P.N.BHAGWATI,C.J. - (1.) THIS reference arises out of an order of penalty made against the assessee in respect of an assessment to income tax for the asst. year 1961 62. The assessee is an HUF and during the relevant year of account, it carried on business in wool, goathair, etc. The assessee returned a total income of Rs. 6,533 but the ITO assessing the assessee found that the total income returned by the assessee was false and that in fact the assessee had made a much larger profit in business. The ITO, accordingly, assessed the assessee on a total income of Rs. 25,557 and since, in the course of the assessment proceedings, the ITO was satisfied that the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income, the ITO directed that a notice be issued under S. 274(1) calling upon the assessee to show cause why penalty should not be imposed on the assessee for concealment of income under S. 271(1)(c) of the IT Act, 1961. Now, according to the computation made by the ITO, the income tax payable by the assessee on the total income of Rs. 25,557 was Rs. 5,851 and on the basis of this computation, the minimum penalty imposable on the assessee under S. 271(1)(c) r/w cl. (iii) would exceed Rs. 1,000. The ITO, therefore, referred the case to the IAC as required by S. 274(2) for imposing proper penalty on the assessee. The IAC issued a show cause notice to the assessee and, after hearing the assessee, passed an order imposing a penalty of Rs. 3,500 on the assessee under S. 271(1)(c) read with cl. (iii). The assessee appealed against the order of penalty to the Tribunal. Whilst the appeal was pending, it was found as a result of inspection by the Revenue audit that there was an error in computing the amount of tax on the total income of Rs. 25,557 ; the tax should have been computed to be Rs. 3,762.53 instead of Rs. 5,851. On this error being pointed out by the Revenue audit, the ITO issued a notice to the assessee for rectification of the assessment order and on the assessee agreeing to the proposed rectification, the ITO made an order rectifying the assessment order. The result of rectification was that the total income of the assessee remained unchanged, but the amount of tax was reduced by Rs. 2,088 from Rs. 5,851 to Rs. 3,762.53. Now, the consequence of reduction of the quantum of tax was that the minimum penalty imposable on the assessee fell below Rs. 1,000. The assessee, therefore, contended, when the appeal reached hearing before the Tribunal, that the IAC had no jurisdiction to impose penalty since the minimum penalty imposable on the assessee did not exceed Rs. 1,000. The Tribunal accepted this contention and held that, since, on the basis of the tax as recomputed, the minimum penalty imposable on the assessee did not exceed Rs. 1,000, the IAC had no jurisdiction to impose penalty and his order was, therefore, liable to be vacated as being without jurisdiction. The CIT was aggrieved by this decision of the Tribunal and he, accordingly, applied for a reference, but the Tribunal took the view that no question of law arose out of its order and the application was, therefore, not maintainable. The CIT, thereupon, applied to this Court and, on his application, we directed the Tribunal to draw up a statement of the case and refer the following question for our opinion : "Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the IAC had no jurisdiction to impose penalty ?"
(2.) THE present reference has been made by the Tribunal pursuant to the requisition made by us. The question arising in this reference lies in a very narrow compass and does not present any difficulty of solution. There are two sections material to the determination of the question : one is s. 271, Sub S. (1), cl. (c), and the other is S. 274, sub S. (2). S. 271, Sub S. (1), cl. (c), provides and here we are setting out the section as it stood during the asst. year 1961 62 prior to its amendment by the Finance Act, 1968 that if the ITO, in the course of any proceedings under the Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, in addition to any tax payable by him, a sum which shall not be less than twenty per cent. but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the amount as returned by such person had been accepted as the correct income. The minimum penalty imposable on the assessee in a case falling within S. 271, Sub S. (1), cl. (c), is thus prescribed to be twenty per cent. of the amount of the tax avoided and it is provided that the penalty shall be imposable by the ITO. But, there is a qualification to this rule enacted in S. 274, sub s. (2). That sub section provides that notwithstanding anything contained in S. 271 (1) (iii), if in a case falling under cl. (c) of that sub section, the minimum penalty imposable exceeds a sum of rupees one thousand, the ITO shall refer the case to the IAC who shall, for the purpose, have all the powers conferred under Chapter XXI for the imposition of penalty. Where a case falls within s. 271, Sub S. (1), cl. (c), and the minimum penalty imposable exceeds Rs. 1,000, the ITO cannot proceed to impose penalty under S. 271, Sub S. (1), but he has to refer the case to the IAC who is empowered to impose penalty in such a case. The IAC derives jurisdiction to impose penalty on the assessee on a reference being made by the ITO and the ITO can validly make a reference to the IAC only if the case falls within S. 271, Sub S. (1), cl. (c), and the minimum penalty imposable on the assessee exceeds Rs. 1,000. Now the present case was admittedly one within S. 271, sub s. (1), cl. (c), and the only question which, therefore, requires to be considered is whether the minimum penalty imposable on the assessee was more than Rs. 1,000. If it was more than Rs. 1,000, the reference made by the ITO would be valid and the IAC would have jurisdiction to impose penalty on the assessee. But not so, if it was Rs. 1,000 or less.
(3.) NOW it was common ground between the parties that if the income as returned by the assessee had been the correct income, the amount of tax payable by the assessee would have been Rs. 156. But the assessee concealed the particulars of his income or furnished inaccurate particulars of such income with the result that he avoided payment of the proper amount of tax. The correct amount of assessable income of the assessee as determined by the ITO was Rs. 25,557 and on the basis of this assessable income, the correct amount of tax payable by the assessee was Rs. 3,762.53. The amount of tax which would have been avoided by the assessee had the income as returned by him been accepted as the correct income was, therefore, Rs. 3,606.53 and the minimum penalty imposable on the assessee calculated at the rate of twenty per cent. of the amount of such tax came to about Rs. 720. The minimum penalty imposable on the assessee thus did not exceed Rs. 1,000 and the ITO had, therefore, no power to refer the present case to the IAC and the reference being invalid, the IAC had no jurisdiction to impose penalty on the assessee. The ITO referred the present case to the IAC on the basis of a wrong computation of tax made by him. We do not think that the ITO can by a wrong computation of tax invest himself with power to refer a case to the IAC and thereby confer jurisdiction on the IAC to impose penalty when in fact, on the basis of correct computation of tax, the minimum penalty imposable on the assessee does not exceed Rs. 1,000. It is the existence of the objective fact that the minimum penalty imposable on the assessee exceeds Rs. 1,000 that gives jurisdiction to the ITO to refer a case to the IAC and if, on the assessment of the total income made by the ITO, this objective fact does not exist, the ITO cannot refer a case to the IAC by making an error in regard to the existence of the objective fact by a wrong computation of the amount of tax. We must of course make it clear that when we say this we must not be understood to express any opinion on the question as to what would be the position if the amount of assessable income determined by the ITO is reduced as a result of rectification or in appeal or revision and, in consequence, the quantum of tax liability is diminished resulting in the minimum penalty imposable on the assessee falling below the sum of Rs. 1,000. Whether, in such a case, the reference made by the ITO on the basis of the assessment order made by him would cease to be a valid reference or the IAC would be deprived of his jurisdiction to impose penalty in such reference is a question which may fall for consideration in a future case but it does not arise here. We are concerned here with a case, where the assessable income determined by the ITO remains unchanged but the only error committed by the ITO is in regard to the computation of tax on such assessable income. Such an error in computation of tax made by the ITO cannot make valid a reference which is otherwise invalid on the basis of correct computation of tax.;