THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE SAMUDRALA GOVINDARAJULU REFERRED CASE No.43 of 1996 30.12.2011 Between: Sri Mohanlal Meghraj … Petitioner and Commissioner of Income Tax Hyderabad. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE SAMUDRALA GOVINDARAJULU REFERRED CASE No.43 of 1996 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) The two questions referred to this Court under Section 256(1) of the Income Tax Act, 1961 (the Act, for brevity) on the request of the assessee relating to the assessment year 1986-87 are the following. 1. “Whether on the facts and in the circumstances of the case the Tribunal was correct in law in confirming the penalty of Rs.21,104/- on the ground that the assessee cannot invoke the benefits of clause (2) of Explanation 5 to S.271(1)(c) of the Act as the said clause came into statute book after 27.1.1986 when the search under S.132 took place?” 2. “Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal ought to have held that the assessee was entitled to the benefits of clause (2) of Explanation 5 to Section 271(1)(c) as by the time the return was filed the said clause was already in the statute book and the provisions of law as stood at the time of filing of the return governed the penalty proceedings?” The assessee is a business man in general goods. He runs Mysore Emporium which is a proprietary concern. The officials of the Income Tax Department conducted search under Section 132 of the Act on 17.01.1986. Though the credit balance in the cash book was shown as Rs.10,131/-, cash amount of Rs.94,701/- was found. The officials recorded the sworn statement of the assessee under Section 133(c) of the Act as there was unaccounted amount of Rs.84,570/-. The assessee in a statement offered the unaccounted amount for assessment. On 15.05.1986, the Income Tax Officer passed orders under Section 132(5) of the Act estimating the undisclosed income. The assessee then filed a return for 1986-87 on 12.11.1986 which was assessed on 31.12.1986 under Section 143(3) of the Act. The assessee then filed appeals before CIT (Appeals) against the assessment order which was confirmed in Appeal on 24.05.1990. The assessee did not carry the matter in further appeal to the appellate Tribunal. In view of the unaccounted amount, Income Tax Officer initiated penalty proceedings separately and passed order levying penalty amount of Rs.21,104/-. The matter was then carried to CIT (Appeals). Relying on clause (2) of Explanation 5 to Section 271(1) of the Act, the assessee contended that the deeming provision with regard to the concealment of the particular income would not be attracted. The said clause (2) of Explanation 5 was inserted by Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 (with effect from 10.09.1986). The appellate Commissioner ignored the submission and applied the deeming provision of Explanation 5 while dismissing the appeal. The assessee’s appeal before the Income Tax Appellate Tribunal was also dismissed. Therein the learned Tribunal observed that when Explanation 5 to Section 271(1)(c) was not on the statute book and the same came into force on 10.09.1986, the assessee cannot invoke the said provisions. Thereupon, the assessee sought reference. The counsel for the assessee relied on clause (2) of Explanation 5 to Section 271(1)(c) and would submit that as the assessee accepted and offered the excess amount found during the search to tax, the deeming provision would not be attracted. She relied on the two decisions of the Supreme Court in Jain Brothers v Union of India[1] and Maya Rani Punj v Commissioner of Income Tax[2] which deal with interpretation of fiscal legislation. She also relies on the decision of this Court in Commissioner of Wealth Tax v Amatul Kareem[3], Commissioner of Income Tax v Bihar Cotton Mills Limited[4] and Commissioner of Income Tax v Mahendra C.Shah[5] in support of the submission that though clause (2) of Explanation 5 came into force with effect from 10.09.1986, the same would govern the situation. The junior counsel for Income Tax, however, would submit that as the relevant provision was introduced with effect from 10.09.1986 even if the assessment order passed thereafter on 01.12.1986, the petitioner would not fall under the excluded category as per clause (2) to Explanation 5 of Section 271(1)(c) of the Act. He relied on the Judgment of the Supreme Court in Brij Mohan v Commissioner of Income Tax[6], wherein the issue directly fell for consideration. We have perused the judgments relied on by the assessee’s counsel. But having regard to the decision in Brij Mohan, which is directly on the point, we do not consider it necessary to refer the decisions cited by the counsel for the assessee. The apex Court noticing the history of amendments to Section 271(1)(c), laid down that it is the law ruling on the date when the act of concealment takes place which is relevant and the subsequent amendment has no bearing. The relevant observations are as follows. In our opinion, the assessment of the total income and the computation of tax liability is a proceeding which, for that purpose, is governed by entirely different considerations from a proceeding for penalty imposed for concealment of income. And this is so notwithstanding that the income concealed is the income assessed to tax. In the case of the assessment of income and the determination of the consequent tax liability, the relevant law is the law which rules during the assessment year in respect of which the total income is assessed and the tax liability determined. The rate of tax is determined by the relevant Finance Act. In the case of a penalty, however, we must remember that a penalty is imposed on account of the commission of a wrongful act, and plainly it is the law operating on the date on which the wrongful act is committed which determines the penalty. Where penalty is imposed for concealment of particulars of income, it is the law ruling on the date when the act of concealment takes place which is relevant. It is wholly immaterial that the income concealed was to be assessed in relation to an assessment year in the past. (emphasis supplied) In view of the above, the first question is answered in the affirmative and the second question in the negative in favour of the revenue and against the assessee. The reference case stands disposed of accordingly without any order as to costs. _______________ (V.V.S.RAO, J) ____________________________________ (SAMUDRALA GOVINDARAJULU, J) 30.12.2011 pln [1] [1970] 77 ITR 107 (SC) [2] [1986] 157 ITR 330 (SC) [3] [1987] 167 ITR 703 (AP) [4] [1988] 170 ITR 290 (Patna) [5] [2008] 299 ITR 305 (Guj) [6] [1979] 120 ITR 1 (SC) = (1979) 4 SCC 118 = AIR 1979 SC 1897