Gulati, J. - (1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax, U. P., Kanpur.
(2.) THE assessee is a partnership firm carrying on business in liquor contract. For the assessment year 1963-64 it returned a loss of Rs. 316 from the business. THE Income-tax Officer found that the assessee's books were unreliable inasmuch as the sales had been noted in lump sum at the end of the day and the excise register was not produced before him. He, therefore, estimated the income of the assessee at Rs. 33,200 by applying a flat rate of profit @ 8 per cent. to the estimated turnover of Rs 4,15,000. THE Income-tax Officer also issued a notice under Section 274 read with Section 271(1)(c) of the Income-tax Act for the purposes of levying penalty. From the assessment there was an appeal. THE Appellate Assistant Commissioner of Income-tax agreed with the Income-tax Officer that in the circumstances the income had to be assessed on estimate basis but he reduced the estimate of income to Rs. 28,000. THEreafter, the Inspecting Assistant Commissioner of Income-tax, Meerut, continued the penalty proceedings. He found that the return of income was filed on October 13, 1964, and, therefore, the case was governed by the provisions of Section 271, as amended by the Finance Act of 1964. He next observed that the total income as returned by the assessee was less than 80 per cent. of the income assessed and the assessee had failed to prove that the disparity in the income returned and assessed was not due to any gross or wilful neglect on his part. He, therefore, imposed the penalty of Rs. 7,000 by his order dated 22nd July, 1967. THE assessee appealed against the penalty order to the Income-tax Appellate Tribunal. THE Tribunal found that the case was clearly one where, but for the amended provisions of Section 271, no penalty could be imposed against the assessee inasmuch as the assessment had been made on the basis of estimate and no concealment of income had been proved. In the opinion of the Tribunal, however, the amendment applied with effect from the 1st April, 1964, and, as such, was not applicable to the assessment year 1963-64. THE Tribunal observed that though the return had been filed after 1st April, 1964, yet the law applicable to the assessment year 1963-64 was that which prevailed on the 1st day of April, 1963. THE Tribunal, therefore, held that the Inspecting Assistant Commissioner of Income-tax was wrong in invoking the provisions of the amended Section 271 and, without the aid of the amendment, penalty could not be imposed as there was no independent proof of concealment. THE Income-tax Appellate Tribunal accordingly cancelled the penalty. THE Commissioner of Income-tax is aggrieved and at his instance the Tribunal has referred the following two questions for the opinion of this court: " 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the Explanation to Section 271(1) was not applicable to the case? 2. If the answer to question No. 1 is in the negative whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in cancelling the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961 ?" In order to answer these questions it is necessary to set out the relevant provisions. Section 271(1)(c), before its amendment, was as under : "271. Failure to furnish returns, comply with notices, concealment of income, etc.--(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,-- (i) in the cases referred to in Clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the tax ; (ii) in the cases referred to in Clause (b), in addition to any tax payable by him, a sum which shall not be less than ten per cent. but which shall not exceed fifty per cent. of the amount of the tax, if any, which would have been avoided if the income returned by such person had been accepted as the correct income ; (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 th" income as returned by such person had been accepted as the correct income." This provision was amended by the Finance Act of 1964. The word " deliberately " occurring in Clause (c) before the words " furnished inaccurate particulars " was omitted and the following Explanation was added at the end of Section 271(1)(c): " 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 subsection."
(3.) THIS amendment came into effect from 1st April, 1964. It will be noticed that as a result of this amendment a legal presumption arises of concealment and furnishing inaccurate particulars if the income returned by an assessee is less than 80 per cent. of the correct income as denned in the Explanation minus the deductions bona fide claimed by him but disallowed. The presumption is, however, rebuttable and it can be rebutted by an assessee by showing that the disparity between the income returned and the correct income is not due to fraud or wilful or gross neglect on his part. The first question that falls for consideration is as to whether this amendment was applicable in the instant case. One thing is settled that the Income-tax Act as applicable to a particular assessment year is as it stands on the 1st day of April of that assessment year. See Commissioner of Income-tax v. Isthmian Steamship Lines, 1951 20 ITR 572 (SC).. This view has recently been affirmed by the Supreme Court in the case of Karimtharuai Tea Estate Ltd. v. State of Kerala, 1966 60 ITR 262 (SC).: " Now, it is well-settled that the Income-tax Act, as it stands amended on the first day of April of any financial year, must apply to the assessments of that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force." ;