1. This appeal is by the revenue. The assessee to the appeal is Ogesh Industries, Aligarh, a registered firm. The year of the assessment involved is 1975-76.
2. For the year the assessee had returned a total income of Rs. 9,064 but the ITO completed the assessment on a total income of Rs. 54,970 by making the additions totalling Rs. 32,000 on account of cash credits of Rs. 24,000 standing in the name of Shri Atma Ram and Rs. 8,000 in the name of Bhavnesh Kumar on the ground that the assessee had failed to prove the nature and source of those cash credits as also on account of addition of Rs. 10,183 to the gross profit returned. Prior to the completion of the assessment, the ITO had issued notice to the assessee as to why penalty be not levied against it under Section 271(1)(c) of the Income-tax Act, 1961 ('the Act').
3. After the cause was shown and the assessee was heard, the ITO, vide his order dated 23-3-1979, was satisfied that the assessee had committed the offence under Section 271(1)(c) and penalty was exigible against the assessee under that provision. The ITO then went on to levy a penalty of Rs. 2,454 by observing that "Minimum penalty and maximum penalty comes to Rs. 2,454 and Rs. 4,908. I, therefore, impose minimum penalty of Rs. 2,454." Admittedly, the assessee did not file any appeal against this penalty order and so the said penalty order, subject to what is being stated hereinafter, became final.
4. Later on the ITO noticed that there was a mistake apparent from the penalty order inasmuch as the penalty against the assessee was wrongly levied by computing the quantum of the penalty on the basis of the tax sought to be evaded. According to him, since the penalty was leviable under Section 271(1)(c) by treating the firm to be unregistered firm as provided in Section 271(2), the present case was a case of mistake apparent from record. He, therefore, issued a show-cause notice to the assessee as to why the penalty order be not rectified by enhancing the quantum of the penalty levied. In response to the said notice, the assessee filed a written reply dated 21-4-1979. The assessee, according to the ITO, has not objected to the mistake pointed out in the notice under Section 154 of the Act 'but has stated that while calculating the penalty the amount of Rs. 10,163 being enhanced gross profit should not be taken into account for calculating the penalty'. The plea of the assessee, according to the ITO, was a debatable point and so it was not accepted. The ITO, accordingly, enhanced the quantum of penalty from Rs. 2,454 to Rs. 14,810 under Section 271(1)(c).
5. Aggrieved by the said penalty order, the assessee brought the matter by way of appeal before the AAC who has cancelled the penalty order of the ITO dated 23-3-1979 as also his order under Section 154 by observing as under: Though original order under Section 271(1)(c) was not challenged it is claimed that since order under Section 154 modified the order under Section 271(1)(c) appellant can take it to its ambit the original order under Section 271(1)(c) also. Appellant has objected to both the above orders on the ground that the penalty order both in its original order and after Section 154 are void ab initio. It is claimed that for assessment year 1975-76 the penalty under Section 271(1)(c) was in relation to income concealed. The calculation of penalty as done by the Income-tax Officer on the basis of tax was wrong as such and further rectification also is correct inasmuch as this rectification is also based upon a wrong interpretation of law. In this case the return was filed prior to 29-1-1976 and as such the default arose prior to the amendment has brought in by the Taxation Laws (Amendment) Act, 1975 with effect from 1-4-1976. It was by means of Taxation Laws (Amendment) Act, 1975 that the penalty under Section 271(1)(c) was related to the tax. Prior to this amendment the quantum of penalty was related to the income concealed. Therefore, the contention of the appellant appears to be right. Neither in the original order nor in the amended order the Income-tax Officer seems to have followed the provisions of law as they stood prior to the Taxation Laws (Amendment) Act, 1975. In appellant's case the penalty should have been related to the income concealed. Since at the original stage itself the penalty has been levied violating the provisions of Section 271(1)(c), it was illegal. The subsequent order under Section 154 instead of setting right the illegality has furthered the sin.
6. The assessee, though served [with a notice], was absent on the date fixed for the hearing of the appeal. The written submissions made by the assessee have been considered. We have also heard the departmental representative and gone through the original penalty order dated 23-3-1979 as also the order of the ITO under Section 154 and the impugned order of the AAC. As rightly argued by the departmental representative, the original penalty order passed by the ITO on 23-3-1979 having been not appealed against by the assessee had become final between the ITO and the assessee not only regarding his (ITO's) finding regarding the commission of the offence under Section 271(1)(c) but also regarding the quantum of the penalty leviable subject to the right of the ITO to rectify the same under Section 154. Since there was no application by the assessee regarding the existence of any mistake apparent on the record in the matter of the finding of the ITO in the original penalty order, dated 23-3-1979, regarding the commission of the offence by the assessee under Section 271(1)(c) for the year under consideration, the finding of the ITO in this behalf became final.
Insofar as the quantum of the penalty leviable is concerned, the ITO as stated in his order under Section 154 noticed a mistake apparent from the record inasmuch as the quantum of the penalty to be levied had been wrongly computed on the basis of the tax sought to be avoided. This mistake is apparent in view of the provisions of Section 271(1)(c) read with Section 271(2) as they stood on the date when the return for the year under consideration was filed by the assessee. The ITO after noticing the said mistake apparent from the record issued a show-cause notice to the assessee as to why the quantum of the penalty to be levied be not rectified. What is the stand of the assessee to this notice? The assessee had no objection to the mistake pointed out in the notice. He had stated that while calculating the amount of penalty the amount of Rs. 10,163 should not be taken into account for calculating the penalty. This plea of the assessee was not accepted by the ITO on the ground that the mistake in that behalf was not a mistake apparent from the record. The ITO after the said reply has computed the quantum of penalty in accordance with Section 271(1)(c) read with Section 271(2) as they stood on the date when the return for the year under consideration was filed by the assessee. The appeal of the assessee against this order under Section 154 before the AAC was competent by virtue of Section 246(f) of the Act which permits the assessee being aggrieved by the order under Section 154 to file the appeal. This appeal by the assessee before the AAC was not under Section 246(o).
Further the order of the ITO dated 23-3-1979 having become final regarding the commission of the offence under Section 271(1)(c) and the assessee being liable to penalty under Section 271(1)(c), the assessee having not appealed against that part of the order dated 23-3-1979 could not be the subject-matter of the appeal by the assessee before the AAC against the order of the ITO under Section 154 dated 26-9-1980.
The only point which could be agitated before the AAC in the appeal against the order of the ITO under Section 154 dated 26-9-1980 would be regarding the quantum of the penalty levied which by virtue of the said order was enhanced from Rs. 2,454 to Rs. 14,810. The appellate jurisdiction of the AAC could not go beyond that so as to hold that the order of the ITO under Section 271(1)(c) dated 23-3-1979 regarding the commission of the offence under Section 271(1)(c), which had become final having been not appealed against, was bad. The assessee has not been able to show that the quantum of the penalty levied by the ITO under Section 154 is wrong. We, therefore, while cancelling the order of the AAC, restore that of. the ITO in the present case.