1. This is the appeal by the assessee challenging the order of the IAC as passed under Section 271(1)(c)/ 274(2) of the Income-tax Act, 1961 ('the Act').
2. The first ground of appeal concerns with the jurisdiction of the IAC. According to the assessee, the order of the IAC is erroneous and bad in law as the IAC had no jurisdiction to pass an order under Section 271(1)(c). Briefly speaking, the facts of the case are that for the assessment year 1972-73, the ITO noted in the assessment order that the assessee is being assessed in the status of a registered firm and the method of accounting was shown as mercantile. The accounting period ended on 22-3-1972 (2028 RN). The assessment was completed under Section 143(3) read with Section 144B of the Act. The ITO amongst other things, stated that "while scrutinising the trading account, he noticed shortage of 316 bags (each containing one quintal approximately) of sugar and partial shortage in few of the bags also was noticed. He required the assessee to explain the shortage. The assessee stated that the shortage was detected at the time of taking delivery from railway wagons for which claims and suits have been instituted before the appropriate authorities and there was no certainty as to the actual reimbursement of the claim vis-a-vis their value and, therefore, the same was kept aside to be credited on cash basis after the amounts were realised. The ITO did not accept the explanation of the assessee as in his view the loss which the assessee had claimed has not yet materialised. From the list and date furnished by the assessee, the ITO observed that when the whole amount was not realised from the railway authorities, suits were preferred and ultimately most of the amounts were realised and even if small loss occurred at a stage, it occurred only when the assessee finally accepted after all the possible remedies have been exhausted. According to the ITO, the amount claimed should have been brought at par with the sales and credited to the trading account. He also noted that the judgments cited on behalf of the assessee would not be applicable to the facts of the case. He also observed that the assessee has not been able to show anything in support of his proposition that the claims preferred with the railway authorities were contingent receipts and should be treated as such. The ITO further mentioned that the assessee maintained mercantile system of accounts and, therefore, the claim of the assessee that the accounts were maintained on cash system only for railway claims vis-a-vis the shortage was not acceptable. He also pointed out that the assessee has also not shown this alleged cash account from year to year and that the contention of the assessee did not find support from the earlier records. The ITO found that in 1971-72 there was neither shortage nor any receipt from the claims of earlier years were shown. He pointed out that during the assessment year 1970-71, there was a shortage of Rs. 1,07,353 which was shown as claim realised and Rs. 2,88,871 as due to be realised and both these amounts were duly credited to the trading account. Moreover, he pointed out that for the assessment year 1969-70 also, Rs. 84,250 was credited against the shortage vis-a-vis the claims. The ITO further stated that this year only the shortage of some bags was shown without any credit either for this year or for any other years. He pointed out also that no separate accounts were also available showing shortage detected, claims preferred and claims realised. He, therefore, concluded that the assessee's proposition regarding the maintaining of cash system of accounts for this claim and shortage as discussed, failed. That apart, the ITO pointed out that, on the other hand, the position in the earlier years indicated that the assessee would bring the amount claimed at par with the sales for those respective years which was not the case for the year under appeal, as per the assessee's accounts.
3. The ITO further went on to say that the assessee contended that some of the claims were realised during the subsequent years. The ITO, however, pointed out that even verification of this statement was not possible because the assessee has not yet submitted the accounts even for the assessment year 1973-74. He observed that the assessee wanted to keep this aspect of the accounts on cash basis, whereas the assessee has charged the litigation and other expenses during the year, which was contradictory to the assessee's own claim. The ITO pointed out that it was not understood as to why the assessee was silent in respect of these accounts till the shortage was detected. Accordingly, Rs. 91,653 was added back as income of the assessee.
4. In the course of assessment proceedings the ITO initiated penalty proceedings under Section 271(1)(c)/274, etc. He noted in the assessment order that proceedings under the above sections have been initiated separately. From the order of the IAC dated 14-3-1978, it is seen that the ITO referred the penalty proceedings under Section 271(1)(c) read with Section 274 to the IAC for disposal. The IAC noted in the impugned order that the show cause notice was issued by him and served on the assessee on 16-12-1977. But hearing was adjourned at the request of the assessee. When the case was fixed for hearing later on, nobody attended and there was no response from the assessee. He, therefore, proceeded to complete the proceedings on the merits of the case.
5. As indicated earlier, the assessee before us challenges jurisdiction of the IAC to pass order under Section 271(1)(c)/274(2). According to the assessee's learned Counsel, the IAC lost his jurisdiction to pass order on the present case in view of the amendment brought about by the Taxation Laws (Amendment) Act, 1975, which was made effective from 1-4-1976 affecting Section 274(2). According to the assessee's learned Counsel, the ITO had jurisdiction to pass a penalty order and not the IAC. The present order impugned before us was passed on 14-3-1978. It is urged, therefore, that on the facts of the case and as the law stood at the relevant point of time, the IAC had no jurisdiction and, therefore, his order requires to be cancelled. In this connection reference is made to the decision of the Hon'ble Karnataka High Court in the case of R. Abdul Azeez v. CIT [1981] 128 ITR 547. It is submitted that the facts of the case were similar to the case of the present assessee and the Hon'ble High Court held that as a result of the amendment referred to above, the IAC had no authority to pass order under Section 271(1)(c) on or after 1-4-1976.
6. That apart, it is urged that the authorities below have acted not in accordance with law in imposing a penalty on the assessee. It is pointed out that the ITO issued a show cause notice to the assessee under Section 271(1)(c) asking the assessee to appear before him on a fixed date. Copy of the notice is placed in our file. It is further stated that the IAC also issued a show cause notice asking the assessee to show cause before him why penalty should not be imposed. According to the assessee's learned Counsel the action of the authorities in this respect was illegal inasmuch as two notices have been issued for the same purpose. In this connection reference is made to the decision of the Hon'ble Calcutta High Court in the case of Kashiram Tea Industries Ltd. v. ITO [1981] 132 ITR 783, in which the proceedings for imposition of penalty were involved. In that case the ITO initiated proceedings against the assessee for imposition of penalty and the matter was also referred by him to the IAC who has to continue the proceedings for levy of penalty. It was noted that the ITO would not be justified in calling the assessee to appear before him and show cause why order of penalty should not be made under Section 271, when he has referred the matter to the IAC under Section 274. It was held that the issue of two identical notices, one by the ITO under Section 271 and another by the IAC under Section 274, and the consequent simultaneous penalty proceedings were without jurisdiction. It is urged, therefore, that on the ratio of the decision, both the authorities below would have no jurisdiction to pass any penalty order on the facts of the present case.
7. Although this point of appeal cannot be said to have arisen out of the order of the IAC impugned before us, yet the above ground of appeal has to be taken into consideration by us as it would go to the root of the matter.
8. The learned departmental representative, on the other hand, resists the submissions made on behalf of the assessee contending that this point of jurisdiction was not before the IAC and even otherwise, the penalty proceedings are procedural and any defect, if at all, would be cured under Section 292B of the Act. According to the learned departmental representative, it was the ITO who has to initiate the penalty proceedings in the course of the assessment proceedings, if the ITO is satisfied that there was concealment or furnishing of inaccurate particulars and the IAC would simply take over when the case was referred to him by the ITO as required under Section 274(2) and, therefore, there was no wrong committed by the authorities below in the instant case. According to the revenue, the ratio of the decision in the case of Kashiram Tea Industries Ltd. (supra) would not be applicable to the facts of the present case. In brief it is urged that this ground of appeal by the assessee may be rejected.
9. We have perused the orders of the authorities below for consideration along with the rival contentions of both sides. It may be pointed out that in the case of Kashiram Tea Industries Ltd. (supra) it was held that the ITO would not be justified on the facts of the case, in calling on the assessee to appear before him and show cause why penalty order should not be made under Section 271, when the ITO has referred the matter to the IAC under Section 274. But from the facts of the present case available and as per copies of the show cause notices issued by the ITO and by the IAC, it is seen that the date of the notice issued by the ITO under Section 271 was 12-7-1976 and the assessment order was also passed on 12-7-1976. In other words, the ITO in consequent of his satisfaction in the course of assessment proceedings, issued the notice under Section 271 dated 12-7-1976, asking the assessee to appear before him on 31-8-1976. There is no indication as to what happened on 31-8-1976. Anyway, the IAC issued a notice under Section 271(1)(c) read with Section 274 vide his notice dated 14-12-1977 asking the assessee to show cause before him on the date fixed for hearing on 11-1-1978. These are the only notices which have been placed before us for our consideration. It is seen that the IAC issued the notice to the assessee, after the matter was referred to him by the ITO and the ITO did not subsequently issue any other notice to the assessee, after the case was referred to the IAC. These are the distinguishable facts of the present case. In the case of Kashiram Tea Industries Ltd. (supra), it was held that the ITO would not be justified in asking the assessee to show cause, when the ITO has referred the matter to the IAC. We find no material fact to say that on the facts of the present case, the ITO has issued show cause notice to the assessee after the ITO had already referred the matter to the IAC.Accordingly, in our opinion, the ratio of the decision in the case of Kashiram Tea Industries Ltd. (supra) would not be applicable to the facts of the present case.
10. In respect of the jurisdiction challenged by the assessee it is seen that it was the ITO who should have been satisfied in the course of the assessment proceedings regarding matters mentioned under Section 271(1)(c). As held by the Hon'ble Supreme Court of India in the case of D.M. Manasvi v. CIT [1972] 86 ITR 557, satisfaction precedes the issue of notice and it would not be correct to equate the satisfaction of the ITO with the actual issue of notice. In other words, the satisfaction of the ITO could be recorded much earlier before the issue of the notice actually. By this notice issued by the ITO, the assessee was informed that proceedings under Section 271(1)(c) have been initiated, otherwise the assessee would not have known of the proceedings as the ITO recorded his satisfaction in his records only. From the assessment order dated 12-7-1976, it is seen that the return was filed on 19-3-1975, i.e., prior to 1-4-1976.
11. Similar is the view of the Hon'ble Calcutta High Court in the case of Appejay Steel Works (P.) Ltd. v. IAC [1976] 103 ITR 806 in which it was held that the ITO, on the facts of that case, was satisfied during the course of the assessment proceedings about the need for imposition of penalty and what is required is the satisfaction before the conclusion of the assessment proceedings and not the issue of any notice or the initiation of any step for imposition of penalty. The facts of the case of Appejay Steel Works (P.) Ltd. (supra) were that for the assessment year 1964-65, the ITO, Jullundur completed the assessment on 18-3-1969 in which it was noted 'that penalty notice under Section 271(1)(c) for concealment of true particulars of the income has already been issued . . .' Thereafter the case was transferred to the ITO, Calcutta, who issued a notice to the assessee on 5-6-1970 stating that the case for levy of penalty was being referred to the IAC, Calcutta, who in pursuance of the reference made by the ITO, issued notice to the assessee on 10-2-1971 to show cause why penalty should not be levied. The assessee filed a writ petition which the Hon'ble High Court found not to be sustainable. It was observed by the Hon'ble High Court that the use of the expression as indicated by us above, was rather unhappy and inaccurate. The Court observed that what the ITO should have observed was that he was of the opinion that the matter should be referred to the IAC as the minimum penalty imposable was likely to exceed Rs. 1,000. But the said inappropriate use of language did not invalidate the issue of a notice.
The situation before us also is similar. As indicated earlier, the ITO vide his notice dated 12-7-1976 under Section 271 asked the assessee to show cause before him on 31-8-1976. But as pointed out by the Hon'ble Calcutta High Court in the case of Appejay Steel Works (P.) Ltd. (supra), the use of the inaccurate wording or expression would not be material, as in fact in the present case the ITO should have intimated the assessee that further proceedings in the matter would be dealt with by the IAC under Section 274(2). In our opinion, on the facts of the present case, it cannot be said that there were two proceedings going on simultaneously for imposition of the penalty, as contended on behalf of the assessee.
12. That apart, it is contended on behalf of the assessee that the claim of the revenue that Section 292B would come in aid of the revenue, cannot be accepted as, according to the assessee's learned Counsel, penalty proceedings are not procedural as the same are substantive provisions and, therefore, Section 292B would have no application. In this connection we may refer to the decision of the Hon'ble Allahabad High Court in Hargu Charon Srivastava v. CIT [1979] 119 ITR 622 in which the dispute regarding the period of limitation for imposition of penalty was involved. It was held therein that the period of limitation is a matter of procedure. After considering the provisions of Section 271(1)(c) read with Section 274(2), we are of the opinion that the penalty proceedings under Section 271(1)(c) read with Section 274 are procedural matters.
13. We may at this stage refer to the decision in the case of Addl. CIT v. M.Y. Chandragi [1981] 128 ITR 256 (Kar.) in which under similar situation, it was held that after the amendment, the ITO was conferred jurisdiction to impose penalty in all cases where the concealment did not exceed Rs. 25,000 and he was required to refer to the IAC only such cases of concealment where the amount concealed exceeded Rs. 25,000. It may be pointed out here that in the above case the Hon'ble High Court referred to the decision of the Hon'ble Madras High Court in the case of Continental Commercial Corpn. v. ITO [1975] 100 ITR 170. But the Hon'ble Karnataka High Court disagreed with the view expressed by the Hon'ble Madras High Court. In the case of Continental Commercial Corpn, (supra) it was held on the facts of that case that Section 274(2) relates to the jurisdiction of the ITO and the amendment to that section by the Taxation Laws (Amendment) Act, 1970, enlarged the jurisdiction of the ITO with effect from 1-4-1971 and as it dealt with the jurisdiction of an officer, the amendment will not be retrospective. It was found in that case that for the assessment year 1970-71, the return was filed on 22-12-1970 and, therefore, the law as in force on that date, would be applicable and Section 274(2) as it stood prior to the amendment on 1-4-1971, was the relevant provision that was to be applied. The Hon'ble Punjab and Haryana High Court in case of CIT v. Raman Industries [1980] 121 ITR 405 in a similar situation has expressed a similar view. It was held that the amendment of Section 274(2) is not retrospective and the amendment would not take away the jurisdiction of the IAC in respect of the case referred to him. It also noted that the provision of the Taxation Laws (Amendment) Act, 1970, did not indicate that amendment of Section 274 is retrospective. It was observed by the Hon'ble High Court that if during the time when the matter of penalty had been referred to and was pending before the IAC, the law was changed, that would not mean that the jurisdiction of the IAC has been taken away. The same view was taken by the Hon'ble Punjab and Haryana High Court in the case of CIT v. Sadhu Ram [1981] 127 ITR 517.
14. Similarly, the Hon'ble Gujarat High Court has expressed an identical view in the case of CIT v. Balabhai & Co. [1980] 122 ITR 301 which was also followed in the case of CIT v. Manu Engg. Works [1980] 122 ITR 306 (Guj.).
15. As mentioned earlier, the ITO has noted in the assessment order that the return was filed on 19-3-1975. In our opinion, the law as relevant to 19-3-1975 would be applicable. In this connection we may refer to the decision of the Hon'ble Madras High Court in the case of CGT v. C. Muthukumaraswamy Mudaliar [1975] 98 ITR 540 in which it has expressed the view that in cases of concealment of particulars or deliberate furnishing of inaccurate particulars in a return, the infringement is committed when the return is filed and, therefore, the law as on the date of the filing of the return would have to regulate the levy of penalty. We may also refer to the decision of the Karnataka High Court in the case of Addl. CIT v. C.V. Bagalkoti & sons [1978] 115 ITR 131 in which an identical view was expressed on a similar situation. It is pertinent at this stage that we should refer also to the decision of the Hon'ble Supreme Court in the case of Brij Mohan v.CIT [1979] 120 ITR 1, in which it was held, amongst other things, that the concealment of particulars of income was affected by the assessee when he filed the return and, therefore, the law as is operating on the date on which wrongful act was committed would govern the issue. The Hon'ble Madhya Pradesh High Court in the case of CIT v. Ramchand Kundanlal Saraf [1975] 98 ITR 474 has expressed an identical view, as also given by it in the case of Addl. CIT v. Hiralal Munnalal [1980] 124 ITR 728.
16. Again as mentioned earlier, the assessee filed the return on 19-3-1975 and, therefore, the law as applicable on that date would govern the issue and not the law as per amended section. In this view of the matter, we are of the opinion that the ITO had properly initiated the proceedings and the IAC had validly continued the proceedings and passed the order on the case referred to him by the ITO under Section 271(1)(c) read with Section 274(2) and, therefore, his action requires to be sustained which we hereby do.
17. The assessee's learned Counsel has also argued against the penalty on merits of the case. It is pointed out that in the quantum appeal the assessment order of the ITO was sustained and the matter has become final. The claim made by the assessee before the authorities below are repeated before us also. It is urged that although the assessee maintained mercantile system of accounting, but as far as the claim from the railway authorities and receipts therefrom is concerned, the assessee maintained a cash system of accounting. It is further urged that whenever the assessee receives any claim from railways or from other authorities, such claim or receipt is reflected in the accounts as it is not proper to show contingent receipts as income of the assessee during the year. The assessee's learned Counsel, therefore, urged that the business loss claimed by the assessee should have been allowed. It is also stated that the IAC went wrong in making a reference to the recoveries effected by the assessee during the other assessment years. It is stressed on behalf of the assessee that not all the claims made with the authorities were realised as in fact the assessee had to go to the Court for recovery of certain unrealised claims and, therefore, there is no substance in the charge made by the IAC in the penalty order. It is, therefore, submitted that it cannot be said on the facts of the case that the assessee had concealed or has furnished inaccurate particulars of income for which penalty cannot be imposed.
18. The learned departmental representative resists the submissions made on behalf of the assessee contending that the ITO has dealt with this claim of the assessee as well elaborately in the assessment order itself and that apart the IAC has also stressed those vital points and facts as found by him as well as found by the ITO. It is stated that the ITO did consider the submissions made by the assessee, which were found to be not acceptable in view of the reasons stated therein. It is urged, therefore, that the order of the IAC may be sustained.
19. We have perused the orders of the authorities below for our consideration along with the various submissions made by both the sides. The assessee contends that all the claims made with the railway authorities were not realised. But no material fact has been placed before us to substantiate this claim. The IAC, on the other hand, has dealt with this aspect of the matter and he has referred to the findings of the ITO given in the assessment order. At this stage we may refer to the facts as noted by the ITO. The ITO observed that the assessee has been following the mercantile system of accounting and the assessee did not disclose the income in the form of receipts from railway claims as discussed briefly by us at paras 2 and 3 of this order. In addition to the railway claims, the ITO noted in the assessment order that the assessee has claimed Rs. 49,055 on account of Motia Majuri account, details of which were filed before the ITO who checked the same and found some vouchers could not be given. He pointed out that six vouchers from 2-5-1971 to 7-5-1971 for Rs. 200, one voucher for Rs. 112.51 for 5-7-1971 and nine vouchers of 22-3-1972, 3-11-1972 and 18-3-1972 amounting to Rs. 1,600, etc., could not be shown. That apart, he also mentioned that one or two vouchers may be missing but not so many. Accordingly, he disallowed Rs. 2,500.
20. In the travelling account, Rs. 16,223 was claimed as expenses. The ITO found from the details that most of the amounts for travelling were for the persons who were not employees of the assessee. That apart, some vouchers were not available and in some cases destination of the journeys were not noted. He pointed out certain examples. The assessee explained before the ITO that out of the persons who had performed the journeys, only Shri P.L. Bhagat is connected with the firm as a partner. The ITO observed that sufficient explanation could not be given in respect of the expenses shown on the last date except that these expenses were incurred some time before and on the last date the respective amounts were reimbursed to the persons concerned. The assessee further stated that though most of the persons against whom the expenses were shown were not employees of the assessee, they were nevertheless employees of other sister concerns of the assessee. The ITO observed that though this explanation has some force but it was not wholly acceptable particularly in the absence of details of destination and wanting of vouchers in some cases. The ITO inferred that the assessee has not been able to prove that the entire expenditure was wholly and necessarily for the purpose of business. Hence, Rs. 3,000 was added back.
21. The IAC in the impugned order has noted this aspect of the matter also. He pointed out that the assessee preferred an appeal against the above disallowance before the AAC, who dismissed the appeal of the assessee on the reasons recorded therein. The IAC, therefore, noted that from the findings of the ITO in the assessment order and the observations of the AAC, it was established that the assessee concealed his income and particulars by not disclosing Rs. 91,653 on account of claims of shortage when the assessee maintained accounts on mercantile basis.
He further observed that the assessee even tried to conceal his income by making false claim for majuri and travelling expenses for which no vouchers were available and the travelling expenses were claimed in respect of persons who were not even the assessee's employees. On the basis of his working the IAC imposed the penalty of Rs. 97,153.
22. We have taken into account the contentions of both the sides and we have gone through the orders of the authorities below for our consideration. The ITO noted that in the earlier years the position was different and was contradictory to the stand taken by the assessee at this stage. In fact, the ITO has observed that it was not understood as to why the assessee was silent in respect of receipts from the railway claims on account of shortage, till the shortage was detected. The assessee in his letter to the IAC dated 11-4-1978, copy of which has been placed in our file, submitted that there was no concealment of income on the part of the assessee but only a change of opinion regarding the maintenance of accounts. It was also stated therein that a statement on which the addition was made was supplied by the assessee during the course of the assessment. This fact would go to show that the assessee did not originally furnish the particulars in respect of items connected with the above additions till the same were asked for by the ITO. We have given our careful consideration of the different aspect of the matter and the submissions made before us. Having regard to the facts of the case and the findings of the authorities below, we are of the opinion that the IAC was justified on the facts of the case in passing the penalty order. We are of the opinion that the order of the IAC impugned before us is valid. We find no material to come to a different conclusion or to interfere with his order, which we hereby sustain.