiated penalty proceedings against the assessee on March 27, 1972, i.e., after section 274(2) of the Act was amended by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971. The Income-tax Officer imposed a penalty of Rs. 10,000 on March 26, 1974, and the Appellate Tribunal confirmed his order holding that the law governing imposition of penalty was the law as in force on the date when the return was filed. On a reference, the High Court reversed the Tribunals order holding that the law applicable was that in force on the date of the assessment order. This view of the High Court was affirmed by the Supreme Court in appeal. The Supreme Court further observed that the Income-tax Officer had jurisdiction to impose the penalty and he need not have referred the matter to the Inspecting Assistant Commissioner. In this case also there was no question of validity of reference or the conferment of jurisdiction on the Inspecting Assistant Commissioner. Thus, we are of the view that the principles laid down in Varkey Chackos case : [1993]203ITR885(SC) , have also no application in the facts of the present case.
In Banarsi Debi v. ITO : [1964]53ITR100(SC) , the Supreme Court held (headnote) :
'The rule of construction that a taxing statute must be couched in express and unambiguous language and if a case is not covered within the four corners of its provisions no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the Legislature. ...'
What we are concerned with in these cases are the provisions authorising the levy of penalty. The above rule can, therefore, be applied here with equal force but with stronger impact.
In view of the discussion hereinbefore, we answer the second question of law framed at the instance of the assessee in the negative and in favour of the assessee. Likewise, the third question framed at the instance of the Revenue is answered in the negative and in favour of the assessee. The other questions raised, both at the instance of the assessee and the Revenue, are questions of fact decided by the Tribunal and we, therefore, decline to answer them in the exercise of advisory jurisdiction under section 260 of the Act.
SHANMUGAM J. - The Full Bench of the Kerala High Court in CIT v. P. I. Issac : [1987]168ITR793(Ker) has taken the view that by the Taxation Laws (Amendment) Act, 1975, amending section 274(2) with effect from April 1, 1976, the Inspecting Assistant Commissioner has ceased to have jurisdiction to impose penalty under section 271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). The Full Bench further held that the change of forum is a matter of procedure and the Amendment Act is retrospective in regard also to matters pending before the Inspecting Assistant Commissioner and, therefore, he had no jurisdiction to impose penalty under section 271(1)(c). In a subsequent decision in CIT v. Dhadi Sahu : [1993]199ITR610(SC) , the Supreme Court held that if the reference was made before April 1, 1971, it would be governed by section 274(2) as it stood before that date and the Inspecting Assistant Commissioner would continue to have jurisdiction. The Division Bench by order dated August 20, 1993, referred the matter to the Full Bench to consider the question whether the decision of the Full Bench in CIT v. P. I. Issac : [1987]168ITR793(Ker) is impliedly overruled by the Supreme Court decision in CIT v. Dhadi Sahu : [1993]199ITR610(SC) .
The Income-tax Appellate Tribunal, Cochin Bench, has referred the following questions of law for the decision of this court under section 256(1) of the Income-tax Act, 1961 :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that penalty is exigible under section 271(1)(c) of the Income-tax Act for the assessment year 1973-74 ?
2. Whether there was a valid reference by the Income-tax Officer under section 274(2) to the Inspecting Assistant Commissioner ?'
The following questions at the instance of the Commissioner of Income-tax are also referred for the decision of this court under section 256(1) of the Income-tax Act, 1961 :
'1. Whether, on the facts and in the circumstances of the case, and also on an interpretation of section 271(1)(c) of the Income-tax Act, the Tribunal is right in law and fact in holding that he had concealed the particulars in respect of only that income which he should have disclosed in the return, namely, the capital gains arising from the transaction computed in accordance with the provisions of section 80T and section 48 ?
2. Whether, on the facts and in the circumstances of the case, for the purpose of determining the quantum of concealment should not the Tribunal in law first set off the capital loss of Rs. 8,355 relating to the assessment year 1972-73 against the capital gains for the assessment year 1973-74 ?
3. Whether, on the facts and in the circumstances of the case, does the Inspecting Assistant Commissioner have jurisdiction to impose penalty ?'
The facts leading to the above reference are as follows : The assessee on July 24, 1972, sold 23 cents of land with a building thereon at Chalai to his two daughters under a registered deed for a consideration of Rs. 1 lakh. The assessee filed the return disclosing an income of Rs. 28,320 for the assessment year 1973-74 without disclosing the capital gains arising from the above sale. The Income-tax Officer noticed a debit of Rs. 50,000 in the capital account of the assessee in the course of assessment proceedings and, therefore, requested the assessee, by his letter dated September 1, 1975, to explain as to why such a debit has been made. The assessee, by his letter dated September 12, 1975, explained that the value of the property had been shown at Rs. 1,50,000 for obtaining large loans from banks and since the sale consideration was only for Rs. 1 lakh, a debit of Rs. 50,000 was made in the capital account. In the course of valuation of the property by the Departmental valuer, the assessee, by his letter dated July 29, 1975, informed the valuer that the total amount due to his daughters was Rs. 2,37,000 odd by way of business interest and the property was sold to them not for the stated consideration of Rs. 1 lakh but in discharge of the aforesaid liability. In effect the assessee had admitted the actual market value as valued by the Department. Ultimately, the Income-tax Officer, by his order dated March 30, 1976, determined the total income as Rs. 94,380. In doing so, he computed the capital gains arising from the above sale at Rs. 1,09,900 taking the market value of the property at Rs. 2,44,960 as sale consideration and Rs. 1,35,000 as its value as on January 1, 1954. He also initiated action for the levy of penalty in his order dated March 30, 1976, the operative portion of which is as follows :
'Since this income is not disclosed in the return, penalty proceedings are initiated under section 271(1)(c) of the Income-tax Act and the matter is referred to the Inspecting Assistant Commissioner of Income-tax, Trivandrum.'
The order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner and the Tribunal. In the meantime, the Inspecting Assistant Commissioner of Income-tax, in his proceedings dated March 18, 1978, found that the assessee had concealed the particulars of his income to the tune of Rs. 1,09,900 and, therefore, levied a penalty of Rs. 1,09,900 under section 271(1)(c) of the Income-tax Act. On appeal before the Income-tax Appellate Tribunal, the following questions were raised and answered :
'(1) Whether the assessee had concealed income in the return filed by him, wherein he had disclosed the income of Rs. 28,320 ?
Ans. : From the above it will be clearly seen that the assessee had not disclosed the gains arising from the above sale in the return filed by him. Indeed, he did not disclose the transaction at all .... The assessee had not offered any explanation for the omission. Therefore, it has been held that penalty is exigible for concealment of income under section 271(1)(c) of the Income-tax Act, 1961.
(2) As regards the quantum of penalty.
Ans. : The assessee had concealed the particulars in respect of only that income which he should have disclosed in the return, namely, the capital gains arising from the transaction computed in accordance with the provisions of section 80T and section 48.
(3) Whether the concealed income is to be taken as Rs. 68,185 as claimed by the assessee or Rs. 71,110 as claimed by the Departmental Representative ?
Ans. : The assessee had concealed an income of Rs. 68,185 in the return. The minimum penalty imposable is, therefore, Rs. 68,185.
(4) Whether the reference was valid ?
Ans. : The Inspecting Assistant Commissioner of Income-tax has no jurisdiction to levy penalty and, therefore, cancelled the penalty.'
The Tribunal also observed that if they had come to the conclusion that the Inspecting Assistant Commissioner has jurisdiction, they would have reduced the penalty to Rs. 68,185.
In the above facts and circumstances the questions of law mentioned earlier were referred to this court both at the instance of the assessee (I.T.R. No. 106 of 1983) as well as the Revenue (I.T.R. No. 107 of 1983) and, subsequently, the Division Bench referred the matter to the Full Bench. As the reference to the Full Bench related to the second question, viz., whether there was a valid reference by the Income-tax Officer under section 274(2) to the Inspecting Assistant Commissioner, it is taken up first for consideration.
Section 271(1) of the Income-tax Act empowers the Income-tax Officer or the Appellate Assistant Commissioner, as the case may be, to impose penalty on the satisfaction of the matters specified in clauses (a), (b) and (c). As we are concerned with clause (c) of section 271(1), as it stood then, the same is extracted below :
'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, - ......
(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than twenty per cent., but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income.
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.'
The procedure to impose penalty is set out under section 274. The jurisdiction to impose penalty, according to this section during the relevant time in this case, vested with the Inspecting Assistant Commissioner on a reference by the Income-tax Officer. The relevant portion of the said provision is as follows :
'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 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, 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.'
Sub-section (2) of section 274 was deleted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976. After the amendment, the Assessing Officer is empowered to levy penalty in cases of concealment irrespective of the quantum of penalty or concealed income, subject, however, to the limitation provided under section 271(1)(iii) to the effect that the prior approval of the Inspecting Assistant Commissioner has to be obtained by the Assessing Officer where the concealed income exceeds Rs. 25,000. Whereas under the law as it stood before the amendment, the Assessing Officer has to refer the case to the Inspecting Assistant Commissioner for imposing penalty.
The question that arises for our consideration is whether it is open to the Inspecting Assistant Commissioner to impose penalty even after April 1, 1976, in cases which have been validly referred to him earlier ?
Divergent views were taken by the different High Courts on this point. In one set of cases, the courts have taken the view that the new procedure would apply only to pending matters and, therefore, the Inspecting Assistant Commissioner would have no jurisdiction to continue after April 1, 1971, or 1976, as the case may be; in another set of cases the courts have taken the view that once reference is made regardless of the change in the law, the Inspecting Assistant Commissioner would continue to have the jurisdiction to impose the penalty.
The controversy has now been set at rest by the two decisions of the Supreme Court in CIT v. Dhadi Sahu : [1993]199ITR610(SC) and Varkey Chacko v. CIT : [1993]203ITR885(SC) .
The Full Bench of this court in CIT v. P. I. Issac : [1987]168ITR793(Ker) , while holding that the Inspecting Assistant Commissioner ceased to have jurisdiction to proceed under section 271 of the Income-tax Act after the amendment came into force on April 1, 1976, mainly followed the reasoning of the Division Bench of the Orissa High Court in CIT v. Dhadi Sahu : [1976]105ITR56(Orissa) in support of their conclusion in preference to the view of the Division Bench of the Kerala High Court in Varkey Chackos case : [1982]136ITR733(Ker) . On appeal against the Orissa High Courts decision in CIT v. Dhadi Sahu : [1976]105ITR56(Orissa) , the Supreme Court reversed it in : [1993]199ITR610(SC) . Similarly, the Supreme Court confirmed the decision in Varkey Chackos case : [1993]203ITR885(SC) . Hence we have to hold that the Full Bench decision in CIT v. P. I. Issac : [1987]168ITR793(Ker) has been impliedly overruled by the Supreme Court in CIT v. Dhadi Sahu : [1993]199ITR610(SC) and Varkey Chacko v. CIT : [1993]203ITR885(SC) .
In analysing these decisions, we find that the Full Bench decision in CIT v. P. I. Issac : [1987]168ITR793(Ker) was dealing with the Taxation Laws (Amendment) Act, 1975, which came into force on April 1, 1976. In that case, the Income-tax Officer referred the case to the Inspecting Assistant Commissioner prior to April 1, 1976, as the concealment of income exceeded Rs. 25,000. The reference was made at a time when the Inspecting Assistant Commissioner had jurisdiction and was the authority competent to impose penalty. But by the time the Inspecting Assistant Commissioner passed orders imposing the penalty, the Amendment Act, 1975, has come into effect. The Full Bench referred to the views taken in CIT v. Varkey Chacko : [1982]136ITR733(Ker) ; Jain Brothers v. Union of India : [1970]77ITR107(SC) ; CIT v. Balabhai and Co. : [1980]122ITR301(Guj) and CIT v. Raman Industries , wherein it has been held that the competence of the authority to exercise the power is to be determined with reference to the law in force on the date of initiation of penalty proceedings. These decisions have taken the view that for the imposition of penalty it is not the assessment year or the date of filing of the return which is important but it is the satisfaction of the income-tax authorities that a default has been committed by the assessee which would attract the provisions relating to penalty. The crucial date, therefore, for the purposes of penalty, is the date of the completion of the assessment, and the change in forum does not affect pending actions unless the intention to the contrary is clearly evinced. The Full Bench chose to follow the contrary view taken by the Orissa High Court in CIT v. Dhadi Sahu : [1976]105ITR56(Orissa) and Radheshyam Agarwalla v. CIT : [1978]113ITR196(Orissa) ; CIT v. Om Sons : [1979]116ITR215(All) ; Abdul Azeez (R.) v. CIT 0065/1980 : [1981]128ITR547(KAR) and Banwarilal Chowkhani v. CWT , and held that the change of forum is a matter of procedure and the Amendment Act is retrospective in regard also to matters pending before the Inspecting Assistant Commissioner and, therefore, the Inspecting Assistant Commissioner had no jurisdiction to levy the penalty. It is pertinent to note that the Full Bench quoted with approval extensively from the Division Bench decision in Varkey Chackos case : [1982]136ITR733(Ker) at pages 798, 799 and 800, stating that 'we are in agreement with the above proposition of law laid down by the Division Bench' (page 800). After that the Full Bench at page 802 went into the contrary view taken by the Orissa High Court (see : [1976]105ITR56(Orissa) ) and other courts and took a similar view.
The Supreme Court in CIT v. Dhadi Sahu : [1993]199ITR610(SC) has considered a similar question whether the amendment brought about in section 274(2) with effect from April 1, 1971, was not applicable to pending references. The Supreme Court has held that it is a general principle that a law which brings about a change in the forum does not affect pending actions unless an intention to the contrary is clearly shown. The Supreme Court further held that the previous operation of section 274(2), as it stood before April 1, 1971, and anything done thereunder continued to have effect under section 6(b) of the General Clauses Act, 1897, enabling the Inspecting Assistant Commissioner to pass orders imposing penalty in pending references. The Supreme Court concluded with the following words (at page 616) :
'In our opinion, therefore, what is material to be seen is as to when the references were initiated. If the reference was made before April 1, 1971, it would be governed by section 274(2) as it stood before that date and the Inspecting Assistant Commissioner would have jurisdiction to pass the order of penalty.'
The Supreme Court further held regarding the change of forum in the following words (at page 617) :
'It is also true that no litigant has any vested right in the matter of procedural law but, where the question is of change of forum, it ceases to be a question of procedure only. The forum of appeal or proceedings is a vested right as opposed to pure procedure to be followed before a particular forum. The right becomes vested when the proceedings are initiated in the Tribunal or the court of first instance and, unless the Legislature has, by express words or by necessary implication, clearly so indicated, that vested right will continue in spite of the change of jurisdiction of the different Tribunals or forums.'
The Supreme Court overruled the decisions in CIT v. Om Sons : [1979]116ITR215(All) and CIT (Addl.) v. M. Y. Chandragi : [1981]128ITR256(KAR) which were relied upon by the Full Bench in CIT v. P. I. Issac : [1987]168ITR793(Ker) , under reference. The Supreme Court in Varkey Chacko v. CIT : [1993]203ITR885(SC) affirmed the decision of the Kerala High Court in v. CIT v. Varkey Chacko : [1982]136ITR733(Ker) , which was not followed by the Full Bench in P. I. Issacs case : [1987]168ITR793(Ker) . The Supreme Court held that 'the crucial date, therefore, for purposes of penalty, was the date of such completion'. The Supreme Court further held as follows (at page 890 of 203 ITR) :
'Learned counsel for the Revenue submitted that the Income-tax Officer had, in the instant case, satisfied himself that there had been concealment of income on March 27, 1972, when he made the order of assessment. Such satisfaction was a prerequisite to the initiation of the penalty proceedings which were initiated on the same day. On that day, under the amended provisions of section 274(2), the Income-tax Officer had the authority to impose the penalty upon the assessee. Therefore, the High Court had answered the reference correctly.
A penalty for concealment of particulars of income or for furnishing inaccurate particulars of income can be imposed only when the assessing authority is satisfied that there has been such concealment or furnishing of inaccurate particulars. A penalty proceeding, therefore, can be initiated only after an assessment order has been made which finds such concealment or furnishing of inaccurate particulars. Who at this point of time, has the authority to impose the penalty is what is relevant. Whoever this authority may be, he is obliged to impose such penalty as was permissible under the law in that behalf on the date on which the offence of concealment of income was committed, that is to say, on the date of the offending return. The two aspects must firmly be borne in mind, namely, who may impose the penalty and in what measure.'
The argument in the case before us was based on the question whether there was a valid reference in these cases. The Tribunal in paragraph 17 (of their order) found that the assessment order was made on March 30, 1976, and the Income-tax Officer initiated proceedings for the levy of penalty on the same day. The Tribunal found as a matter of record that the Income-tax Officer informed the assessee by a letter of even date that the case was being referred to the Inspecting Assistant Commissioner for the purpose of levy of penalty for the alleged concealment of income. That letter was despatched on March 31, 1976. A copy thereof was despatched to the Inspecting Assistant Commissioner also on March 31, 1976. The said copy was received in the office of the Inspecting Assistant Commissioner on April 1, 1976, as is seen evident from the stamp affixed thereunder. However, learned counsel appearing on behalf of the assessee submitted that in the circumstances, the Income-tax Officer should have referred the case only on March 31, 1976, and, therefore, there was no valid reference.
In CIT v. Mohinder Lal , it has been held that reference under section 274(2) of the Act is only a ministerial act. The moment the Assessing Officer passes an order for initiating the penalty proceedings, the proceedings stand initiated and, therefore, the Inspecting Assistant Commissioner will continue to have the jurisdiction in the matters which were then pending before him. As held by the Supreme Court, neither in express words nor by necessary implication has the Legislature indicated that the jurisdiction of the Inspecting Assistant Commissioner, even in pending matters, that is matters which are already referred to him, was affected.
The Patna High Court in CIT v. Ganga Dayal Sarju Prasad : [1985]155ITR618(Patna) held that the jurisdiction of the Inspecting Assistant Commissioner to deal with a matter of penalty is to be looked at as on the date of initiation of proceedings and not with reference to subsequent events and such jurisdiction cannot be divested by what happened subsequently. The change of law subsequent to such initiation cannot take away the jurisdiction of the Inspecting Assistant Commissioner.
Learned counsel appearing on behalf of the assessee also made a submission that the reference was invalid since it was not received by the Inspecting Assistant Commissioner before April 1, 1976. This argument is not sustainable since the jurisdiction of the Inspecting Assistant Commissioner is acquired the moment the Assessing Officer passes the order. As the expression under sub-section (2) of section 274 gives no room for doubt since the moment the Assessing Officer is satisfied of the concealment of income, he shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose, have all the powers, conferred under this Chapter, of imposition of penalty. In this context the learned Advocate-General for Taxes referred to the decision of the Supreme Court in R. K. Upadhyaya v. Shanabhai P. Patel : [1987]166ITR163(SC) , wherein it has been held that (at page 165) :
'Once a notice is issued within the period of limitation, jurisdiction becomes vested in the Income-tax Officer to proceed to reassess.'
In CWT v. Kundan Lal Behari Lal : [1975]99ITR581(SC) , the Supreme Court, while interpreting the word 'issued' occurring in section 18(2A) of the Wealth-tax Act, held that it would take in the entire process of sending notice as well as service thereof. The Supreme Court also held in that ease quoting an earlier judgment in Banarsi Debi v. ITO : [1964]53ITR100(SC) , that the expressions 'issued' and 'served' are used as interchangeable terms and in the legislative practice of our country they are sometimes used to convey the same idea. In Jai Charan Lal v. State of U.P. : [1967]3SCR981 , the Supreme Court while dealing with the requirement of seven clear days intervening between the date of despatch of notice and the date of the meeting of a Municipal Council held that 'the critical date according to its provisions is the date of despatch of notice and not the date of its receipt'. The Supreme Court in Varkey Chacko v. CIT : [1993]203ITR885(SC) held that the relevant date is the date when the Income-tax Officer reached the satisfaction that the assessee had concealed his income and made the assessment. On that day the amended provision of section 274(2) was in operation. Therefore, the question whether after the order of the Assessing Officer reference order was placed before the Inspecting Assistant Commissioner and whether it was actually pending with the Inspecting Assistant Commissioner before April 1, 1976, has no significance in the light of the various decisions holding that the relevant date is the date on which the assessment was completed.
Learned counsel appearing on behalf of the assessee made yet another submission based on the interpretation of section 6 of the General Clauses Act. According to him, the section cannot be invoked in the case of ouster of jurisdiction. He strongly relied on the decision in R. Abdul Azeez v. CIT 0065/1980 : [1981]128ITR547(KAR) , wherein the court held that sub-section (2) of section 274 of the Act was omitted by section 65 of the Amending Act and, that therefore, section 6 of the General Clauses Act cannot be invoked. The Division Bench of the Karnataka High Court, while coming to that conclusion, followed the Supreme Court decision in Rayala Corporation (P.) Ltd. v. Director of Enforcement, New Delhi AIR 1970 SC 494. The learned Advocate-General, while adverting to the decision in Rayala Corporations case AIR 1970 SC 494, drew our attention to paragraph 12 (at page 502) of the said judgment. The relevant portion of it is as follows :
'The argument of Mr. Sen was that, even if there was a contravention of rule 132A(2) by the accused when that rule was in force, the act of contravention cannot be held to be a thing done or omitted to be done under that rule, so that, after that rule has been omitted, no prosecution in respect of that contravention can be instituted. He conceded the possibility that, if a prosecution had already been started while rule 132A was in force, that prosecution might have been competently continued. Once the rule was omitted altogether, no new proceeding by way of prosecution could be initiated even though it might be in respect of an offence committed earlier during the period that the rule was in force. We are inclined to agree with the submission of Mr. Sen that the language contained in clause 2 of the Defence of India (Amendment) Rules, 1965, can only afford protection to action already taken while the rule was in force, but cannot justify initiation of a new proceeding which will not be a thing done or omitted to be done under the rule but a new act of initiating a proceeding after the rule had ceased to exist. On this interpretation, the complaint made for the offence under rule 132A(4) of the D.I.Rs., after 1st April, 1965, when the rule was omitted, has to be held invalid.'
The Supreme Court is of the opinion that under the Rules, no further application of the rule can be permitted by instituting a new prosecution in respect of something already done. In that context, the Supreme Court held that section 6 of the General Clauses Act cannot apply on the omission of rule 132A of the D.I.Rs. The observation of the Supreme Court, in not allowing the continuance of proceedings, has to be considered in the context of the facts of the particular case. Learned counsel for the assessee also relied on the observation of the Supreme Court in CIT v. Dhadi Sahu : [1993]199ITR610(SC) regarding the distinction of divesting and ousting of jurisdiction.
The argument of learned counsel is that in the case of ousting of jurisdiction, the Inspecting Assistant Commissioner will not have the authority to pass the orders. But the case before us is that at the time when the reference was initiated, the Inspecting Assistant Commissioner had jurisdiction and the question is whether he will continue to have the jurisdiction even after the date. The judgment of the Karnataka High Court in R. Abdul Azeez v. CIT 0065/1980 : [1981]128ITR547(KAR) holding that the Inspecting Assistant Commissioner will not have the jurisdiction based on the interpretation of section 6 of the General Clauses Act and the judgment in Rayala Corporations case AIR 1970 SC 494 have been reversed impliedly in CIT v. Dhadi Sahu : [1993]199ITR610(SC) . By the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, sub-section (2) of section 274 was deleted. The scope and effect of the amendment were explained by the Board in Circular No. 204, dated July 24, 1976, which is as follows :
'Procedure in regard to imposition of penalty. - Section 274. -
65. Hitherto, in a case in which the concealment of income exceeded Rs. 25,000, the penalty order under section 271(1)(iii) was passed by the Inspecting Assistant Commissioner. As explained in paragraph 61.6 above, the penalty orders in such cases will now be passed by the Income-tax Officer with the prior approval of the Inspecting Assistant Commissioner. Sub-section (2) of section 274 which provided for the imposition of concealment penalty by the Inspecting Assistant Commissioner has, accordingly, been deleted.'
The argument of learned counsel for the assessee is relating to the effect of the amendment and not repeal. The provisions relating to the procedure under section 274 as originally enacted in the years 1961 and 1970 have since been amended. The effect of such an amendment will have to be either omission, insertion or substitution. The effect of the repealing of an enactment is provided under section 6 of the General Clauses Act which says that repealing of an enactment shall not affect any right, privilege, etc., incurred under any enactment so repealed, or affect any investigation, legal proceedings, etc., and further provides that any such investigation, legal proceeding or remedy may be instituted, continued or enforced as if the repealing Act or regulation had not been passed. Section 6 provides for the continuance of the investigation and initiation of fresh proceedings. Section 6A of the General Clauses Act provides that whenever an Act is repealed by any enactment, the amendments made by omission, insertion or substitution shall be continued and the repealing of the Act will not have any effect on those amendments. By a closer look at these provisions, it is clear that an Act can be amended by omission, insertion or substitution and even though the original Act is repealed, those amended provisions would continue unless a different intention appears from the repealing Act. Therefore, the Taxation Laws (Amendment) Act, 1975, does not expressly bar the continuance of the proceedings initiated already. The distinction sought to be made on the expression 'omission' does not improve the case of the petitioner. Whether it is a deletion or omission it is an amendment and the amendment ceased to be a procedure and has not taken away the jurisdiction of the Inspecting Assistant Commissioner retrospectively. The Amending Act does not make the proceedings pending before the authorities, abate. It is clear that the Inspecting Assistant Commissioner to whom the case was referred prior to April 1, 1976, had the jurisdiction to impose penalty.
In view of what has been stated above, I hold that there was a valid reference and the order of the Tribunal holding that the Inspecting Assistant Commissioner has no jurisdiction is illegal. The question is, therefore, answered in favour of the Revenue and against the assessee.
Regarding the first question, viz., whether, on the facts and circumstances of the case, the Tribunal is right in holding that penalty is exigible under section 271(1)(c) of the Income-tax Act for the assessment year 1973-74, the relevant provision during the relevant period is the Explanation to section 271(1)(c)(iii). In the Explanation a burden is placed on the assessee to the effect that unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect, he would be deemed to have concealed the particulars of his income for the purpose of section 271(1)(c). The Tribunal, which went into the question in paragraphs 8 and 9, has given a categorical finding that the assessee had not at all disclosed the gains arising from the same in the return filed by him. Ultimately, the Tribunal found that in these circumstances the contention that the assessee had not concealed any income is devoid of any merit and cannot be accepted. The assessee has not offered any explanation for the omission. Therefore, it has to be held that penalty is exigible for concealment of income under section 271(1)(c) of the Income-tax Act, 1961. The question whether the assessee has discharged his burden is a conclusion of fact and not a question of law. This has been held so by the Supreme Court in CIT v. Mussadilal Ram Bharose : [1987]165ITR14(SC) . The Supreme Court further held that the explanation must be acceptable to the fact-finding body. The Supreme Court also held that the Tribunals conclusion on relevant and sufficient material that the respondent had discharged its onus to prove that the difference was not owing to gross or wilful neglect or fraud, was a conclusion of fact and no question of law arose. In CIT v. Govindankutty Menon : [1989]178ITR509(Ker) , a Division Bench of this court held that unless it is shown that the failure to return the correct income has not arisen on account of any fraud or gross or wilful neglect on the part of the assessee, he shall be deemed to have concealed the particulars of the income. It is only a presumption. This interpretation can be discharged either by independent evidence led during the penalty proceedings or by a closer scrutiny or appraisal of the existing facts and data available. The findings arrived at were pure findings of fact and no question of law arose from it.
The learned Advocate-General for Taxes submitted that the question as framed is self-destructive in the sense that, on the facts and circumstances of the case as found by the Tribunal, the penalty is exigible. Therefore, the question does not arise for consideration by this court. In that context, he referred to the Supreme Court decision in Karam Chand Thapar and Bros. P. Ltd. v. CIT : [1971]80ITR167(SC) , wherein the court held that the only question that the High Court was called upon to determine was whether, on the facts found by the Tribunal, the sum of Rs. 18 lakhs was a revenue receipt and it was not permissible for the High Court to disturb the findings of fact reached by the Tribunal.
In CIT v. Bhageeratha Engg. Ltd. : [1993]199ITR12(SC) , the Supreme Court held while affirming the decision of the High Court that the contention of the Department that the construction activity carried on by the respondent could not be said to be an industrial undertaking became irrelevant as the Department had not challenged the finding of the Tribunal. In CIT v. Kamal Singh Rampuria : [1970]75ITR157(SC) , the Supreme Court held that in the absence of a proper question about the validity of the findings of fact of the Tribunal, the High Court was in error in reappraising the evidence before the Tribunal and in interfering with its finding. The Supreme Court further held that it is well established that the High Court is not a court of appeal in a reference under section 66 of the Act, and it is not open to the High Court in such a reference to embark upon a reappraisal of the evidence and to arrive at findings of fact contrary to those of the Appellate Tribunal. It is true that the finding of fact will be defective in law if there is no evidence to support it or if the finding is unreasonable or perverse. But in the hearing of a reference under section 66 of the (1922) Act it is not open to the assessee to challenge such a finding of fact unless he has applied for a reference of the specific question under section 66(1). In a reference the High Court accepted the findings of fact reached by the Appellate Tribunal and it is for the party who applied for a reference to challenge those findings of fact, by an application under section 66(1). If the party concerned has failed to file an application under section 66(1) expressly raising the question about the validity of the findings of fact, he is not entitled to urge before the High Court that the findings were vitiated for any reason.
A Division Bench of this court in Haji A. Abdul Khader Sahib v. CIT ILR [1975] Ker 81, held in paragraph 5 as follows :
'It is now very well settled by a long line of decisions of the Supreme Court that the expression facts and circumstances that normally precede or preface any question that is referred to this court must take in not facts and circumstances found by this court but facts and circumstances found by the Tribunal in its order. It is equally well settled that if there is no specific challenge to any finding of fact by the Tribunal by an appropriate question being raised and referred to this court, this court is precluded from considering whether that finding entered by the Tribunal should stand or not.'
In these circumstances, the question referred by the Tribunal is answered in the affirmative, in favour of the Revenue and against the assessee.
Regarding Income-tax Reference No. 107 of 1983, the questions referred were mentioned in the beginning paragraph of this judgment. The first question that arose for consideration was regarding the quantum of penalty, viz., whether the amount in respect of which the assessee has concealed the income in the return filed by him for the assessment year is to be reckoned after allowing deductions under section 80T of the Income-tax Act, 1961. The Tribunal after considering the matter came to the conclusion that the assessee has concealed the particulars in respect of only that income which should have been disclosed in the return, viz., the capital gains arising from the transaction computed in accordance with the provisions of section 80T and section 48 of the Act. The contention raised on behalf of the Revenue is that deduction under section 80T could be allowed only after setting off the capital loss of Rs. 8,355 relating to the assessment year 1972-73 and if so done, such deduction would be only Rs. 38,790 as worked out by the Income-tax Officer and hence the assessable capital gains would be Rs. 71,110. The Tribunal distinguished the decision of this court in CIT v. India Sea Foods : [1976]105ITR708(Ker) . The question that deduction of long-term capital losses brought forward from the earlier assessment years should be first set off against the long-term capital gains, was decided by the Supreme Court in H. H. Sir Rama Varma v. CIT : [1994]205ITR433(SC) as follows (headnote) :
'Long-term capital losses brought forward from the earlier assessment years have to be first set off against the long-term capital gains of the current assessment year before the deduction contemplated by section 80T of the Income-tax Act, 1961, is allowed. In other words, the relief under section 80T is to be given only for the amount of long-term capital gains of the current assessment year after the long-term capital loss of the earlier years brought forward is set off.'
The Supreme Court, in this decision, affirmed the decision of this court in H. H. Sir Rama Varma v. CIT : [1981]129ITR156(Ker) .
In view of the Supreme Court decision, the conclusion reached by the Tribunal is erroneous. Consequently, I answer the question in favour of the Revenue and against the assessee and hold that the deductions under section 80T could be allowed only after setting off the capital loss.
In the light of the conclusion questions Nos. 2 and 3 are also answered in favour of the Revenue and against the assessee.
PAREED PILLAY C.J. - I have gone through the judgments of Mohammed J. and Shanmugam J. I agree with Mohammed J.
(Sd.) (M. M. Pareed Pillay),
Chief Justice.
In view of the majority decision, we answer the second question of law raised at the instance of the assessee and the third question at the instance of the Revenue, in the negative and in favour of the assessee and against the Revenue. We decline to answer the other questions raised both by the assessee and the Revenue.
A copy of this judgment, under the seal of this court and the signature of the Registrar, shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.