KUSUM JAISWAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The Tribunal, Allahabad, has referred the following questions of law under Section 256(1) of the IT Act, 1961, hereinafter referred to as the Act, for opinion to this Court :

(2.) Briefly stated, the facts giving rise to the present reference are as follows : The applicant is a lady and has been assessed to income-tax in the status of an individual. The present reference relates to the asst. yr. 1,973-74 for which the relevant previous year ended on 31st March, 1973. Originally, the applicant had not filed her return of income prior to 27th Feb., 1974. The IT Department conducted a survey on 2nd Aug., 1973, which revealed that she had constructed a property in block H-2-No. 292 in Kidwai Nagar, Kanpur. The ITO on the basis of the report served a notice under Sections 139(2) and 133 of the Act for the asst. yr. 1973-74. The notice was served upon the applicant on 18th Jan., 1974. In response to the said notice she filed a return of income on 27th Feb., 1974, declaring nil income. However, in part 'C of the return she had disclosed the ownership of the aforementioned property and also stated that it was completed by March, 1973, and was occupied by her on 1st April, 1973. In part El of the return she also stated that her investment in the property amounted to Rs. 25,000 which was financed out of loans and gifts amounting to Rs. 29,690 consisting of Rs. 5,000 as gift from Sri Masuriadin, Rs. 17,000 being loan from Sri Harish Chandra, Sri Jagdish Chandra and Sri Ram Shanker and Rs. 7,690 being loan taken from M/s Chandra Scrap Suppliers. The ITO required the applicant to furnish the details of investment in the property and the proof relating to its cost of construction. She also filed a valuation report, according to which the investment in the construction of the property amounted to Rs. 50,058 during the year under reference. The applicant claimed that under the valuation given by the valuer, he had estimated the cost of construction of the property at an excessive amount and according to her the investment in the construction was only Rs. 35,000 and filed a revised return on 2nd Feb., 1976 declaring an income of Rs. 15,000 from other sources. In part HI of the return she had disclosed that she had a sum of Rs. 4,726 out of home chest. The ITO completed the assessment treating the investment in the construction at Rs. 50,028. He accepted the source to the extent of Rs. 22,690 and assessed the balance of Rs. 27,370 as per income. He also initiated penalty proceedings under Section 271(1)(c) of the Act. The applicant in her reply submitted that she had disclosed an income of Rs. 15,000 in the revised return under advice and by way of co-operation with the AO on the assurance that no penal action would be taken against her. It appears that the ITO prepared a draft penalty order, which he had sent to the IAC for approval. The draft order was returned with the observation that before submitting the draft order, the ITO had not afforded opportunity of hearing to the assessee. After giving the opportunity of hearing, a fresh draft order was submitted in which it was stated by the ITO that the penalty is being imposed treating the concealment at Rs. 20,370 only, whereas the penalty proceeding has been initiated on the basis of the concealed income which originally exceeded Rs. 25,000. The IAC had accorded his approval for the levy of penalty of Rs. 20,370 as proposed by the ITO, which was finally imposed by the AO. While levying the penalty, the AO had relied upon the Explanation to Section 271(1)(c) of the Act, as it stood before its amendment by the Taxation Laws (Amendment) Act, 1975. The penalty has been upheld by the CIT(A). The Tribunal has upheld the order levying penalty but reduced it to Rs. 15,000. The Tribunal while doing so, has held that the approval accorded by the IAG can only be considered as instructions under Section 119(3) of the Act.

(3.) We have heard Sri Vikram Gulati, learned counsel for the applicant and Sri A.N. Mahajan, learned standing counsel appearing for the Revenue.