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Issues involved: Interpretation of penalty provisions u/s 271(1)(c) of the Income Tax Act 1961 and determination of applicable law for penalty calculation.
Summary: The High Court of Madhya Pradesh considered a reference made by the Income-tax Appellate Tribunal regarding penalty proceedings against an individual assessee for the assessment year 1959-60. The Tribunal had to decide whether the default leading to penalty was attributable to the original assessment return or the revised return filed later. Additionally, the Tribunal had to determine the correct law for imposing the penalty, specifically whether it should be based on the pre-amendment provisions of section 271(1)(c) of the Act. The assessee initially filed a return for the assessment year, which was later reopened by the Income Tax Officer (ITO). Subsequently, the assessee filed another return in response to the notice under section 148 of the Act, declaring an income of Rs. 5,000. The ITO added Rs. 20,000 as undisclosed income, later reduced to Rs. 11,000 by the Appellate Authority. Penalty proceedings u/s 271(1)(c) were initiated, resulting in a penalty of Rs. 11,000 imposed by the IAC, representing the addition made by the Appellate Authority. The Tribunal held that the default leading to penalty should be attributed to the original assessment return and that the applicable law for penalty calculation would be the provisions of section 271(1)(c) before its amendment on April 1, 1968. However, the High Court disagreed with the Tribunal's findings. It emphasized that the penalty is imposed for a wrongful act, and the law in force at the time of the wrongful act determines the penalty. Therefore, the Court concluded that the default should be linked to the return filed in response to the notice under section 148 of the Act, and the penalty calculation should be based on the law applicable at the time of that filing, i.e., after April 1, 1968. In light of these considerations, the High Court answered both questions referred by the Tribunal in the negative, ruling against the assessee. The Court also directed that each party would bear its own costs in this reference.
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