R.K. Vijayvargiya, J.@mdashBy this reference u/s 256(1) of the income tax Act, 1961 (hereinafter referred to as ""the Act""), the income tax
Appellate Tribunal, Indore Bench, Indore has referred the following question of law for the opinion of this court:
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that for the purpose of levy of penalty u/s
271(1)(c) of the income tax Act, 1961, the quantum of penalty is to be worked out in accordance with the law which was prevailing in the year of
assessment and that the amendment with effect from April 1, 1968, will not have retrospective operation for any of the three years under
reference?
The material facts giving rise to this reference as set out in the statement of the case are as follows:
The assessee is an individual and the assessment years involved are 1963-64, 1964-65 and 1965-66. The original assessment in respect of the
aforesaid years were completed by the ITO. Subsequently, the ITO reopened the assessment for these years and notices u/s 148 of the Act were
given to the assessee. In response to the said notices, the assessee filed returns for the said three years disclosing the income on which he was
initially assessed by the ITO. The ITO, however, completed the reassessments by making a total addition of Rs. 19,400 in the three assessment
years as per details given below:
Assessment Income returned in Income Addition made
year response to notice u/sassessed
148
1963-64 12,635 16,640 4,000
1964-65 13,554 21,250 7,700
1965-66 14,824 22,520 7,700
Total: 19,400
The addition made by the ITO, in respect of each of the three years, was confirmed by the AAC and also by the Tribunal.
After completing the reassessment the ITO initiated penalty proceedings and as the minimum penalty imposable under the Act exceeded Rs.
1,000, he referred each of the three cases to the IAC who, after taking into consideration the plea of the assessee, came to the conclusion that the
assessee was guilty of concealment and/or of furnishing inaccurate particulars of his income. He, therefore, imposed upon the assessee a penalty,
for each of the three years, as follows:
Assessment year Amount
1963-64 Rs. 4,200
1964-65 Rs. 8,000
1965-66 Rs. 8,000
2. The assessee preferred appeals to the Tribunal against the order of the IAC imposing penalties. The Tribunal held on facts that the assessee
furnished inaccurate particulars of the income and, therefore, he was clearly guilty of the default u/s 271(1)(c) of the Act and the penalty was
clearly attracted. As regards the quantum of penalty the Tribunal held that as the returns at the original stage were filed before April 1, 1968, and
as the default was to be attributed only to these returns the amendment to section 271(1)(c) of the Act, which came into effect from April 1, 1968,
will not be applicable as that amendment will not have any retrospective operation. In this view of the matter, the Tribunal reduced the quantum of
penalty to 30% of the tax sought to be avoided in respect of each of the three years under appeal before it. On these facts, at the instance of the
Revenue, the Tribunal has referred the aforesaid question of law for the opinion of this court.
3. It is not disputed that returns in response to the notices u/s 148 of the Act were filed by the assessee after April, 1, 1968, i.e., on April 20,
1968, for all the three assessment years. The penalty proceedings were initiated for the concealment of income in the returns filed by the assessee
on April 20, 1968. It also cannot be disputed that penalty is imposed on account of a wrongful act committed by the assessee. It is well settled that
penalty is imposable in accordance with the law in force on the date on which the wrongful act was committed. In the present case, the penalty was
imposed on account of concealment of particulars of income by the assessee. The particulars of income were concealed by the assessee, in the
returns filed in response to the notices u/s 148 of the Act, which has given rise to the penalty proceedings. In the circumstances, the law which was
in force on April 20, 1968, when the returns were filed by the assessee in response to the notices u/s 148 of the Act will govern the penalty
proceedings. After examining the scheme of the Act, on similar facts, in M.C.C. No. 290 of 1976 ( Additional Commissioner of Income Tax Vs.
Balwant Singh Sulakhanmal, , we have held that if the concealment of income is attributable to the return filed in response to the notice u/s 148 of
the Act after April 1, 1968, the penalty proceedings would be governed by section 271(1)(c) of the Act as amended by the Finance Act, 1968,
notwithstanding that the said return related to an assessment year prior to April 1, 1968, or that the assessee had initially filed a return in which also
the income was concealed.
4. The learned counsel for the assessee relied upon the decisions in Commissioner of Income Tax Vs. Gopal Krishna Singhania, Commissioner of
Income Tax Vs. Ram Achal Ram Sewak, Addl. Commissioner of Income Tax Vs. Onkar Saran, and Commissioner of Income Tax Vs. A.
Rahman, and submitted that the concealment of income in the return filed by the assessee in response to a notice u/s 148 of the Act will relate back
to the assessment year for which the return was filed and that the view taken by us requires reconsideration. We have given our anxious
consideration to the decisions relied upon by the learned counsel for the assessee and with respect we are unable to agree with the view taken in
the decisions referred to above. The learned counsel for the assessee was unable to bring to our notice any provision of law for holding that even
though penalty proceedings are initiated in connection with the return filed in response to a notice u/s 148 of the Act, the default will be attributable
to the return filed in the original assessment proceedings or that the said default will relate back to the assessment year for which the return was
filed. In the present case, as the wrongful act of concealing the income was committed on April 20, 1968, the IAC was fully justified in imposing
the penalty under the provisions of section 271(1)(c) of the Act, as amended by the Finance Act of 1968, and the Tribunal erred in law in holding
that on the facts and in the circumstances of the case the imposing of penalty under the amended section 271(1)(c) of the Act would be giving
retrospective effect to it. As a result of the discussion aforesaid, our answer to the question referred to us is in the negative and against the
assessee. We also make it clear that in the present case no retrospective operation was given by the IAC to the provisions of the amended section
271(1)(c) of the Act. In the circumstances of the case, we direct the parties to bear their own costs of this reference.
