Ajit K.Sengupta, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, the following question of has has been referred to this court for the assessment year 1971-72. " Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in cancelling the levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961, holding that the Inspecting Assistant Commissioner had lost his jurisdiction over this-case after the omission of Section 274(2) from the statute book with effect from April 1, 1976 ?"
(2.) Shortly stated, the facts are that during the assessment proceedings the Income-tax Officer found that the assessee's claim of commission payment of about Rs. 12.13 lakhs was not supported by adequate evidence. The Income-tax Officer also found that some notices issued under Section 131 and letters written under Section 133(b) to the alleged recipients of the commission were either returned unserved or there was no compliance with the terms of the notices though the same were-duly served. Consequently, the Income-tax Officer considered that the expenses in these accounts were considerably inflated in order to reduce taxable income. Accordingly, he disallowed a sum of Rs. 2 lakhs out of the total sum of Rs. 12.13 lakhs. In these circumstances, the Income-tax Officer initiated penalty proceedings under Section 271(1)(c) of the Act and referred the matter to the Inspecting Assistant Commissioner before April 1, 1976, for further necessary action.
(3.) The Inspecting Assistant Commissioner issued a show-cause notice to the assessee. In reply, it was contended by the assessee that the provisions of Section 271(1)(c) of the Income-tax Act, 1961, had no application in this case since after giving effect to the Appellate Assistant Commissioner's order the assessment resulted in loss. Such submission made on behalf of the assessee did not find favour with the Inspecting Assistant Commissioner since he had given a finding that there was a bogus claim of commission of Rs. 44,180.36. The Inspecting Assistant Commissioner imposed a penalty of Rs. 44,180.36;