The amendment of Sec. 274(2) and Sec. 275 of the Income-tax Act, 1961, did not divest the Inspecting Assistant Commissioner of the jurisdiction to impose penalty in cases where the reference was made before the amendment came into effect.

Nazir Ahmad, J.

1. A statement of the case under Sec.256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), has been submitted by the Income-tax Appellate Tribunal, A Bench, Patna, referring the following question of law for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the Inspecting Assistant Commissioner was not competent to levy penalty under Sec.271(1)(c) read with Sec.274(2) and Sec.275 of the Income-tax Act, 1961 ?"

2. The relevant short facts of this case may be culled out from the statement of the case which are as follows :

The assessee is a registered firm and the reference relates to the assessment year 1966-67 for which the accounting year was Dewali ending 1965. The Income-tax Officer completed the assessment on October 20,1970, and initiated penalty proceedings as the assessees returned income was found to be less than 80% of the assessed income and its claim of deduction of interest was found to be on bogus hundi loans. He referred the matter to the Inspecting Assistant Commissioner as the minimum penalty imposable in this case exceeded Rs. 1,000. The Inspecting Assistant Commissioner imposed a penalty of Rs. 16,100 by order dated March 29, 1973, which is annexed and marked as annexure-A forming part of the statement of the case. The Inspecting Assistant Commissioner found that, apart from several additions made by the Income-tax Officer, there was disallowances on account of interest on hundi loans which were admittedly not genuine. He, therefore, held that the assessees claim for this expenditure was false and it was within his knowledge. The Inspecting Assistant Commissioner, therefore, came to the conclusion that the assessee was liable to penalty since it was guilty of filing inaccurate particulars of income as also because the returned income was less than 80% of the income finally assessed. He, therefore, imposed the penalty as mentioned above.

3. Being aggrieved by the said order, the assessee appealed before the Income-tax Appellate Tribunal. It was urged before the Appellate Tribunal that the difference between the returned income and the assessed income was mainly due to trading account additions on estimate without pointing out any material defect in the assessees books of account and also to the disallowance of depreciation. It was next submitted that the total income was reduced to Rs. 1,17,000 by the Tribunal in quantum appeal from the originally assessed income of Rs. 1,74,979 and that the difference which was still in existence was due to disallowance of depreciation of considerable amount. It was, therefore, claimed that the assessee was not liable to penalty on merits as there was nothing to show that the assessee had committed fraud or gross or wilful neglect in returning correct income. It was next submitted that the order of the Inspecting Assistant Commissioner imposing penalty suffered from legal infirmity because the assessment was completed on October 20, 1970, whereas penalty was imposed by the Inspecting Assistant Commissioner on March 29, 1973. It was, therefore, urged that the Inspecting Assistant Commissioner had forfeited his right to impose penalty after the period of two years from the date of completion of the assessment. It was pointed out that the Inspecting Assistant Commissioner imposed the penalty as he assumed jurisdiction under the amended provision of Sec.274(2), which came into effect on and from the April 1, 1971. According to the assessee, if Sec.275 had not been amended with effect from April 1, 1971, the penalty proceedings should have been completed on or before October 20, 1972. It was, therefore, submitted before the Tribunal that while the Inspecting Assistant Commissioner following the provisions of Sec.275 as amended had erred in not following the other important provisions as per the amendment of Sec.274(2) whereby he could assume jurisdict