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 justified in holding that the learned Inspecting Assistant Commissioner of Income-tax did not have the power after March 31, 1976, consequent to the deletion of section 274(2) of the Income-tax Act, 1961, with effect from April 1, 1976, to levy penalty under section 271(1)(c) of the Act even in a case in which the penalty proceedings had been initiated before April 1, 1976, and were pending with the Inspecting Assistant Commissioner on that date, and in cancelling the penalty of Rs. 5,000 levied on the assessee in this case ?"

2. The relevant assessment year is 1967-68. The assessee filed a return showing an income of Rs. 33,259 and the assessment was completed by the Income-tax Officer on a total income of Rs. 94,668 on March 30, 1972. The amount was reduced in appeal to Rs. 76,168. The Inspecting Assistant Commissioner gave notice to the assessee under section 274(2) read with section 271 of the Act on March 30, 1972, and ultimately by order date