Ajit K.Sengupta, J. - (1.) In this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1963-64, the following two questions have been raised at the instance of the assessee : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the penalty imposed by the Inspecting Assistant Commissioner of Income-tax?
(2.) Whether the inference drawn by the Tribunal that there is no manner of doubt that the amount of Rs. 2,62,000 up to the stage of the Hon'ble High Court was copcealed by the assessee in view of the Explanation to Section 27l(1)(c) of the Income-tax Act, 1961, is perverse?" 2. The facts leading to this reference are that the assessee filed a return of income of July 16, 1964, showing net loss of Rs. 9,817. The assessee, a private limited company, was carrying on business in the manufacture and sale of soap, coconut oil, etc., as well as dealing in bottles, corks, etc. During the assessment proceedings, the Income-tax Officer noticed cash credits in the names of 28 different parties. On scrutiny, the Income-tax Officer did not accept these cash credits as genuine and assessed the sum of Rs. 2,62,000 being the overall peak credit of the entire transactions as the assessee's income from undisclosed sources. Simultaneously, he disallowed the interest of Rs. 40,404 claimed to have been paid to the creditors. These additions were upheld on appeal by the Appellate Assistant Commissioner. For such concealment of income, proceedings under Section 27l(1)(c) were initiated. But, in spite of the service of notice, the assessee did not attend the hearing of the penalty proceedings. The Inspecting Assistant Commissioner was of the opinion that the Explanation to Section 271(1)(c) as introduced with effect from April 1, 1964, applied as the return was filed after the said date. As the assessee failed to discharge the onus reposed on him, the Inspecting Assistant Commissioner was of the opinion that the assessee had concealed the income added by the Income-tax Officer. He noticed that the tax sought to be evaded was Rs. 1,47,600. As such, he imposed a penalty of Rs. 73,800 equal to 50 per cent. of the tax sought to be evaded. Against the order of the Appellate Assistant Commissioner in the quantum appeal and the penalty order of the Inspecting Assistant Commissioner, the assessee preferred two appeals. By an order dated April 10, 1972, this Tribunal held that "the Income-tax Officer was justified in taxing the entire amount of Rs. 2,62,000 and in also disallowing the interest of Rs. 40,404 ". But, by the same order, the Tribunal held that " the Explanation does not apply to the assessment year in appeal and that the Department has failed to prove that the sum of Rs. 2,62,000 constituted the assessee's taxable income". In this view of the matter, the Tribunal cancelled the penalty imposed by the Inspecting Assistant Commissioner.
(3.) Against the said order dated April 10, 1972, both the assessee as well as the Department filed reference applications on which questions regarding the addition of the amount of Rs. 2,62,000 and the disallowance of interest of Rs. 40,404 and the cancellation of the penalty of Rs. 73,800 imposed by the Inspecting Assistant Commissioner were referred to the High Court for its opinion in addition to some other questions. By a judgment dated August 9, 1982, the High Court declined to answer questions Nos. 1 to 3 referred at the instance of the assessee, as the questions were not pressed before the High Court on behalf of the assessee at the time of hearing. With regard to the question relating to the cancellation of penalty, the High Court held thus : "The Tribunal seems to have proceeded on the basis that the quantum of penalty should be imposed on the basis of the law applicable on the date and which was in operation at the time of the relevant assessment year. It seems that this question is concluded by the decision of the Supreme Court in the case of Brij Mohan v. CIT [1979] 120 ITR 1. In view of the principles laid down by the said decision, the law applicable will be the law operating on the date when the return was filed. The Tribunal will bear this principle in mind and determine the penalty in the facts and circumstances of the case, and impose, if any, in accordance with the law. We, therefore, answer question No. 4, accordingly, and remand the matter to the Tribunal.";