V HARI PRASAD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This reference made under section 256(1) of the Income-tax Act, 1961 (43 of 1961), for short "the Act", by the Appellate Tribunal is at the request of the assessee. He, as an individual, returned his income for the assessment year, 1971-72 of Rs. 30,000 for the previous year ending 31/03/1971. During the assessment proceedings it was found that in the 13th raffle conducted on 15/11/1970, by the Andhra Pradesh Welfare Fund, in his capacity as secretary thereof, one Mattaparthi Sriramulu of Vanapalli village of East Godavari District won the first prize for the ticket bearing No. 400760. He approached the assessee through the services of Sri L. Mlakondaiah, the District Collector of East Godavari. The assessee purchased it on 18/11/1970, and paid a sum of Rs. 2,50,000 to Sri M. Sriramulu and in turn he sold the ticket to Kumari Alpana, daughter of one Dr. Mohanlal Peermal of Bombay, for a sum of Rs. 3,50,000 with the services of one Diwakar Setty, to whom he paid a sum of Rs. 5,000 as commission; thereby he earned an income of Rs. 95,000 which the assessee did not disclose in his returns. Similarly, for the ticket bearing No. Y 934608 which won the second prize of Rs. 25,000 by one Sri Shankaraiah of Seetharampuram, Jangaon Taluk of Warangal District, the assessee paid him a sum of Rs. 21,000 and sold it to one Sri Chunilal L. Vyas for Rs. 28,000 and earned a profit of Rs. 7,000. He did not disclose in his return either the source of Rs. 21,000 or profit of Rs. 7,000 earned thereon. This income of Rs. 1,23,000 was added to his income. This order was ultimately upheld by the Income-tax Appellate Tribunal and the assessment has become final. Thereafter, the Inspecting Assistant Commissioner initiated penalty proceedings under section 271(1)(c) of the Act for concealment of the income thus found. Initially, notice was given to the assessee. On receipt thereof, it is claimed, that Sri S. Ramamohan Rao, chartered accountant, who appeared before the Inspecting Assistant Commissioner on behalf of the assessee, and even appeared during the assessment proceedings, and who has stated that he had nothing more to add to what he had already submitted before the appellate authorities and asserted that the assessee did not indulge in any clandestine activities as stated by the Revenue. Then, an order imposing penalty of Rs. 2,46,000 was made on 28/07/1976, and it was served on the assessee on 29/07/1976. The assessee carried it in appeal to the Income-tax Appellate Tribunal. Before the Appellate Tribunal, the assessee as well as Sri Rammohan Rao, the chartered accountant, filed affidavits on February 15 and February 17,1977 respectively, contending that no adequate opportunity was given before imposing the penalty and it is violative of the principles of natural justice. Accepting the averments made in those affidavits, the Appellate Tribunal, by order dated 16/08/1977, directed the Inspecting Assistant Commissioner to give an opportunity to the assessee and the Department to adduce evidence afresh and to submit the report. Accordingly, the Inspecting Assistant Commissioner gave adequate opportunity. It may be mentioned that in respect of the same transaction, a complaint was laid to the police that the assessee committed offences punishable under sections 409 and 420 of the Indian Penal Code, 1860. The police investigated into the crime and a charge-sheet was laid. The assessee adduced both oral and documentary evidence; the witness produced by him were cross-examined at length and the Department produced the statements of Sriamulu, Shankaraiah, Sri L. Malakondaiah (District Collector), Divakar Setty etc., recorded under section 162, Criminal Procedure Code, 1898 by the police during the investigation. The Inspecting Assistant Commissioner considered the evidence and by his order dated 1/06/1978, submitted his report to the Appellate Tribunal. Thereafter, the Appellate Tribunal has heard the assessee and the Department and held that the assessee had deliberately concealed an income of Rs. 1,23,000 attaching penalty under section 271(1)(c) of the Act. The imposition of penalty was upheld, but, however, the maximum penalty of Rs. 2,46,000 was reduced to Rs. 1,23,000 by order dated 15/09/1978. Arising from that order are two questions referred to this court for opinion thus : "(1) Whether, on the facts and in the circumstances of the case, the order of the Inspecting Assistant of Income-tax levying penalty under section 271(1)(c) of the Income-tax, 1961, was violative of the provisions contained in section 274(1) of the Income-tax Act and the Tribunal should have quashed the order as invalid on that ground alone ? (2) Whether, on the facts and in the circumstances of the case, the remand order of the Tribunal dated 16/08/1977, requiring the Inspecting Assistant Commissioner to go into the penalty proceeding afresh is valid in law in view of the provisions contained in section 275 of the Income-tax Act ?"

(2.) Sri Ratnakar, learned counsel for the assessee, raised three-fold contentions in support of the reference. Firstly, he contended that the initial order passed by the Inspecting Assistant Commissioner on 28/07/1976, imposing the penalty is in violation of the principles of natural justice; therefore, it is per se void. Penalty proceeding are criminal proceedings. Therefore, the Appellate Tribunal ought to have set aside the order and left it open to the Inspecting Assistant Commissioner to take actions afresh, if the law so permits. Instead, the Appellate Tribunal remanded the matter, called for the findings and then disposed of the matter on merits. This in clear violation of the law in filling up the gaps created by the Revenue and it is impermissible. In support thereof, he place strong reliance on Bir Singh v. State of UP, AIR 1978 SC 59. It is next contended that penalty proceedings being criminal in nature, except the evidence placed during the assessment proceedings, there is no fresh evidence brought on record by the Department; therefore, the evidence collected during the assessment proceeding cannot be relied upon for the purpose of imposition of penalty. The Revenue initiated and passed penalty order at the fag end of the limitations. The appellate order does not cure the bar of limitation. It is impermissible in law. He further contended that the explanations offered by the assessee is clearly acceptable; he did not indulge in any clandestine business; there is no conclusive evidence brought on record to establish that the assessee has indulged in any clandestine business and concealed the income and, therefore, the penalty cannot be imposed. The question that arises for consideration is whether the procedure adopted by the Tribunal is valid in law ? Section 254 of the Act deals with the powers of the Appellate Tribunal to dispose of the appeal and it reads thus : "254. (1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit."

(3.) Therefore, the power and jurisdiction of the Appellate Tribunal are of wide amplitude and depending upon the exigencies in a given case it has powers to pass such appropriate orders thereon as the justice of the case demands. The powers of the Tribunal are expressed in the widest possible terms similar to the powers of the civil appellate court under section 96 and Order 41, Civil Procedure Code. In Hukamchand Mills Ltd v. CIT [1967] 63 ITR 232, the Supreme Court held that the words "pass such orders as the Tribunal thinks fit under section 33 of the 1922 Act", include all powers (except possibly of enhancement) which are conferred on the Appellate Assistant Commissioner by section 31, to direct the Appellate Assistant Commissioner or the Income-tax Officer to hold further inquiry and to dispose of the case on that basis. One of the contentions therein was that the Tribunal has no powers of remand. The word "thereon" was construed and the court upheld the power of remand. In T.M.S. Mohammed Abdul Kader v. CGT [1968] 70 ITR 237, the Madras High Court, while interpreting the words "such orders as it thinks fit", held that they should not restrict the power of the Appellate Tribunal of an outright remand after setting aside the decision. It also includes the power to make an intermediate direction for the taking of additional evidence or for the giving of a fresh findings on the takings of such evidence by the Appellate Assistant Commissioner in order to enable the Tribunal to dispose of the appeal before it is on receipt of a report after the taking of evidence. It is thus clear that the words "as it thinks fir" are of wide amplitude to give a direction to authorities below to afford an opportunity to the assessee and the Revenue to adduce evidence afresh, to consider the same and to submit a report. Under Order 41, rule 25, Civil Procedure Code, the appellate court when it finds that an issue is essential to the right decision of the suit on merits which was not framed by the trail court, it can frame it and refer back to the trial court to return the evidence to the appellate court together with its findings thereon and the reasons therefor. The Appellate court then may dispose of the appeal on merits. Thus, we hold that even in an appeal against the order of penalty, the powers of the Appellate Tribunal is wide enough to include the power to call for a report after giving an opportunity to the assessee as well as the Revenue to adduce such evidence as it deems necessary for the purpose of disposal of the controversy in dispute. The assessee himself nursed the injury that he was given no. adequate opportunity before the penalty was imposed and, therefore, he sought for an opportunity being given. At his behest, the Appellate Tribunal acceded to it and instead of itself taking evidence, directed the Inspecting Assistant Commissioner to give full opportunity to the assessee and the Revenue and record evidence and to submit a report thereon. Can the assessee having had that opportunity, turn round and contend that them Tribunal is devoid of jurisdiction to call for a report but should have set aside the initial order and fold its hands ? In our view, it is impermissible. The Appellate Tribunal thought it expedient, with a view to do substantial justice, to adopt the above procedure and accordingly the report was called for. We find that the Tribunal has committed no illegality in calling for a report from the Inspecting Assistant Commissioner.