Ranganathan, J.
1. It is well-settled that for the purpose of assessment to income-tax, the law to be applied is that law that is in force in the assessment year; in other words, the I.T. Act, as it stands amended on the first day of April of a financial year, will apply to the assessment for that year. This principle enunciated by the Privy Council in Maharajah of Pithapuram v. CIT [1945] 13 ITR 221, has since been reiterated by Supreme Court in Karimtharuvi Tea Estate Ltd. v. State of Kerala : [1966]60ITR262(SC) and CIT v. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) and other decisions. The two references presently under consideration raise a similar question regarding the law applicable in regard to the levy of a penalty for concealment under s. 271(1)(c) of the I.T. Act, 1961.
2. So far as the penalty provisions are concerned, there have been material changes in the statute in several respects and these have brought to the forefront a good deal of controversy in regard to the particular provision of law that would be applicable in a particular case. These issues have arisen in the context of three major changes regarding the imposition or levy of penalty under the I.T. Act.
3. The first set of changes was heralded by the substitution of the I.T. Act, 1961, in the place of the Indian I.T. Act, 1922. So far as this change was concerned, however, the statute itself made certain provisions in s. 297(2)(f) and (g) to these provisions. Notwithstanding this, there were some conflicts and controversies that were set at rest by the Supreme Court in the case of Jain Brothers v. Union of India : [1970]77ITR107(SC) .
4. The second set of changes was effected by the Finance Acts of 1964, 1968 and 1975. The Finance Act of 1964 deleted the word 'deliberately' in s. 271(1)(c) and also introduced an Explanationn casting the onus of proof on the assessed in cases where the difference between the returned income and the assessed income exceeded a particular margin. The Finance Act of 1968 amended the quantum of penalty that was imposable in cases of concealment. Under the pre-1968 provisions, the quantum of penalty was measured with reference to the tax which was sought to be avoided by means of the concealment that was being penalised, i.e., by the amount of difference between the tax on the assessed income and that on the returned income. The penalty varied from 20% to 150% of the tax sought to be avoided. The new provision, as substituted with effect from April 1, 1968, by the Finance Act of 1968, provided for the computation of the penalty at figures varying between 100% and 200% of the amount of income in respect of which there has been concealment. Several cases have arisen in regard to the applicability of these provisions to particular cases and it is this aspect if the controversy that arises in these two references as well. The same type of questions will also arise in respect of the amendments made with effect from April 1, 1976, by the Taxation Laws (Amendment) Act, 1975, which restored the original measure and restricted the penalty to between 100% to 200% of the amount of tax sought to be avoided as defined in the new Explanationn 4.
5. The third major change made in the Act was represented by the amendments to ss. 274 and 275 of the I.T. Act. Section 274 originally provided that in cases of concealment where the minimum penalty imposable exceeded Rs. 1,000, the penalty was to be imposed by the IAC and s. 275 provided that an order of penalty was to be passed before the expiration of two years from (to put it briefly) the date of completion of the assessment. These provisions were, however, amended by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971. Section 274(2) was amended to provide that the IAC will be the authority to levy the penalty in cases where the amount of income in respect of which concealment was alleged exceeded the sum of Rs. 25,000 and s. 275(2) was amended by extending the period of limitation to two years from the end of the financial year in which the proceedings, in the course of which action for the imposition of penalty had been initiated, were completed or six months from the end of the month in which the appeal against the assessment before the AAC or the Tribunal is disposed of. The details of the amendments are not relevant for our present purpose. It may also be mentioned that with effect from April 1, 1976, s. 274(2) has been omitted and the power to impose penalty in all cases has been restored to the ITO. This series of amendments has also given rise to a large number of judicial decisions taking different views.
6. We are mentioning these three sets of controversies here because, in our view, the principles applicable to the three sets of controversies are different and in order to make it clear that the judicial decisions relating to the first or the third sets of controversies (which have also been cited before us) are not of much help in deciding the issue in the present reference which relate only to the second aspect which has been referred to earlier. We shall, thereforee, in our discussion, confine ourselves to this group of cases in coming to a conclusion on the issues raised before us.
7. Before proceeding further, it may be useful to give a brief narration of the relevant facts. Both the references relate to the assessment year 1967-68, the previous year being the financial year 1966-67. In ITR No. 131 of 1974, the assessed, Shri Joginder Singh, filed a return showing an income of Rs. 8,451. (This figure mentioned in the reassessment order may be a mistake for Rs. 4,481, which figure was also repeated by the assessed in the return under s. 148 referred to below). The exact date of this return is not available, but it was, admittedly, filed prior to April 1, 1968. The assessment was also completed on January 10, 1969, on an income of Rs. 8,481. (From the figures given in the reassessment order, it appears that an addition of Rs. 4,000 may have been made while determining the income from a truck). Subsequently, the ITO had reason to believe that the income of the assessed had escaped assessment. He issued a notice under s. 148 in response to which the assessed filed a return of income on July 7, 1970, showing an income of Rs. 4,481 as before. The assessment was completed on a total income of Rs. 14,481 which included a further addition of a sum of Rs. 6,000 (representing a proportionate part of the cost of construction of a house property the sources for which had not been properly explained to the satisfaction of the ITO which was treated as the assessed's unexplained income for the assessment year in question. The reassessment was completed on October 5, 1970. Simultaneously with the reassessment, the ITO initiated penalty proceedings under s. 271(1)(c), which were referred to the IAC, who, by an order dated September 19, 1972, imposed a penalty of Rs. 6,000 by reference to the addition made to the returned income as representing the unexplained investment. The assessed preferred an appeal to the Tribunal. Though the assessed contended that the facts of the case did not bring out any concealment on his part in respect of which a penalty could be imposed, this contention was repelled by the Tribunal. Indeed, it appears, that before the Tribunal it was conceded, on behalf of the assessed, that in view of the decision of the Delhi High Court in the case of Durga Timber Works v. CIT : [1971]79ITR63(Delhi) , the leviability of a penalty, in the circumstances of the case, could not be challenged. The only question that was raised for the consideration of the Tribunal was whether the amount of penalty (which the IAC had put at 100% of the concealed income on the basis of the provisions of s. 271(1)(c), as amended with effect from April 1, 1968), was properly levied or whether the amount of penalty livable should be computed with reference to the provisions of s. 271(1)(c), as they stood prior to April 1, 1968. This question was answered by the Tribunal by stating that since the penalty related to the assessment year 1967-68, the amendment made to s. 271(1)(c), which was effective from April 1, 1968, could not be applied. In reaching this conclusion, the Tribunal relied on the decision of the Kerala High Court in Hajee K. Assainar v. CIT : [1971]81ITR423(Ker) , and an earlier decision reached by one of the Delhi Benches of the Tribunal. In this view of the matter, the Tribunal, while upholding the penalty, directed that its quantum should be reduced to the minimum under the provisions, as they stood prior to the amendment of 1968. In other words, the Tribunal directed that the penalty amount should be reduced to 20% of the tax attributable to the amount of income concealed. It is against this conclusion of the Tribunal that the Commissioner has come up in reference to this court. The question of law referred to this court is in the following terms :
'Whether the Tribunal was right in law in holding that the provisions of section 271(1)(c), before their amendment as and from April 1, 1968, were only applicable in the instant case ?'
8. Turning now to ITR No. 65 of 1975, the facts are somewhat similar. The first return of income of this assessed, Shri Hari Ram, was filed on September 1, 1967, showing an income of Rs. 1,026. On September 4, 1968, a revised return was filed declaring a total income of Rs. 3,016. Yet another revised return of income was filed on November 20, 1968, wherein the income was shown at Rs. 7,726. The assessment was, however, completed on a total income of Rs. 17,700. In the assessment order dated September 25, 1969, the ITO referred to the return showing an income of Rs. 3,016., He mentioned that the assessed had purchased a truck for Rs. 42,638. In explaining the sources for this investment, the assessed had pointed out that he had advanced a sum of Rs. 8,000 to some party which had been returned to him with interest of Rs. 5,200 on July 13, 1966, i.e., during the previous year. The ITO completed the assessment by taking a sum of Rs. 3,750 as income from the plying of the truck, Rs. 5,200 as interest income and a sum of Rs. 8,750 as share income from a firm. At the time of the completion of the assessment, the ITO also issued a notice under s. 271(1)(c) and referred the matter to the IAC under s. 274(2). The IAC, after considering the facts of the case, came to the conclusion that the sum of Rs. 5,200 by way of interest had been concealed by the assessed from the two returns filed on September 1, 1967, and September 4, 1968, and had been disclosed only in the return filed on November 20, 1968. He pointed out that the return of income filed on September 1, 1967, got merged in the revised return filed on September 4, 1968. In the return dated September 4, 1968, the assessed had omitted to include the sum of Rs. 5,200. This being so, the IAC was of the opinion that the assessed had concealed the sum of Rs. 5,200 from the return dated September 4, 1968. In his opinion, a penalty of Rs. 5,200 was imposable in respect of this concealment. This amount was computed on the basis of the provisions of s. 271(1)(c), as amended on April 1, 1968. The assessed preferred an appeal to the Tribunal. The judicial member of the Tribunal was of the opinion that so far as the applicability of the penal provisions was concerned, it was clear that the assessed had concealed the particulars of his income but that 'since the offence pertained to the assessment year 1967-68, the accounting period being April 1, 1966, to March 31, 1967, we do not think the amended penal provisions would be held to be applicable in respect of the case of the assessed.' In his view, the penalty livable should be the minimum penalty under the law as it stood prior to April 1, 1968. The accountant member concurred with this conclusion, namely, that the penalty should be calculated on the basis of the provisions, as they stood prior to April 1, 1968, but his reason for coming to this conclusion was on the ground that the first return of income had been submitted on September 1, 1967. Thus, both the members, though for different reasons, agreed that the amount of penalty imposed should be reduced and it is against this conclusion that the Commissioner has come up in reference before us. The question of law referred to us in this reference reads as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that minimum penalty under section 271(1)(c) of the Income-tax Act, 1961, would be livable under the law prior to 1-4-1968 ?'
9. From the above narration of facts, it will be seen that the question to be decided in both cases is whether the penalty has to be calculated with reference to the provisions of s. 271(1)(c), as they stood before April 1, 1968, or with reference to those provisions, as they stood amended with effect from April 1, 1968. If the former provision is to be applied, the penalty will computed on the basis of the tax sought to be avoided which will be comparatively less, whereas, if the later provisions were applicable, the penalty would be computed on the basis of the amount concealed which is a much larger figure.
10. We have pointed out earlier that the Tribunal in ITR No. 131 of 1974 and the judicial member in ITR No. 65 of 1975 rested their conclusion in favor of the applicability of the unamended provisions on the simple ground that since the penalty related to the assessment year 1967-68 and the previous year was 1966-67, the amendment to those provisions with effect from April 1, 1968, would not be applicable to the case of the two assesseds now before us. Apparently, the line of argument or reasoning on which this conclusion is based is the same which was applied by the Supreme Court in the case of Karimtharuvi Tea Estate Ltd. : [1966]60ITR262(SC) regarding the provisions applicable to an assessment under the I.T. Act. This view of the Tribunal, however, cannot be said to be correct in view of the decision of the Supreme Court in the case of Brij Mohan v. CIT : [1979]120ITR1(SC) . The same decision also answers the contention of the learned counsel for the Revenue that, since the concealment is detected at the time of the assessment, it is the law in force at the time of completion of the assessment that would be applicable. Since this is a direct decision of the Supreme Court touching the point at issue before us, it is necessary to refer to this in some detail. In that case, the assessed had filed a return of income for the assessment year 1964-65 on April 24, 1968, showing share income from one of two firms in which he was a partner. He did not, however, show the share income from the other firm. The ITO issued a notice under s. 143(2) but, there having been no compliance therewith, made a best judgment assessment and added certain other items of income. On appeal, there was a reduction but the figure of concealed income was determined by the AAC at Rs. 7,357. The ITO instituted penalty proceedings which were referred to the IAC. The IAC, on the basis that the concealed income was Rs. 7,357, imposed the penalty of a like sum on the basis of the amendment to s. 271(1)(c) with effect from April 1, 1968. On appeal, the Appellate Tribunal confirmed the levy of penalty by reference to the amended provision but reduced the amount of penalty on merits. The assessed applied for a reference and a direct reference was made by the Tribunal to the Supreme Court on the question as to whether the Tribunal was, in law, right in sustaining the penalty by applying the provisions of s. 271(1)(c)(iii) of the I.T. Act, 1961, as amended with effect from April 1, 1968. The Supreme Court answered this question in the affirmative and in favor of the Revenue. The court rejected the contention urged on behalf of the assessed that the penalty must be governed by the law pertaining to the assessment year. It observed (p. 4) :
'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 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.
We do not think that the cases to which the Tribunal has referred can be said to differ on this.
The concealment of the particulars of his income was effected by the assessed when he filed a return of total income on April 24, 1968. Accordingly, it is the substituted clause (iii), brought in by the Finance Act, 1968, which governs the case. That clause came into effect from April 1, 1968.'
11. Before the Supreme Court, it was also argued by the assessed that under s. 139, the return of income should have been filed by the end of September, 1964. It was argued that though the return put in by the assessed was filed as late as 1968, it was accepted by the ITO, and so, it should be deemed that the return was treat as filed within the time or, in other words, that the return had been filed by September 30, 1964. On the basis of this fiction, it was contended that the concealment must be deemed to have taken place prior to April 1, 1968. This contention was also rejected by the learned judges observing (p. 5) :
'This contention is also without force. Under s. 139 of the Act, although the statute itself prescribes the date by which a return of income must be filed, power has been conferred on the ITO to extend the date of furnishing the return. A return filed within the extended period is a good return in the sense that the ITO is bound to take it into consideration. But nowhere does s. 139 declare that where a return is filed within the extended period it will be deemed to have been filed within the period originally prescribed by the statute. On the contrary, the section contains a provision for payment of interest where the return is filed beyond the prescribed date even though within the extended period. That is evidence of the fact that the return filed during the extended period is not regarded by the statute as filed within the time originally prescribed.'
12. It will be observed that the Supreme Court has laid down the principle applicable to such cases in every simple terms. The penalty is levied for an offence committed by the assessed, namely, the conscious omission of certain income from the return. The law relating to penalty will, thereforee, be the law as it stands on the date of the commission of the offence for which the penalty is sought to be levied. Since the offence comprises of concealment or omission of income from a return, it is the date of the relevant return that will govern the determination of the issue. In the case before the Supreme Court, there was only one return and, hence, there was no difficulty in holding that the law, as it stood on the date of that return, was applicable on the facts of the case. The two references before us, however, involve a further complication in the facts which create a certain amount of difficulty in straightaway applying the principle laid down by the Supreme Court to the facts of those cases. The complication arises out of the circumstance that, in references before us, the assesseds have filed not one but more than one return, and there has been a concealment or omission in more than one return. The question, thereforee, now arises before us as to which of these returns and which of these concealments or omissions in these particular cases. We shall, thereforee, proceed to address ourselves to this issue.
13. It will be clear at the outset that the above question may arise in two types of situations. The first is where, in the course of the assessment proceedings before the ITO, the assessed has filed a number of returns, the first of which may be described as the original return, the other(s) being what are, or purport to be, revised returns under s. 139(5) of the Act. The other type of cases is where there are different sets of proceedings before the ITO : One, the original proceedings, and the other(s), the proceedings for reassessment initiated under s. 148 of the Act which may be one or more than one. There may be one return (or set returns) in the original proceedings and another return (or set of returns) in the course or the reassessment proceedings. We shall consider these situations separately taking up for consideration, for the sake of simplicity, a case where there are two returns only - one, the original return and the second one, a revised return; or, one, a return at the time of the original assessment and the other, a return at the stage of reassessment. Also, with a view to simplifying matters, we shall use, in the discussion below, the compendious expressions 'concealed', 'concealed income' and their variations to refer to all cases of understatement of income in a return in such circumstances as to attract action under s. 271(1)(c) instead of repeating, over and over again, the formula 'conceals or furnishes inaccurate particulars of income' used in the section or referring specifically to all the situations covered by these words read with the several Explanationns.
14. The first situation may be thought to land itself to a very simple solution for a short reason. Where there is only one set of assessment proceedings before the ITO, viz., the original assessment proceedings, the returns filed by an assessed will fall either under sub-ss. (1) to (4) or under sub-s. (5) of s. 139 of the Act. It is only in the latter class of these cases that a question of more than one return will arise. Under the scheme of s. 139, the Legislature itself permits an assessed to file a revised return. The clear intendment is that, where a proper revised return is filed, it should take the place of the original return and be treated as the return for the assessment year which is to form the basis for all further proceedings by the ITO. In other words, once a proper revised return is filed, the earlier return has to be treated as having been superseded and, thereforee, as non est for all practical purposes. So, it can be suggested, all that is necessary in such cases is to find out whether the second or subsequent return filed by the assessed can be properly called a revised return under s. 139(5). If the answer is in the affirmative, then its effect, under the statute, is to virtually supersede the earlier return. It will be the return on the basis of which the officer will have to complete the assessment and, to most intents and purposes, will govern the assessed's liabilities under the statute including the issue of penalty. If, on the other hand, the subsequent return is not a proper return under s. 139(5), it will not have the status of a 'revised return' at all and the liabilities and obligations of the assessed will have to be judged by reference to the earlier return filed by him. A subsequent return will be a proper return under s. 139(5) if it falls within the terms of that sub-section.
15. This appears to be a simple solution which can be easily applied to the circumstances of any particular case. But, in order to decide whether this simple solution can be accepted, it is necessary to examine, a little more deeply, the scope of s. 139(5). Prima facie, the language of this sub-section is so wide as to cover practically any second return filed before the assessment is made and within the time mentioned. For, every such return will change or modify the particulars submitted in the earlier return(s) and thus purport to revise the earlier one in regard to an 'omission or wrong statement' therein whatever might have been the reason for such omission or wrong statement. Even where an assessed has deliberately concealed any item of income in a return but files another return of income including it, after the ITO has detected it, he could urge that he had made a 'wrong statement' in the original return which he wished to set right by the second return and that, thereforee, the second return should be treated as a valid return under s. 139(5). If this interpretation of s. 139(5) were to be accepted, the solution suggested above would provide a haven to all assesseds for they would be able to avoid penalty action even where they have deliberately concealed income in the first return if, subsequently, and even after the officer has detected the concealment, they can manage to file a return disclosing the concealed income before an assessment is actually made. Such a result would be very inequitable and unintended Judicial decision have, thereforee, attempted to avoid such a result in one of two ways :
They have either held that the benefit of this provision, s. 139(5), can be availed of only to rectify or revise innocent and unintentional omissions and wrong statements made in the earlier returns. It cannot be made use of by a person who has made a false return, knowing it to be false to 'revise' the return so as to show the income concealed earlier; in other words, that such a return cannot be properly termed a revised return under s. 139(5). Or they have held that a penalty for concealment in a return cannot be avoided merely because a return is filed subsequently disclosing income previously 'concealed' (it being immaterial whether such a return could be called a 'revised' return within the meaning of s. 139(5) or not) although the filing of such a return and the circumstances in which it is filed are taken into account for deciding whether there was a 'concealment' which merits a penalty as well as the quantum of the penalty to be imposed. The following cases may be referred to as illustrative of these principles : Arunachalam Chettiar v. CIT [1931] 6 ITC 58 , Vadilal Ichhachand v. CIT : [1957]32ITR569(Bom) , Dayabhai Girdharbhai v. CIT : [1957]32ITR677(Bom) , CIT v. Angara Satyam : [1959]37ITR230(AP) , Sivagaminatha Moopanar & Sons v. CIT : [1964]52ITR591(Mad) , CIT v. Ramdas Pharmacy : [1970]77ITR276(Mad) , Agarwal v. CIT , Padma Ram Bharali v. CIT [1977] 110 ITR , Sulemanji Ganibhai v. CIT : [1980]121ITR373(MP) and Kumar Jagadish Chandra Sinha v. CIT : [1982]137ITR722(Cal) .
16. We think it is unnecessary, for deciding the issue before us, to discuss the precise scope of s. 139(5); for, it seems to us that, on any view of the matter, the answer to the present issue suggested earlier on the basis of s. 139(5) will be impracticable. If, on the one hand, s. 139(5) is given a wide interpretation so as to cover revision of concealed items as well, the solution will lead to the anomalous and unintended result which has been pointed out earlier and which judicial decisions have consistently and persistently been trying to avoid. The consensus and, indeed, unanimity of judicial opinion is to the effect that in such cases penalty should be levied with reference to the original return containing the concealment and the so-called revised return under s. 139(5) - if it can be so called-should be ignored. On the other hand, if s. 139(5) is given a restricted meaning and confined to cases where the second or subsequent return only seeks to rectify or revise unintentional and innocent omissions and wrong statements in the earlier return, the position will be no different. It must be pointed out, at the outset, that on this narrower interpretation, the status of a second return as a 'revised' return would depend not on whether the original or the second return contains concealments of income but on the purpose of the second return vis-a-vis the first return. To illustrate, an assessed may have concealed an item of income from both the first and the second returns and the 'revised' return may only rectify certain patent errors in the earlier one, in so far as disclosed items are concerned. The second return, in such a case, would be a revised return notwithstanding that some items of concealed income are omitted from both. On the contrary, if an assessed has deliberately left out an item in the earlier return and files a second before assessment to include it because of actual, or of fear of impending, discovery, the second return can hardly be called a revised return and the offence earlier committed is not wiped out by belated repentance. A case where the second return has a combined objective partly to correct a patent error and partly to disclose what had earlier been concealed would have to be treated as falling in the second category referred to above qua the disclosure of concealed items. If we examine the solution indicated in the light of this position, it will be seen that the solution suggested is illogical and would result in discriminatory treatment of assesseds in like situations. It appears to us erroneous in principle to say that the penalty imposable on an assessed, who is found to have concealed an item of income in a return filed by him, should be made to vary and become more or become less because of the accidental circumstance that he has filed a revised return setting right certain omission or errors or wrong statements in the first return that have on connection or nexus with the items of income concealed by him. To say, for example, that an assessed who returned only a salary income of Rs. 30,000 but concealed his business income in a return filed prior to April 1, 1968, should be called upon to pay a higher penalty merely because he found that the salary income should have been Rs. 38,000 and revised the return in this respect after April 1, 1968, does not seem to make sense particularly because no amount of repentance on his part for the concealment of business income can help him to file a 'revised' return showing the business income so as to avoid a penalty in respect of his earlier concealment. Likewise, after the amendment of 1975, there would be no equity in holding a person who has concealed an income in a return filed prior to April 1, 1976, liable for a smaller penalty merely because he has filed a revised return after that date rectifying certain other errors or mistakes that had crept into his earlier return unconnected with the concealed income. This illustration will show the illogicality in principle of trying to correlate the offence of concealment to a revised return when such revision has no nexus to the concealment and cannot help the assessed to remedy the concealment or to make amendment for it. The concealment in the original and revised returns can be treated as independent offences, if at all, only it s. 139(5) can be said to permit a revised return setting right earlier false statements or concealments, for, then it could be said that the assessed, despite having had an opportunity to revise the returns and show the concealed income, failed to do so and the thus committed the offence of concealment over again : but we have pointed out, how it will be anomalous to base the penalty with reference to the 'revised return' even on such an interpretation.
17. A proper interpretation of s. 271 should steer clear of the above anomalies. That apart, it is necessary to bear in mind that the basic obligation of an assessed is only one, viz., to file a proper and correct return of income for a particular assessment year. It seems appropriate that the offence should be correlated to the point of time when the first returns is filed in which the concealment took place and that subsequent returns, though they may, in a sense, be said to be repetitions of the concealment, should be left out of consideration. It is the law on the date of the date of the first return in which the income is concealed that should be held to govern the calculations of levy of penalty in such cases.
18. We shall now turn to the second category of cases where penalty proceedings are initiated in the course of reassessment proceedings. Here, a first reaction would be that it is the date of the return filed in the course of the reassessment proceedings that would be relevant to determine the law that will govern the penalty proceedings. The issue would have been that simple if one could say that a penalty should be imposed in the course of reassessment proceedings only for a concealment or offence committed in the course of such proceedings. But, on this issue, there is a long line of decisions, which have received the approval of the Supreme Court in Malbary and Bros. v. CIT : [1964]51ITR295(SC) , to the effect that it is open to the ITO, in the course of reassessment proceedings, to initiate penal action for an offence committed at the time of original assessment. This line of decisions is also based on sound logic which can be illustrated by a simple example. Suppose an assessed, at the time of original assessment has concealed an item of income but, when called upon under s. 148, files a return which includes the same, there has clearly been no concealment in the course of the reassessment proceedings. To hold that a penalty in the course of the reassessment proceedings can be levied only in respect of a concealment during such proceedings would lead to the result that the assessed would escape penalty for an admitted act of concealment for the simple reason that at this point of time, no imposition of penalty would be at all possible by reference to the original assessment proceedings as such penalty proceedings should have been commenced before the completion of those assessment proceedings. Courts, for this reason, have taken the view that penal proceedings can be initiated in the course of the reassessment proceedings, not only for offences or concealment in the course of these proceedings, but also for offences or concealment effected in the course of the original proceedings but detected only in the course of the reassessment proceedings. This principle introduces an element of difficulty in applying the simple test referred to earlier and necessitates a deeper consideration of the position in the category of cases.
19. Once this principle is recognised, it will be clear that penalty proceedings, even if initiated in the course of the reassessment proceedings, should be correlated to the return made in the course of the original assessment proceedings and not that filed during the reassessment proceedings. In order to facilitate an easier understanding one may take, as a concrete example, an assessed whose real income is Rs. 50,000 but who, conceals a part thereof. The following types of situations could arise for consideration :
(a) The assessed returns Rs. 10,000 which is accepted. However, when notice under s. 148 is given, he returns an income of Rs. 50,000 and is assessed thereon.
(b) The assessed returns his income as Rs. 10,000 at the time of the original assessment which is accepted by the ITO. When a notice is given under s. 148, he again returns Rs. 10,000 but the income is determined at Rs. 50,000.
(c) He returns Rs. 10,000 for original assessment. The ITO does not accept it and completes assessment at Rs. 20,000. When notice under s. 148 is given, the assessed returns Rs. 20,000 but is assessed on Rs. 50,000.
(d) The assessed returns Rs. 10,000 but the assessment is completed on Rs. 20,000. In response to the notice under s. 148, he returns Rs. 50,000 and is assessed thereon.
20. In all these cases, there has been concealment by the assessed in the course of the original assessment proceedings. In two of these cases, the concealment is partly detected at the time of the first assessment and the assessed may or may not have been penalised thereforee. In two of the cases, the assessed repeats the offence the offence even at the stage of the reassessment proceedings but in two of them he repents and returns the correct income for purposes of reassessment. In all the cases, he can be proceeded against for concealment at the stage of the reassessment but such proceedings, in cases (a) and (d), clearly relate only to the original proceedings, for there is no concealment at the stage of the reassessment proceedings. In cases (b) and (c), however, there has been concealment at both the stages. Here, though the penalty proceedings are initiated and the penalty is imposed only in the course of the reassessment proceedings, it will be only logical to hold that the penalty is being levied only with reference to the act of concealment in the return filed during the original assessment proceedings which the ITO has power to do. This is because though concealment is detected in the course of the reassessment, it has obviously been there - whether discovered or not - even at the time of the original assessment. Though the proceedings are separate, the assessment year is one and the assessed's offence of concealment is referable to the extent to which the assessed has avoided payment of tax on the total income as finally determined by returning it at the lower figure shown in the first return filed by him. Clearly, in the cases (a) and (d) given above, there is no reason why the assessed should escape penalty for the concealment at the initial stage, if he has not been penalised in respect thereof earlier. The position is similar in cases (b) and (c). In these two cases, penalty will be based on the original return if the concealment at the stage of the first assessment has not been penalised. Even if it has been penalised, the penalty will be levied on like basis although, to avoid duplication of penalty, the earlier penalty will have to be taken into account or 'recalled' in view of the decision of the Supreme Court in Malbary and Bros. case : [1964]51ITR295(SC) . It seems, thereforee, quite reasonable and proper to hold that the substantive penal provisions of the statute that would govern any particular case will be those that were prevalent on the date of the return filed at the time of the original assessment, even though the penal proceedings may themselves be initiated in the course of the reassessment proceedings. To hold to the contrary would not only lead to an assessed escaping a penalty for concealment if, when it is detected and reassessment proceedings are initiated, he returns the previously concealed income. There would also be partial escape from penalty in cases where an addition is made in the original assessment in circumstances not calling for penalty but there is clear evidence in the course of the reassessment proceedings that the assessed had concealed income to that extent or even more. Again, if it be postulated that it will be left to the ITO to levy the penalty either with reference to the original return or with reference to the return under s. 148, that will leave the officer with an unguided and arbitrary discretion to choose the date of the 'offence' which he would like to penalise, a discretion which he will perhaps always, naturally, exercise in a manner most profitable to the Revenue. A construction which would avoid such a baseless exercise of discretion should be considered more appropriate and acceptable. We are, thereforee, of the opinion that even in this class of cases, the levy of penalty should be governed by the law as it stood on the date of the return filed in the course of the original assessment proceedings.
21. We will now refer briefly to the judicial decisions which counsel have cited before us : CIT v. Ram Achal Ram Sewak : [1977]106ITR144(All) , Addl. CIT v. Krishna Subha Karan : [1977]108ITR271(All) , Addl. CIT v. Jiwan Lal Shah : [1977]109ITR474(All) , Addl. CIT v. Mewa Lal Sankatha Prasad : [1979]116ITR356(All) , CIT v. A. Rahman : [1979]119ITR475(Patna) , CWT v. M. V. Rajamma : [1979]120ITR132(Mad) , Addl. CIT v. Atma Singh Steel Rolling Mills : [1979]120ITR590(All) , CIT v. Ram Singh Har Mohan Singh , and CIT v. S. S. K. G. Arthanariswamy Chettiar : [1982]136ITR145(Mad) have decided that in cases of penal action initiated on reassessment under s. 148, the provisions of law as on the date of the return filed at the time of original assessment would govern even though concealment was there in both sets returns. This is also the conclusion which we have arrived at. We may, however, mention :
(i) An anomaly about double penalty pointed out by the Allahabad High Court in CIT v. Ram Achal Ram Sewak [1977] 106 ITR 14 as one of the consequences of accepting the Department's contention would not arise in view of the ratio of the Supreme Court in the case of N. A. Malbary and Bros. v. CIT : [1964]51ITR295(SC) .
(ii) The decision of the Orissa High Court in B. N. Sharma v. CIT : [1977]110ITR538(Orissa) , that in such a case the law in force on the date of completion of reassessment will govern is not good law after Brij Mohan's case : [1979]120ITR1(SC) .
(iii) In Addl. CIT v. Medisetty Ramarao [1970] 108 ITR 318 , the same proposition was upheld was upheld but the position was much simpler as the returns filed under s. 148 were accepted.
(iv) The Madhya Pradesh High Court has taken the contrary view in Addl. CIT v. Balwantsingh Sulakhanmal [1981] ITR 127 , Addl. CIT v. Gopaldas Amarnomal : [1985]151ITR114(MP) (see infra) and Addl. CIT v. Brijmohan Jaiswal : [1983]139ITR568(MP) . Reference may also be made to Addl. CIT v. Manilal Tribhuvandas [1983] 139 ITR 189 .
22. The position in regard to a revised return has been discussed in Amjad Ali Nazir Ali v. CIT : [1977]110ITR419(All) , CIT v. J. K. A. Subramania Chettiar : [1977]110ITR602(Mad) , CIT v. Parmanand Advani : [1979]119ITR464(Patna) , Sulemanji Ganibhai v. CIT : [1980]121ITR373(MP) , Addl. CIT v. Radhey Shyam : [1980]123ITR125(All) and Ganga Prasad v. CIT : [1980]123ITR349(All) . The view taken in these cases is that where there is a proper revised return under s. 139(5), the law on the date of the revised return will govern but that the law on the date of original return will be applicable where there is no proper revised return within the meaning of s. 139(5). In Addl. CIT v. Mewa Lal Sankatha Prasad : [1979]116ITR356(All) , the court, while laying down that in the case of a reassessment under s. 148, the return filed in the original assessment proceedings will alone be relevant, distinguished the case of revised returns and observed, following Amjad Ali Nazir Ali : [1977]110ITR419(All) , that, where the revised return is a valid return, the penalty will be with reference to it but not otherwise. To a similar effect are the observations of the same High Court in Ganga Prasad v. CIT : [1980]123ITR349(All) . In CIT v. Rameswar & Co. : [1981]130ITR51(AP) , the finding that the concealment in the revised return was only due to a repetition of the earlier return and did not amount to a fresh act of concealment was accepted as a finding of fact given by the Tribunal and the penalty based on the law as at the date of the original return upheld. In F. C. Agarwal v. CIT , the Gauhati High Court was concerned with an allied issue. In that case, the original return had been filed after April 1, 1964, and the revised returns were held to be not properly within the scope of s. 139(5) and a penalty on the basis of the original return was upheld. There are observations in Dhampur Sugar Mills Ltd. v. CIT : [1973]90ITR236(All) , following its earlier decision in Gopaldas Parshottamdas c. CIT : [1941]9ITR130(All) and in Kumar Jagadish Chandra Sinha v. CIT : [1982]137ITR722(Cal) , which suggest that even where an amended return is filed which discloses income concealed in the earlier return, such amended return will be a revised return under s. 22(3) of the 1922 Act/139(5) of the 1961 Act and cannot be ignored by the officer in completing the assessment.
23. We have, however, for reasons earlier discussed, come to a contrary conclusion in regard to this type of cases. In our opinion, the penalty provisions as on the date of the first return filed for the year should govern in such cases and not that on the date of the revised return. In this context, our attention was drawn to the decision in CIT v. Sucha Singh Anand : [1984]149ITR143(Delhi) by a Bench of this court. In that case, the assessed filed a return for assessment year 1963-64 on September 2, 1963, showing an income of Rs. 1,10,711. He revised this return on November 22, 1967, to show an income of Rs. 1,21,763. The assessment was completed on March 20, 1968, on a total income of Rs. 2,13,698. The ITO initiated penalty proceedings and referred to the matter to the IAC who levied a penalty of Rs. 45,000. In doing this, he relied on the provisions of s. 271(1)(c) as amended in 1964, and the question was whether he could do so. This court, after referring to Brij Mohan's case : [1979]120ITR1(SC) and the decisions in Addl. CIT v. Krishan Subha Karan : [1977]108ITR271(All) and CIT v. A. Rahman : [1979]119ITR475(Patna) , came to the conclusion that the date of the original return would only be relevant. The decision in Addl. CIT v. Balwantsingh Sulakhanmal : [1981]127ITR597(MP) was not found acceptable. The court also did not find it relevant to consider whether the second return was filed in response to the notice under s. 148 or not and was of opinion that the same principle as had been applied in the case of the reassessment under s. 148 by the Patna and Allahabad High Court should apply here also. Looking at the matter from another point of view, the court followed the line of reasoning of the Allahabad High Court in Amjad Ali Nazir Ali v. CIT : [1977]110ITR419(All) . It pointed out that there had been concealment in the original return and that the mere fact that there was a difference between the two returns did not mean that the offence of concealment occurred only November 22, 1967. In the result, the Tribunal's view that the law applicable would be that as on the date of the first return was upheld.
24. A closer look at the above decision will show that it supports the line of reasoning we have discussed earlier. In that case, technically speaking, the return filed on November 22, 1967, would appear to have been a revised return under s. 139(5) as it purported to revise the figure of income already shown and if the line of reasoning that, in all cases of proper revised returns, the revised return should be taken as the basis for determining the law applicable is to be adopted, that would have been a case governed by the post 1964 law. But this was not the decision. What this court has, thereforee, held in Anand's case : [1984]149ITR143(Delhi) is that, in the case of revised returns also, as in the case of the returns under s. 148, it is the law applicable on the date of the original return that will apply. Having held thus, the court also approached the case from another point of view. If the revised return discloses the income concealed, it may not be a revised return and cannot, in any event, obliterate the offence committed earlier. If it revises certain other errors and defects but still conceals certain income, it may be called a revised return which can form the basis of assessment but still cannot be treated as an occasion of a second concealment for reasons already discussed. The decision in Sucha Singh Anand's case : [1984]149ITR143(Delhi) does not, thereforee, run counter to the conclusions we have arrived at.
25. For the reasons discussed above, we are of the opinion that, in both the types of cases referred to earlier, the substantive provisions of law relating to a penalty applicable in a particular case would be those in force at the date of the original return from which income has been concealed and that the filing of a subsequent return under s. 139(5) or under s. 148 in which the act of concealment may be 'repeated' would not alter the position. In both ITRs Nos. 131 of 1974 and 65 of 1975, such a return was filed before April 1, 1968. We, thereforee, uphold the conclusion of the Tribunal that the pre-1968 provisions should govern the imposition of the penalty in each of these cases. The question referred to us in each of the references is answered in the affirmative and in favor of the assessed. However, having regard to the difficult and controversial nature of the issue raised, we make no order as to costs.
26. Question answered in the affirmative.