R.N. Mittal, J. - (1.) THE Income-tax Appellate Tribunal, Chandigarh Bench, at the request of the Commissioner of Income-tax, Patiala, referred the following question of law for decision of this court under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as "the Act"): "Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the Inspecting Assistant Commissioner of Income-tax was not legally competent to pass the penalty order ?"
(2.) BRIEFLY the facts which have given rise to this reference are as follows : The assessee is a registered firm and manufactures and sells tool bits. For the accounting year ending March 31, 1965, relevant to the assessment year 1965-66, the assessee filed a return of income on September 30, 1965, wherein it showed its income as Rs. 10,365. While making the assessment the ITO noticed that the assessee had purchased goods worth Rs. 96,648 for which bills were not produced by it. He also categorised 26 separate cash credits, the peak of which on February 8, 1965, came to Rs. 60,882. The assessee, when asked to explain the source of the credits, did not furnish any explanation, but said that the amount of Rs. 60,882 be included in the assessment subject to an adjustment of Rs. 31,000 which had been taxed in the earlier year. The ITO allowed the deduction of Rs. 31,000 as claimed and assessed tax at Rs. 29,882 as income from undisclosed sources. The assessee also agreed to pay tax on business income of Rs. 30,118 as against the income of Rs. 10,365 as declared by it earlier. Thus, the assessment was completed on February 26, 1970, at a total sum of Rs. 60,000. The assessee did not file any appeal against the assessment order. The ITO initiated penalty proceedings under Section 271(1)(c) of the Act before completing the assessment and, as the minimum penalty imposable exceeded Rs. 1,000, the matter was referred to the IAC. He, vide order dated March 29, 1972, passed under Section 274(2) read with Section 271(1)(c) of the Act, levied a penalty of Rs. 4,239. The assessee went up in appeal against the order of the IAC to the Tribunal. The Tribunal held that the onus to prove the genuineness of the cash credits lay upon the assessee and it had not been discharged. Consequently, the penalty under Section 271(1)(c) was exigible. The assessee had pleaded that the penalty proceedings should have been finalised on or before March 25, 1972, but as the same had been finalised on March 29, 1972, the penalty order was barred by limitation. The Tribunal did not accept the contention of the assessee and came to the conclusion that under Section 275 of the Act as amended with effect from April 1, 1971, the IAC could legally pass an order on March 29, 1972. It was also argued on behalf of the assessee that on account of the amendment of Sections 274(2) and 275 by the Taxation Laws (Amendment) Act, 1970, which came into force from April 1, 1971, the IAC could assume jurisdiction if the minimum penalty imposable exceeded Rs. 25,000. In the case in hand the minimum penalty was Rs. 4,239 and, therefore, the IAC had no jurisdiction to levy the penalty. The Tribunal accepted the contention and cancelled the penalty. At the request of the CIT, the above-said question has been referred for the opinion of this court. The learned counsel for the revenue has contended that at the time of institution of the penalty proceedings, the IAC had the jurisdiction to impose penalty. Later, by virtue of the Taxation Laws (Amendment) Act, 1970 (Act 42 of 1970) (hereinafter referred to as the "Amendment Act"), which came into force on April 1, 1971, the jurisdiction to levy penalty was conferred on the ITO. He submits that if the IAC had the jurisdiction to impose penalty when the proceedings were initiated, subsequent amendment in the Act would not divest him of that jurisdiction. Mr. Awasthy argues that once a person institutes a case in a Tribunal, he has a vested right to continue the proceedings in the same Tribunal, notwithstanding that later, on account of amendment of the statute, the Tribunal had been deprived of its jurisdiction. He further argues that there is only one exception to the above principle. It is that if there is an express provision in the statute which gives a retrospective effect to the amendment, the Tribunal is deprived of its jurisdiction. According to him, the IAC, therefore, had the jurisdiction to impose penalty even after the Amendment Act came into force. On the other hand, Mr. Gupta, learned counsel for the assessee, has vehemently argued that the jurisdiction of the Tribunal is a matter relating to procedure. He further submits that it is well settled that the procedural laws have retrospective effect and, therefore, the Amendment Act would have a restrospective effect. According to him, the IAC, after enforcement of the Amendment Act, was deprived of the jurisdiction to decide the question of penalty against the assessee. He submits that, therefore, the penalty imposed by the IAC was illegal. We have heard the learned counsel for the parties at a considerable length and find force in the contention of Mr. Awasthy. Before dealing with the matter, it is necessary to notice the relevant sections. Section 271 deals with the powers of the ITO and the AAC to impose penalties and Section 274 with the procedure. The aforesaid sections, before the Amendment Act, read as follows : "271. (1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person--... (c) 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,--... (iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished......" "274. (2) Notwithstanding anything contained in Clause (iii) of Sub-section (1) of Section 271, if in a case falling under Clause (c) of that sub-section, the minimum penalty imposable exceeds a sum of rupees one thousand, 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..."
(3.) NO amendment was made by the Amendment Act in the aforesaid provisions of Section 271. The amendment was, however, made in Section 274(2). After the amendment, the said sub-section reads as follows: "(2) NOtwithstanding anything contained in Clause (iii) 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 nave 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." From a perusal of the sections it is evident that, before amendment, the ITO could deal with penalty proceedings in case the penalty imposable was more than Rs. 1,000. If the penalty exigible was more than Rs. 1,000, then he had to refer the case to the IAC, who had the jurisdiction to deal with the matter. After amendment of Sub-section (2) of Section 274, if the minimum penalty that could be imposed was more than Rs. 25,000 then the ITO was required to refer the matter to the IAC but if the penalty was less than Rs. 25,000, he could himself impose it. In the present case, it may be highlighted that the penalty imposed is Rs. 4,239. Therefore, there is no dispute that, before the Amendment, it was the IAC who could impose a penalty on the assessee and after the Amendment Act it was the ITO who could do so. The main question involved in the case is as to whether the amendment of Sub-section (2) of Section 274 is prospective or retrospective. It is a well-settled principle of law that no statute shall have retrospective effect unless its language requires such construction. If a statute has retrospective effect, it is not to be construed so as to have a greater retrospective operation. A statute which affects vested rights must be presumed to be prospective. The legislature may, however, make its operation retrospective so as to take away vested rights. There is an exception to the above principle and it is regarding a statute dealing with the procedure. Such statute has a retrospective effect but if its provisions affect the vested rights, it is prospective and not retrospective. In this regard, it will be advantageous to refer to the following observations of Lord Blackburn in Gardner v. Lucas [1877] 3 App Cas 582, 603 : "Now the general rule, not merely of England and Scotland, but, I believe, of every civilised nation, is expressed in the maxim, 'Nova constitutio futuris formam imponere debet non praeteritis '--prima facie, any new law that is made affects future transactions, not past ones. Nevertheless, it quite clear that the subject-matter of an Act might be such that, though there were not any express words to shew it, it might be retrospective. For instance, I think it is perfectly settled that if the legislature intended to frame a new procedure, that instead of proceeding in this form or that, you should proceed in another and a different way; clearly there bygone transactions are to be sued for and enforced according to the new form of procedure. Alterations in the form of procedure are always retrospective, unless there is some good reason or other why they should not be. Then, again, I think that where alterations are made in matters of evidence, certainly upon the reason of the thing, and I think upon the authorities also, those are retrospective, whether civil or criminal. But where the effect would be to alter a transaction already entered into, where it would be to make that valid which was previously invalid--to make an instrument which had no effect at all, and from which the party was at liberty to depart as long as he pleased, binding--I think the prima facie construction of the Act is that it is not to be retrospective, and it would require strong reasons to shew that is not the case." (Emphasis * supplied). ;