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Issues Involved:
1. Applicability of the Explanation to Section 271(1)(c) of the Income-tax Act, 1961. 2. Jurisdiction of the Inspecting Assistant Commissioner (IAC) to levy the penalty. Issue-wise Detailed Analysis: 1. Applicability of the Explanation to Section 271(1)(c): The Tribunal referred the case to the High Court to determine if the Explanation to Section 271(1)(c) of the Income-tax Act, 1961, is attracted. The assessee, a partnership firm, initially filed a return declaring an income of Rs. 24,154, which was later revised to Rs. 29,718. However, the Income Tax Officer (ITO) assessed the income at Rs. 54,950, including Rs. 28,800 as income from unrecorded business activities and unexplained investments. The Appellate Assistant Commissioner (AAC) and the Tribunal subsequently reduced these amounts. The ITO initiated penalty proceedings and referred the matter to the IAC, who invoked the Explanation to Section 271(1)(c) because the returned income was less than 80% of the assessed income. The Tribunal upheld this, finding no material evidence from the assessee to rebut the presumption of concealment or gross/willful neglect. The Explanation to Section 271(1)(c) states that if the returned income is less than 80% of the assessed income, it is presumed that the assessee concealed income or furnished inaccurate particulars, unless proven otherwise. The High Court agreed with the Tribunal, stating that the burden of proof lies on the assessee to show that the failure to return the correct income did not arise from fraud or gross/willful neglect. As the returned income was less than 80% of the assessed income, the Explanation was correctly applied. 2. Jurisdiction of the Inspecting Assistant Commissioner (IAC) to Levy the Penalty: The second issue was whether the IAC had jurisdiction to levy the penalty. The ITO referred the penalty proceedings to the IAC because the minimum imposable penalty exceeded Rs. 25,000. The assessee argued that since the assessed income was later reduced, the IAC no longer had jurisdiction. The High Court noted that the relevant date for determining jurisdiction is when the return was filed and the law applicable at that time. The ITO's reference to the IAC was valid under Section 274(2) as it stood before the amendment, which required the ITO to refer cases to the IAC if the minimum penalty exceeded Rs. 1,000. The Supreme Court and High Court precedents supported this view, indicating that a valid reference remains valid despite subsequent amendments or reductions in assessed income. The High Court concluded that if the reference was valid when made, the IAC retains jurisdiction to impose the penalty, even if the concealed income is later found to be less than Rs. 25,000. The IAC's jurisdiction is derived from the valid reference by the ITO, and subsequent changes do not invalidate it. Conclusion: 1. The Explanation to Section 271(1)(c) of the Income-tax Act, 1961, is attracted. 2. The IAC has jurisdiction to levy the penalty. The High Court directed that parties bear their own costs as no one appeared for the assessee.
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