1. This is an appeal by the assessee pertaining to the assessment year 1969-70.
2. The assessee is an individual and enjoys income as an eye specialist. The original assessment in this case was completed on a total income of Rs. 7,783 on 15-1-1970. The assessee at the time of filing the said return did not disclose capital gain.
3. Subsequently, the ITO found that the assessee was having half share in a house situated at Khatauli. It was sold on 19-7-1968 for Rs. 15,000. There was capital gain of Rs. 4,400 on the sale of this property. Accordingly, the ITO issued notice under Section 147(a)/148 of the Income-tax Act, 1961 ('the Act'). In pursuance of the service of the notice the assessee filed the return on 7-1-1980. Even in this return capital gain was not disclosed. The ITO after hearing the assessee added capital, gain in the hands of the assessee and reassessment was done accordingly. At the time of completing the reassessment the ITO started penalty proceedings under Section 271(1)(c) of the Act.
4. In spite of service of show-cause notice the assessee did not appear before the ITO in penalty proceedings under Section 271(1)(c). Even no explanation was furnished. The ITO after considering all the material on record was of the view that there was concealment of income by the assessee and, consequently, he levied penalty of Rs. 4,400 under section 5. The learned AAC in appeal held that in the present case the default was wilful in not disclosing the capital gain in the original return.
Consequently, he sustained the order of penalty.
6. Before the Tribunal, no arguments were advanced on merits. The main contention of the learned counsel for the appellant was that in the present case the original return was filed on 15-1-1970. The penalty leviable exceeded Rs. 1,000 and as such the ITO has no jurisdiction to impose penalty. According to the learned counsel, the ITO should have referred the matter to the IAC for the purpose. Reliance was placed on the ratio of decisions in the cases of Brij Mohan v. CIT [1979] 120 ITR 1 (SC), Addl. CIT v. Batwantsingh Sulakhanmal [1981] 127 ITR 597 (MP) and Addl. CIT v. Joginder Singh [1985] 151 ITR 93 (Delhi). It is the law prevailing on the day on which the act of concealment takes place which is relevant. It is wholly material that the income concealed was to be assessed in relation to the assessment order passed.
7. The learned departmental representative supported the order of the learned AAC. According to him, there could be no dispute to the proposition of law that concealment of income takes place on the date on which the act of concealment takes place. The act of concealment takes place when the return is filed. In the present case the original return was filed on 15-1-1970. In that return capital gain was not disclosed. No doubt in the return filed in pursuance of service of notice under Section 148 also the capital gain was not disclosed but in view of the decision in the case of Joginder Singh (supra) there has been concealment of income when return was filed originally. The reassessment order was passed on 8-3-1980. At that time initiation of proceedings under Section 271(1)(c) was made by the ITO. The moment the ITO passes the order for initiating penalty proceedings, the proceedings stand initiated by the ITO and it is at that point of time that question of jurisdiction has to be determined keeping in view the provisions of law prevailing at that time. Reference was made to the ratio of decision in the case of CIT v. Mela Ram Jagdish Raj & Co.
[1981] 132 ITR 897 (Punj. & Har.). Section 274(2) of the Act was omitted by the Taxation Laws (Amendment) Act, 3975, with effect from 1-4-1976. As a result of this omission there was no provision in making the reference to the IAC by the ITO as was provided earlier. Section 274 was procedural in nature. Under the circumstances in 1978 when penalty proceedings under Section 271(1)(c) were initiated, the ITO was the only authority who could impose penalty under that section. Thus, it was submitted that the ITO who imposed penalty under Section 271(1)(c) on 23-3-1982 was having jurisdiction to pass the order. In our opinion, the contention of the learned counsel for the appellant has no force. We may point out that proper interpretation of Section 271 would clear all the controversy. It is necessary to bear in mind that the basic obligation of the assessee is only one, viz., to file a proper and correct return of income for a particular assessment year and it seems appropriate that the offence should be correlated to the point of time when the first return was filed in which the concealment took place and any subsequent returns, though they may in a sense be said to be repetitions of the concealment, should be left out of consideration. It is the law on the date of the first return in which the income is concealed that should be held to govern levy of penalty in such cases. We may point out that there may be cases where penalty proceedings are initiated in the course of reassessment proceedings.
Here, a first reaction would be that it is the date of the return filed in the course of the reassessment proceedings that would be relevant to determine the law that would govern the penalty proceedings. The issue would have been simple if one could say that a penalty could be imposed in the course of reassessment proceedings only for a concealment or offence committed in the course of such proceedings. But, on this issue, there is a long line of decisions, which have received approval of the Supreme Court in N.A. Malbary & Bros. v. CIT[1964] 51 ITR 295, to the effect that it is open to the ITO, in the course of reassessment proceedings, to initiate penal action for an offence committed at the time of original assessment. This line of decisions is also based on sound logic which can be illustrated by a simple example. Suppose an assessee, at the time of original assessment, has concealed an item of income but, when called upon under Section 148 files a return which includes the same, there has clearly been no concealment in the course of the reassessment proceedings. To hold that a penalty in the course of the reassessment proceedings can be levied only in respect of a concealment during such proceedings would lead to the result that the assessee would escape penalty for an admitted act of concealment for the simple reason that at this point of time, no imposition of penalty would be at all possible by reference to the original assessment proceedings as such penalty proceedings should have been commenced before the completion of those assessment proceedings. The Courts, for this reason, have taken the view that penal proceedings can be taken in the course of reassessment proceedings, not only for offences or concealment in the course of these proceedings, but also for offences or concealment effected in the course of the original proceedings, but detected only in the course of the reassessment proceedings. This principle introduces an element of difficulty in applying the simple test and necessitated a deeper consideration of the position in the category of cases.
8. Once this principle is recognised, it will be clear that penalty proceedings, even if initiated in the course of reassessment proceedings, should be correlated to the return made in the course of original assessment proceedings and not that filed during the reassessment proceedings. In order to facilitate an easier understanding one may take, as a concrete example, an assessee whose real income is Rs. 50,000 but who conceals a part thereof. The following types of situations could arise for consideration : (a) The assessee returns Rs. 10,000 which is accepted. However, when notice under Section 148 is given, he returns an income of Rs. 50,000 and is assessed thereon.
(b) The assessee returns his income as Rs. 10,000 at the time of the original assessment which is accepted by the ITO. When a notice is given under Section 148, he again returns Rs. 10,000 but the income is determined at Rs. 50,000.
(c) He returns Rs. 10,000 for original assessment. The ITO does not accept it and completes assessment at Rs. 20,000. When notice under Section 148 is given, the assessee returns Rs. 20,000 but is assessed on Rs. 50,000.
(d) The assessee returns Rs. 10,000 but the assessment is completed on Rs. 20,000. In response to the notice under Section 148 he returns Rs. 50,000 and is assessed thereon.
In all these cases, there has been concealment by the assessee in the course of the original assessment proceedings. In two of these cases, the concealment is partly detected at the time of the first assessment and the assessee may or may not have been penalised therefor. In two of these cases the assessee repeats the offence even at the stage of reassessment proceedings but in two of them he repents and returns the correct income for the purpose of reassessment. In all the cases he can be proceeded against for concealment at the stage of the reassessment but such proceedings, in cases (a) and (d), clearly relate only to the original proceedings, for there is no concealment at the stage of the reassessment proceedings. In cases (b) and (c) there has been concealment at both the stages. Here, though the penalty proceedings are initiated and the penalty is imposed only in the course of reassessment proceedings, it will be only logical to hold that the penalty is being levied only with reference to the act of concealment in the return filed during the original assessment proceedings which the ITO has power to do. This is because though concealment is detected in the course of reassessment, it has obviously been there-whether discovered or not-even at the time of original assessment. Though the proceedings are separate, the assessment year is one and the assessee's offence of concealment is referable to the extent to which the assessee has avoided payment of tax on the total income as finally determined by returning it at lower figure shown in the first return filed by him.
Clearly, in the cases (a) and (d) given above there is no reason why the assessee should escape penalty for the concealment at the initial stage, if he has not been penalised in respect thereof earlier. The position is similar in cases (b) and (c). In these cases penalty will be based on the original return if the concealment at the stage of the first assessment has not been penalised. Even if it has been penalised, the penalty will be levied on like basis although to avoid duplication of penalty, the earlier penalty will have to be taken into account or recalled in view of the decision of the Supreme Court in N.A. Malbary & Bros.' case (supra). It seems, therefore, quite reasonable and proper to hold that the substantive penal provisions of the statute that would govern any particular case will be those that were prevalent on the date of the return filed at the time of the original assessment, even though the penal proceedings may themselves be initiated in the course of the reassessment proceedings. In support of this proposition we are fortified by the ratio of the decision in the case of Joginder Singh (supra).
9. In the present case penalty proceedings were initiated on 8-3-1980 when the reassessment order was passed. In view of the decision of the Punjab and Haryana High. Court in the case of Mela Ram Jagdish Raj & Co. (supra), the ITO will have jurisdiction to pass the order of penalty. We may also point out that -prior to 1-4-1976 Section 274(2) was as under : Notwithstanding anything contained in Clause (Hi) 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.
Section 274 was procedural in nature. Sub-section (2) of Section 274 was deleted with effect from 1-4-1976. Under the circumstances after that date there remains no provision for making reference to the IAC.Therefore, when the ITO imposed penalty in 1983 he had jurisdiction to do so. For the reasons discussed above, we are of the view that the ITO had jurisdiction to impose penalty in this case.
10. Since the point for determination is regarding quantum of penalty for the period between 1-4-1968 and 31-3-1976, the quantum of penalty imposable was linked with the amount of income concealed and not with the amount of tax sought to be evaded. In the present case, the penalty was imposed equal to the amount of income concealed. The return in the present case was filed between 1-4-1968 and 31-3-1976. So the quantum of penalty determined by the ITO was quite correct.