VARKEY CHACKO versus COMMISSIONER OF INCOME TAX

Citation: [1993] SUPP. 1 S.C.R. 800 · Decided: 24-08-1993 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Dismissed

Judgment (excerpt)

A 
VARKEY CHACKO 
v. 
COMMISSIONER OF INCOME TAX 
AUGUST 24, 1993 
B 
[B.P. JEEVAN REDDY AND S.P. BHARUCHA, J.J.] 
Income Tax Act, 1961 Section 274(2) 
Effect of Taxation Laws (Amendment) Act 1971)-(;onceabnent of 
C incon1e-Penalty·-ln1position of-fVho ·1nay inipose and in what 111easure--
Jwisdiction of ITO. 
Sub-section (2) of section 274 of the Income Tax Act, 1961 was 
amended with effect from 1st April, 1971. Prior to the amendment by the 
Taxation Law (Amendment) Act, 1970 where in a case falling under clause 
D (iii) of sub-section (1) of Section 276, the minimum penalty imposable 
exceeded the sum of Rs. 1,000 the Income Tax Officer was obliged to refer 
the case .to the Inspecting Assistant Commissioner. By reasun of the 
amendme.nt the Income-tax Officer was obliged to refer to the Inspecting 
Assistant !Commissioner such cases falling under clause (c) of sub-section 
E (1) of section 271 where the amount of income, as determined by the ITO 
on assessment, in respect of which particulars had been concealed or 
inaccurate particulars had been furnished exceeded the sum of Rs. 25,000. 
The appellant-assessee filed his return on 16th April, 1970. On 27th 
March, 1972, the I.T.O. made the orders of assessment and initiated 
F penalty proceedings against the assessee on the basis of a finding recorded 
in the assessment order that there had been concealment of income in 
respect of an amount which did not exceed Rs. 25,000. After considering 
the assessee's objections, the ITO, by his order dated 27th March, 1974, 
imposed a penalty of Rs.10,000. 
G 
The assessee appealed to the Appellate Assistant Commissioner, 
who set aside the penalty order on the ground that the ITO did not have 
the jurisdiction to levy the penalty. 
The Revenue carried the matter to the Income-tax Appellate 
H Tribunal, which confirmed the order of the Appellate Assistant Commis-
800 
( 
v ARKEY v. err. 
801 
sioner. It held that the law governing the imposition of penalty for con-
A 
cealment of income was the law that was in force on the date on which the 
return in which the concealment had been made was filed and that the 1970 
amendment had no application to the case Iiecause it had not been made 
expressly retrospective. The Tribunal, however, referred the matter to the 
High Court under Section 256(2) of the Income Tax Act, 1961. 
B 
The High Court relied on this Court's decision in Jain Brothers and 
Ors. v. Union of India, 77 I.T.R. 107 and concluded that the competence or 
jurisdiction of the authority to initiate the penalty proceedings could be 
governed only by the law which was in force on the date of initiation of 
such proceedings, and that a combined reading of section 27l(l)(c)(iii) 
C 
and section 274(2) provided a clear indication that under the provisions 
of section 274(2) as they stood prior to the amendment of 1970 the 
competence of the ITO to exercise the power of imposition of penalty 
against an assessee under section 271 (l)(c) was to depend tipon the 
findings arrived at by him in the assessment proceedings as to the factum 
of concealment and the amount of income in respect of which such con-
cealment has taken place, and that it was only on arriving at such a finding 
that the question of initiation of penalty proceedings could arise. 
The Tribunal was held to be in error and the reference was answered 
against the assessee and in favour of the Revenue. 
The assessee appealed to this Court and submitted rel~ing on this 
Court's decision in C.l.T. v. Mis Ollkar Saran and Salls, [1992] 2 S.C.C. 
514 and B1ij Mohan v. C.I. T. 120 ITR 1, that the offence of concealment 
D 
E 
had been committed when the return had been filed, that, therefore, the 
F 
unamended provisions of Section 274(2) applied, and consequently the 
ITO had no authority to impose the penalty. 
The Revenue contested the appeal by submitting that the High Court 
had answered the reference correctly because the J.T.O. has satisfied 
himself that there had been concealment of income on 27th March, 1972, G 
\Vhen he made the order of assessment, that such satisfaction was a 
pre-requisite to the initiation of the penalty proceedings which were in-
itiated on the same day, and that on that day, under the amended 
provisions of section 274(2), the ITO had the authority to impose the 
penalty upon the assessee. 
H 
802 
SUPREME COURT REPORTS [1993] SUPP. 1 S.C.R. 
A 
Dismissing the appeal, this Court 
B 
HEJ"D: A penalty for concealment of particul

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