Court rules penalty based on law at default date, not return filing. Section 271(1)(c) misapplication deemed unjust.

The court ruled against the assessee, holding that penalty proceedings are governed by the law prevailing on the date of default, even if the return was filed before any subsequent amendments. The penalty imposed under section 271(1)(c) was deemed unjustified as the Explanation to the section, amended after April 1, 1968, was wrongly applied to an assessment year prior to the amendment. The court clarified that penalty and assessment proceedings are distinct, emphasizing the importance of applying the legislation in force at the time of the default in penalty cases. No costs were awarded due to the absence of representation by the assessee.

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Issues:
1. Penalty imposed under section 271(1)(c) for concealment of income.
2. Applicability of the Explanation to section 271(1)(c) as amended in 1968.
3. Interpretation of the law prevailing on the date of default in penalty proceedings.

Detailed Analysis:
The judgment pertains to an assessment year where the assessee filed a return declaring a total income of Rs. 10,250, but the Income-tax Officer completed the assessment ex parte estimating the income at Rs. 25,250. Subsequently, a penalty of Rs. 15,000 was imposed by the Inspecting Assistant Commissioner under section 271(1)(c) for concealing income or furnishing inaccurate particulars. The Tribunal, however, allowed the appeal on the grounds that the penalty was unjustified. The Tribunal observed that the Inspecting Assistant Commissioner wrongly applied the Explanation to section 271(1)(c) as amended after April 1, 1968, to an assessment year prior to the amendment, thereby canceling the penalty.

The primary issue addressed in the judgment was the applicability of the amended clause (iii) of section 271(1) to the penalty proceedings. The Tribunal had incorrectly assumed that the Explanation to section 271(1)(c) was amended, whereas it was clause (iii) of the section that was amended in 1968. The court clarified that penalty proceedings are governed by the law prevailing on the date of default, which, in cases of concealment, is the date of filing the return. Referring to a previous case, the court held that the amended clause (iii) of section 271(1) applied to penalty proceedings arising after the amendment, even if the return was filed before the amendment.

In light of the above analysis, the court answered the referred question in the negative, favoring the department and against the assessee. The judgment emphasized that penalty proceedings are distinct from assessment proceedings, and the law applicable to penalties is determined by the legislation in force at the time of the default. As no representation was made on behalf of the assessee, no costs were awarded, and the departmental counsel's fee was assessed at Rs. 200.

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