1. This reference under section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue was to answer the following question of law, namely :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Inspecting Assistant Commissioner had no jurisdiction to levy the impugned penalty on the assessee under section 271 (1)(c) of the Income-tax Act, 1961 ?"

2. The relevant assessment year is 1972-73. The assessee filed a return declaring an income of Rs. 29,390. The Income-tax Officer held that a sum of Rs. 40,550 was the assessee's income from undisclosed sources. Accordingly, t is amount was added to the total income of, the assessee and the assessment completed on a total income of Rs. 80,020. The Income-tax Officer also initiated penalty proceedings under section 271 (1)(c) of the Act on January 24, 1975, and referred the matter to the Inspecting Assistant Commissioner on February 5, 1976, since the question of penalty was not within the Income-tax Officer's jurisdiction according to the law as it existed then. This reference made by the Income-tax Officer for imposition of penalty was pending with the Inspecting Assistant Commissioner when sub-section (2) of section 274 of the Act was deleted with effect from April 1, 1976, by the Taxation Laws (Amendment) Act, 1975. The Inspecting Assistant Commissioner proceeded to decide the pending reference and imposed a penalty of Rs. 40,550 under section 271(1)(c) of the Act by order dated March 22, 1977. The assessee preferred an appeal to the Tribunal which has been allowed. The Tribunal has held that the Inspecting Assistant Commissioner had no jurisdiction to impose penalty on the date of the order passed by the Inspecting Assistant Commissioner since sub-section (2) of section 274 had been deleted as aforesaid with effect from April 1, 1976. Aggrieved by the view taken by the Tribunal, this reference has been made at the instance of the Revenue.

3. It has been held in a number of decisions by now, following the decision in CIT v. Shri Ram Prakash Saraf [1986] 160 ITR 860 (MP) , that the question of jurisdiction of the Inspecting Assistant Commissioner in such matters has to be decided on the basis of the date of reference made by the Income-tax Officer to the Inspecting Assistant-Commissioner and not the date on which the Income-tax Officer had initiated the penalty proceedings. It has been held that the date of making the reference to the Inspecting Assistant Commissioner by the Income-tax Officer and not the date of initiation of penalty proceedings is the determining factor in such a situation. In short, all such references made by the Income-tax Officer to the Inspecting Assistant Commissioner and pending before the Inspecting Assistant Commissioner prior to April 1, 1976, when sub-section (2) of section 274 of the Act was deleted are saved and the Inspecting Assistant Commissioner had the jurisdiction to decide the same on merits but not those references which were made by the Income-tax Officer to the Inspecting Assistant Commissioner after April 1, 1976. (See D.B. Income-tax Reference No. 34 of 1980, decided on August 7, 1987-CIT v. Sri Niwas Rice and Oil Industries [1988] 169 ITR 253 (Raj)) . In the present case, the Income-tax Officer, after initiating the penalty proceedings, had referred the matter to the Inspecting Assistant Commissioner on February 5, 1976, and, therefore, the reference was pending before the Inspecting Assistant Commissioner prior to the deletion of sub-section (2) of section 274 of the Act with effect from April 1, 1976. Accordingly, the Inspecting Assistant Commissioner had jurisdiction to levy penalty on the assessee in this pending reference under section 271(1)(c) of the Act.

4. Consequently, the reference is answered in favour of the Revenue and against the assessee by holding that the Tribunal was not justified in taking the view that the Inspecting Assistant Commissioner ha