Court directs penalty calculation as per pre-1968 provisions for unchanged income claim

The High Court ruled in favor of the assessee, directing that the penalty under section 271(1)(c) of the Income Tax Act should be calculated based on the provisions as they existed prior to the 1968 amendment. The Court held that since the revised return only claimed depreciation without changing the income, the original return should be considered for penalty calculation. It was determined that there was no continuing default, and thus, the penalty should align with the unamended provisions of the Act.

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Issues:
Calculation of penalty under section 271(1)(c) of the Income Tax Act, 1961 based on the provisions prior to the 1968 amendment or the amended provisions.

Analysis:
The case involved a sole proprietor, Gurbachan Singh, carrying on business as M/s. General Radiator Workshop, who filed his income tax returns for the assessment year 1965-66 on two occasions - first on October 15, 1965, and then a revised return on November 13, 1969, declaring a lower income due to claiming depreciation in the revised return. The Income Tax Officer (ITO) added an amount to the income of the assessee, alleging undisclosed stock based on discrepancies in the inventory filed by the assessee and the statement of stock pledged with the bank. Subsequently, penalty proceedings were initiated under section 271(1)(c) of the Act.

The Inspecting Assistant Commissioner (IAC) imposed a penalty after finding that the assessee had suppressed income by not disclosing certain stocks pledged with the bank. The IAC applied the amended provisions of section 271(1)(c) which came into force on April 1, 1968, as the revised return was filed after this date. The Tribunal, on appeal, agreed that a penalty was warranted but held that the penalty should be computed based on the provisions of section 271(1)(c) as they stood prior to the 1968 amendment, directing the minimum penalty to be levied.

The Tribunal found that the revised return only claimed depreciation without any other significant changes, and since the income remained the same as in the original return, the original return should be considered for penalty calculation purposes. The Tribunal concluded that there was no continuing default under section 271(1)(c) and that the penalty should be calculated based on the unamended provisions of the section.

The High Court concurred with the Tribunal's reasoning, holding that the penalty should be calculated based on the provisions of section 271(1)(c) as they existed prior to the 1968 amendment. The Court emphasized that the original return, filed on October 15, 1965, was the basis of the assessment, and thus, the penalty calculation should align with the unamended provisions of the Act. The Court ruled in favor of the assessee, directing that the penalty be calculated based on the pre-amendment provisions of section 271(1)(c).

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