COMMISSIONER OF INCOME TAX Vs. CHANDULAL

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal has refer the following question of law for the opinion of this court under s. 256(1) - of the I.T. Act, 1961 :

(2.) THE matter relates to the income-tax assessment year 1968-69. THE assessee filed a return declaring income of Rs. 2,321 from business. During the course of investigation, the ITO found that, in the previous year relevant to the assessment year 1968-69, the assessee advanced loans to five individuals aggregating to Rs. 6,900. THEse loans were not recorded in the assessee's book of account. THE ITO observed that the peak amount of the loans advanced to the five individuals was Rs, 3,200 in as much as there were some repayments by the individuals and fresh advances. THE ITO also found that a sum of Rs. 5,000 advanced to one Shri Miraz Ali Khan on August 10, 1967, was also not entered in the assessee's books of account. THE ITO further found that a sum of Rs. 1,000 received from Smt. Jamalunnisa Begun by way of commission was also not accounted in the books. Thus, the ITO found that money-lending loans to the extent of Rs. 8,200 were not entered in the assessee's accounts apart from a sum of Rs. 1,000 received by way of commission from Smt. Jamalunnisa Begum. THE ITO included the sum of Rs. 9,200 in the assessee's total income for the assessment year 1968-69. THE assessee carried the matter in appeal, but the assessment was confirmed and the matter became final.

(3.) THE assessee carried the matter in second appeal to the Income-tax Appellate Tribunal and raised a number of contentions both legal and factual. THE Tribunal declined to accept most of the contentions raised by the assessee, but finally accepted one contention and that was regarding the validity of the penalty notice issued. THE assessee urged before the Tribunal that the penalty notice issued by the ITO was invalid in as much as the ITO did not strike our inappropriate portions of the notice. THE notice required the assessee to show cause why penalty should not be levied for concealment of income and also for furnishing inaccurate particulars of such income. In the notice issued by the ITO, both the item mentioned above, were kept without either of them being struck off. THE assessee urged before the Tribunal that the penalty in this case was levied for alleged concealment of income and on account of the ITO not striking out the portion relating to furnishing of inaccurate particulars of the income, the notice issued by the ITO was rendered invalid and, consequently, the order of penalty is invalid in law. Reliance was placed by the assessee on the decision of the Kerala High Court in Subramania Iyer v. Union of India . THE Tribunal found that the decision of the Kerala High Court supported the contention urged by the assessee. THE Tribunal eventually held that the penalty notice issued by the ITO suffered from a serious infirmity of vagueness and ambiguity. THE Tribunal characterised the notice issued by the ITO as a "whimsical notice", following the principle laid down by the Kerala High Court. In that view of the matter, the Tribunal held the penalty proceedings to be invalid and quashed the penalty order passed by the ITO. THE Commissioner then applied for and obtained the present reference for the opinion of this court.