Decided on October 18,1982



V. Balasubramanian, Vice President - (1.) THE assessee doing business in explosive materials and detonators filed a return for the assessment year 1971-72 on 7-12-1974 showing an income of Rs. 6,674. An assessment was made on 30-11-1976 on a total income of Rs. 24,772. THE ITO had made an estimate of business income at Rs. 15,000, disallowed a sum of Rs. 3,240 being interest paid to the creditors treated as non-genuine and added Rs. 10,000 as income from undisclosed sources on account of cash credits not accepted as genuine. THE matter went on appeal and by his order dated 17-9-1977, the AAC reduced the income by Rs. 7,790. THE matter was further taken up to the Tribunal on appeal. For the assessment year 1972-73 there were additions made to the total income on account of certain cash credits not accepted as genuine. THE appeal for this year also went up before the AAC and subsequently before the Tribunal. THE AAC deleted the additions made for this assessment year to the extent of Rs. 3,240 being the interest disallowed for the assessment year 1971-72 and treated it as a payment to self. THE Tribunal by its order dated 30-1-1979, dealing with the assessment year 1972-73, gave credit to the assessee for a sum of Rs. 6,000 on account of additions made earlier for the assessment year 1971-72. THE relevant portion of the Tribunal's order is as under: In the assessment year 1971-72, the income returned was Rs. 6,674 and the income estimated from business was Rs. 15,000. We think, we can give a benefit of Rs. 6,000 out of the additions made in this year which would be available to the assessee for introducing by way of credits relating to the assessment year 1972-73.
(2.) Thus, the assessee got credit to the extent of Rs. 6,000 for the assessment year 1972-73 on account of additions made for the assessment year 1971-72. On 10-3-1978 the ITO started the penalty proceedings under Section 271(1)(c) of the Income-tax Act, 1961 ('the Act') on the following: In view of the AAC's decision for the year under consideration and the provisions of the newly introduced Explanation 2 to Section 271(1)(iii) of the Act, penalty proceedings are initiated in terms of Explanation read with Section 27(1A) for concealment of income. Issue notice under Section 271(1)(c). On 28-3-1980 resorting to Explanation 2 to Section 271(1)(c) read with Section 271(1A), the ITO levied a penalty of Rs. 6,000. This was upheld by the AAC against whose order the present appeal is filed before us.
(3.) THE learned counsel for the assessee has challenged the levy of penalty on several grounds. THEre were no penalty proceedings started and no penalty levied at the time of the original assessment. Penal provisions including Explanation 2 to Section 271 are substantive provisions of law. Explanation 2 and Section 271(1A) were introduced with effect from 1-4-1976. According to the learned counsel, in the light of the Supreme Court decision in Brij Mohan v. CIT [1979] 120 ITR 1, the assessee having filed a return on 7-12-1974, the law applicable on that day would govern his case. Not only would, therefore, the penalty provisions relating to the Explanation 2 be applicable in the first instance, quantum of penalty would also be governed by the law relevant to the date of filing the return. Penalty, according to the learned counsel, thus, was not leviable at all in the first instance. Alternatively it could be levied only in terms of the tax and not the income alleged to be concealed.;

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