G.K. Misra, C.J. - (1.)THE following question of law has been referred by the Tribunal under Section 256(1) of the Income-tax Act, 1961 (Act No. 43 of 1961) (hereinafter to be referred to as " the Act").
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in cancelling the penalty imposed by the Inspecting Assistant Commissioner by resort to Explanation to Section 271(1)(c) of the Act which was introduced with effect from April 1, 1964, and also holding that there was concealment of income on the part of the assessee ?"

(2.)MATERIAL facts may be stated in brief to answer the aforesaid question.
The relevant assessment year is 1960-61. Assessment was made for Rs. 48,255 on the 12th of December, 1962, under Section 143 of the Act. Notice under Section 148 of the Act was issued after April 1, 1964, calling upon the assessee as to why the escaped income should not be assessed under Section 147. The notice was in respect of two entries of cash credits amounting to Rs. 10,000 each in the assessee's accounts to be treated as the income from some undisclosed source.

In response to the notice the assessee filed returns on 23rd August, 1965, wherein he did not include the income under these two entries of cash credits amounting to Rs. 20,000. Assessment was completed on 20th of December, 1965. The entries relating to Rs. 20,000 which the assessee concealed in the returns were assessed as the income of the assessee. This amount bad appeared in the accounts of a firm styled as Messrs. Harnarayan Prabhudayal of Calcutta.

Penalty proceedings were initiated under Section 271(1)(c) on the very day, that is, 20th of December, 1965. A penalty of Rs. 12,900 was imposed by the Inspecting Assistant Commissioner of Income-tax under Section 271(1)(c) read with the Explanation on November 18, 1967.

The assessee filed an appeal before the Tribunal against the order imposing penalty. The Tribunal allowed the appeal and cancelled the penalty and directed refund of penalty if the amount had already been recovered.

The entire reason why the Tribunal allowed the appeal occurs in paragraphs 3 and 4 of its judgment. It runs thus:

"3. Before us the learned counsel submits that merely because the assessee was unable to prove satisfactorily the cash credits the penalty section cannot, automatically, be invoked and that in penalty proceedings it is the onus of the department to prove, first, that the amount concealed represented the income of the assessee and, secondly, that the assessee was guilty of concealment. Reliance is placed on the decision of the Supreme Court in the case of Commissioner of Income-tax v. Anwctr Ali, [1970] 76 ITR 696 (SC).

We think the assessee's contention is correct and has to be accepted, in view of the principles laid down by the Supreme Court in the case cited supra. The levy of penalty is accordingly cancelled."

It would thus be seen that the Tribunal allowed the appeal on the basis of Anwar Ali's case.

Aggrieved by the Tribunal's order the Commissioner of Income-tax asked for a reference under Section 256(1) as has already been stated.

The learned standing counsel contends that the Tribunal acted contrary to law in not applying Section 271(1)(c) read with the Explanation which came into force from April 1, 1964.

It would be appropriate at this stage to notice the change in law relating to penalty proceedings for concealment of income.

Section 28(1)(c) of the Indian Income-tax Act, 1922 (Act XI of 1922), (hereinafter to be referred to as " the old Act") ran thus:

" 28. (1) If the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under this Act, is satisfied that any person--......

(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income,

he or it may direct that such person shall pay by way of penalty,.....in the cases referred to in Clauses (b) and (c), in addition to any tax payable by him, a sum not exceeding one and a half times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income :.... "

The Income-tax Act of, 1961 came into force on April 1, 1962. The provision corresponding to Section 28(1)(c) of the old Act is contained in Section 271(1)(c) of the Act. It runs thus :

"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 deliberately 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 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 income as returned by such person had been accepted as correct income."

(3.)BY Section 40 of the Finance Act, 1964 (Act No. 5 of 1964), Section 271(1)(c) was amended with effect from April 1, 1964. In Section 271(1)(c) the word "deliberately " was omitted.
An Explanation was added at the end of Section 271(1) which runs thus:

"Explanation.--Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income)as assessed under Section 143 or Section 144 or Section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this sub-section."

The sole question for consideration in this case is, if Section 271(1)(c) read with the Explanation as has been amended from April 1, 1964, is, applicable to the impugned penalty proceedings initiated on 20th of December, 1965, in respect of the returns filed by the assessee on August 23, 1965.

Section 271(1) on the face of it shows that the condition precedent to the initiation of proceedings under that section is the satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner. That satisfaction would relate to the fact as to whether any person concealed the particulars of his income or furnished inaccurate particulars of such income.

The date of the accrual of the cause of action is the date of satisfaction. In this case the penalty proceeding was initiated on 20th of December, 1965, the very day the Inspecting Assistant Commissioner came to the conclusion that Rs. 20,000 was the concealed income of the assessee from an undisclosed source. Though this concealed income related to the assessment year 1960-61, the proceeding under Section 271(1)(c) could not have been initiated until 20th of December, 1965, when the Inspecting Assistant Commissioner was satisfied that the amount constituted concealed income. On the plain language of Section 271(1)(c) the date of the satisfaction is the date of the application of the relevant law. By 20th of December, 1965, the relevant law on the field was Section 271(1)(c) read with the Explanation as was amended with effect from April 1, 1964. There is, therefore, no escape from the conclusion that to the present proceeding this section with the Explanation is applicable.

The matter is concluded by the judgment of the Constitution Bench in Jain Brothers v. Union of India, 1970 77 ITR 107 though the observations were made in a different context.