K.N.Seth, J. - (1.) The Income-tax Appellate Tribunal, Allahabad, has referred the following questions for the opinion of this court: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in upholding the order cancelling penalty in spite of the provision of Section 171(8) of the Income-tax Act, 1961 ?
(2.) Whether, on the facts and in the circumstances of the case, the Department is justified in law in raising (the question of) the applicability of Section 171(8) (in an) application filed Under Sections 256(1) and 256(2) 7" 2. Facts necessary to answer the questions referred are as follows : For the assessment year 1970-71 the assessee, an HUF, filed a return showing an income of Rs. 16,100. During the course of the assessment proceedings it was found that the assessee had understated the income of his residential house and claimed more than double the amount paid as house and water taxes. Further, income arising out of the sale of a truck was not disclosed and sales of bricks were suppressed. When confronted with these facts the assessee filed a revised return on June 21, 1971, showing a total income of Rs. 21,663. Assessment was completed on that very day, on almost the same income. The ITO initiated penalty proceedings under Section 271(1)(c) of the I.T. Act and issued a show-cause notice. No explanation was furnished by the assessee. The ITO levied a penalty of Rs. 4,462 under Section 271(1)(c) of the Act. It may also be noted that the assessee claimed that the HUF disrupted on August 2, 1969, and consequently income for the period November, 1968, to July, 1969, fell to be assessed in the assessment year 1970-71, the assessee's previous year being the Diwali year. The order accepting the fact of partition was passed on the same date on which the assessment was made, i.e., June 21, 1971. The order imposing the penalty was passed on 30th March, 1974.
(3.) In the appeal against the order imposing the penalty the stand taken by the assessee was that the assessee became non-existent after August 1, 1969, the date on which the partition took place and in any case on June21, 1971, when the ITO passed the order under Section 171 accepting the assessee's claim of disruption and, consequently, no penalty could be imposed on the assessee. The AAC upheld the contention of the assessee and cancelled the penalty. The appeal preferred by the Revenue was dismissed by the Tribunal on the reasoning that the date on which the penalty order was passed, i.e., 30th March, 1974, the HUF on which the penalty had been imposed, was no longer in existence. It had ceased to exist with effect from August 1, 1969, when the partition took place and the fact of partition was accepted by order dated June 21, 1971. Section 171 deals with assessment after partition of an HUF. Sub-section (1) provided that a Hindu family hitherto assessed as undivided shall be deemed for the purposes of this Act to continue to be an HUF, except where and in so far as a finding of partition has been given under this section in respect of the HUF. Sub-section (4) provides : "Where a finding of total or partial partition has been recorded by the Income-tax Officer under this section, and the partition took place during the previous year,- (a) the total income of the joint family in respect of the period up to the date of partition shall be assessed as if no partition had taken place ; and...";