The Judgment of the Court was delivered by

Bhaskaran, C.J:— The Income-tax Appellate Tribunal, Cochin Bench, has referred to this Court the following question of law which is said to arise out of the Tribunal's order in I.T.A No. 54 (Coch)/76-77 dated 12th October, 1978, under S. 256(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act):

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the penalty had to be levied with reference to return filed on 31-12-1965 notwithstanding the fact that in the return filed on 5-1-1970 the assessee had returned as total income only the income as originally assessed of Rs. 49,710/-?”

2. The assessee is a registered firm. For the accounting year ending with 31-3-1965 (for the assessment year 1965-1966), the assessee-firm filed a return on 31-12-1965 showing an income of Rs. 33,979/-. The assessment was completed on 13-6-1966 on an income of Rs. 49,710/-. Annexure ‘A’ is the copy of this order of assessment. Investigations made by the Income-tax Officer subsequently revealed that certain credits aggregating to Rs. 58,000/- in the Books of Account of the assessee-firm “represented the income of the assessee-firm itself. The Income-tax Officer, therefore, on 10-9-1969 initiated re-assessment proceedings under S. 147 of the Act against the assessee-firm. In compliance with the notice issued for re-assessment the assessee-firm filed a return on 5-1-1970 showing an income of Rs. 49,710/- which was the total income assessed originally by the Income-tax Officer for the assessement year 1965-1966. When the matter was taken up for assessment, the assessee-firm submitted a petition to the Commissioner of Income-tax requesting for a settlement of the whole matter, offering a sum of Rs. 1,67,500/- to be distributed over the accounting years 1963-1964 to 1965-1966. For the assessment year 1965-1966, the amount came to Rs. 40,000/-. The Commissioner, however, rejected the assessee-firm's request for waiver or reduction of penalty, and by order dated 15-3-1971 confirmed the re-assessment proceedings. Thereafter, the Income-tax Officer on 17-2-1971 wrote a letter to the assessee regarding the additions to be made. The assessee-firm by its letter dated 16-3-1971 agreed to an addition of Rs. 50,000/- for the assessment year 1965-1966. The assessee-firm also filed a return on 2-11-1973 showing an income of Rs. 98,983/-. This was arrived at by adding Rs. 58,000/- representing the cash credits to the income, as per the original return of Rs. 33,979/-. The Income-tax Officer completed the assessment on 30-8-1974 adding Rs. 58,000/- to the originally assessed income of Rs. 49,710/-. Annexure “B” is the copy of the revised assessment order. The Income-tax Officer had even prior to the passing of the revised assessment order (Annexure “B”) initiated penalty proceedings and referred the matter to the Inspecting Assistant Commissioner, who, on 9-2-1976 imposed a penalty of Rs. 58,000/- on-the assessee-firm. Annexure “C” is the copy of the said order dated 9-2-1976. On appeal, the Tribunal while holding that there was sufficient material with the department for the levy of penalty granted some relief, directing the Income-tax Officer to re-work the quantum with reference to the tax avoided, i.e, with reference to the liability as it stood in 1965, and fixing the penalty to be levied at the minimum under the statute, that is to say, 20 percent of the tax avoided. Annexure “D” is the copy of the Tribunal's order dated 12th October, 1978.

3. The bone of contention in this reference is the point of time at which the concealment of income took place, which, in its turn, would have a bearing on the question as to the provision of law to be applied for fixing the penalty that is to say, whether the provisions of S. 271(1) of the Act, as it stood prior to its amendment in 1968 or as it stood on 5-1-1970 after the amendment of 1968, would apply to the facts of the case.

4. It would be advantageous to look into the scheme of the Act, pertaining to the imposition of penalty. Every person is bound under S. 139 of the Act to furnish a return of his real, correct total income. In case the return is accepted by the Income-tax Officer, he makes an assessment under S. 143(1) on the basis of the return submitted by the assessee. The Income-tax Officer may, however, if he has reason to believe that there was omission or failure on the part of the assessee to make a return under S. 139 for any assessment year, or to disclose fully and truly all material facts necessary for his assessment for that year or income, chargeable to tax has escaped assessment for the year, subject to the provisions of Ss. 148 to 153 of the Act, assess or re-assess such income under S. 147(a) of the Act, for the assessment year concerned. Before making the assessment, re-assessment or-re-computation, under S. 147, the Income-tax Officer is bound to serve a notice under S. 148 on the assessee, and the provisions of the Act shall, so far as may be, apply accordingly, as if the notice were a notice issued under sub-section (2) of S. 139. If the Income-tax Officer is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may under S. 271(1)(c) of the Act, impose penalty as provided under that section. Under the provision that existed prior to April 1, 1968, penalty for concealment of income or for furnishing of inaccurate particulars of income has to be not less than 20 per cent of the tax payable, however so that it is not to exceed one and half times the amount of tax, if any, which would have been avoided, if the income as returned by such person has been accepted as the correct income. Under the amended provisions S. 271(1), as it stood on 1-4-1968, penalty imposable, besides the tax payable by him, shall not be less than, but which shall not exceed twice, the about of income in respect of which particulars have been concealed or inaccurate particulars have been furnished. In the case covered by the provisions under S. 271, as it stood prior to 1-4-1968, the penalty imposable is with reference to the tax payable, whereas in the case covered by the provisions of that section as amended, and which came into effect from 1-4-1968, penalty imposable is with reference to the income concealed. In either case, it is the concealment of particulars of income or furnishing of inaccurate particulars of income with the return filed by the assessee that attracts the penal proceedings. The Income-tax Officer invokes S. 147 of the Act, if he has reason to believe that the income chargeable to tax has escaped assessment for that year. It might be that where the Income-tax Officer invokes the provision under S. 147(a) and issues a notice under S. 148 of the Act, the assessee may submit a revised return, which might be the same as the assessee filed at the first instance. It could also be that the revised return makes a partial or full disclosure of the income concealed at the time when he filed the first return under S. 139. It might be possible under S. 147 to re-open an assessment by way of re-assessment where it is found that any income of the assessee had escaped assessment. It has, however, to be noticed that what is relevant is a finding that in the original return the assessee had concealed particulars of his income or has furnished inaccurate particulars of his income. The logical conclusion, therefore, is that if an assessee who was bound to disclose his real, total income in the return filed by him under S. 139, fails to do so, the concealment or furnishing of inaccurate particulars with respect to his income in that return, the offence becomes complete. In other words, in regard to commission or completion of the offence, of concealment or furnishing of inaccurate particulars of income, with reference to the return filed by the assessee under S. 139, his persistence in concealing his income or his persistence in furnishing incorrect particulars with reference to his income chargeable to tax would not constitute fresh causes of action or repetition of the offence. The legal position admits of no doubt. We notice that the purpose of the enquiry under S. 147 of the Act is to determine the concealed or the escaped income. Where a return under S. 139 has been filed, it may have reference to that. In the instant case, the Tribunal has taken the correct view when it held that penalty proceedings have to be completed in accordance with the provisions of S. 271 as it stood at the time when the assessee filed the return under S. 139 on 31-12-1965.

5. Sri P.K Ravindranatha Menon, counsel for the Central Government (Taxes), referred to the decision of the Supreme Court reported in Malbary & Bros. v. Commissioner Of Income-Tax, Bombay North ((1964) 51 I.T.R 295). The Supreme Court had to consider in that case the scope of section 28(1)(c) and 28(3) of the Indian Income-tax Act, 1922 (corresponding to S. 271(1)(c) of the (1961 Act). The facts of that case, shortly stated, were as follows: For the assessment year 1951-1952, in respect of which the accounting year was the calender year 1950, the assessee submitted a return. The assessee was carrying on his business at Surat. It had a branch at Bangkok to which it exported cloth from India. The branch also made purchases locally and sold them. In the return furnished by the assessee, for the year 1951-1952, there was no reference to the Bangkok branch business profits. The Income-tax Officer thereupon issued a notice under S. 22(4) of the Act (old Act) directing the assesse to produce the profit and loss account and balance sheet with the reelevant books. The assessee excused itself by saying that the books were at Bangkok and the profit and loss account and the balance sheet could not be produced. Thereupon, the Income-tax Officer made an estimate of the sale of the Bangkok branch at Rs. 7,50,000 and the net profits thereon at Rs. 37,500/-. This assessment order was made on 31st January, 1952. On the same day, he issued a notice under S. 28(3) (of the old Act), requiring the assessee to show cause why penalty under S. 28(1)(c) for concealment of the particulars of the income of 1950 should not be levied. After bearing the assessee, the Income-tax Officer imposed a penalty of Rs. 20,000/- on the ground that the explanation of the assessee was not acceptable. In the course of the assessment proceedings for the year 1952-1953, the assessee produced the account books of the Bangkok branch. The books revealed that the assessee had made a profit of Rs. 1,25,520 in the calendar year 1950. The Income-tax Officer thereupon commenced proceedings under S. 34 of the (old) Act and gave notice to the assessee to submit a return. The assessee submitted a return stating therein the correct profits he had made for the calendar year 1950. The Income-tax Officer issued notice under S. 28(3) requiring the assessee to show cause why penalty should not be levied for deliberately concealing the particulars of his income of 1950. Pursuant to this notice, the Income-tax Officer passed another order on 28.2.1957 imposing a penalty of Rs. 68,501. Thus, there were two orders of penalty. The assessee appealed to the Appellate Assistant Commissioner against both the aforesaid orders of penalty but the appeals were rejected. The assessee then appealed to the Tribunal. The Tribunal held that it was not in a position to understand the action of the department in splitting up one offence into two proceedings, and quashed the first order imposing penalty of Rs. 20,000/-, but sustained the levy of Rs. 68501/-. On a reference, the High Court of Bombay agreed with the contention of the assessee that two penalties could not be levied in respect of identical facts; but at the same time held that it did not accept the contention of the assessee that the penalties in that case were levied on the same facts; and sustained the order of the Tribunal. It was contended before the Supreme Court that there was only one concealment and the second order for penalty was illegal in that there had been only one concealment and in respect of that an order for penalty of Rs. 20,000 had already been passed; and the Income-tax Officer had no jurisdiction to make a second order of penalty while the first order stood and for that reason the second order must be treated as a nullity. Rejecting this contention, Sarkar J., who spoke for the Bench, stated as follows at page 298 of the report:

“We are unable to accept this argument. It may be that in respect of the same concealment two orders of penalty would not stand but it is not a question of jurisdiction. The penalty under the section has to be correlated to the amount of tax which would have been evaded if the assessee had got away with the concealment. In this case having assessed the income by an estimate, the Income-tax Officer levied a penalty on the basis of that estimate. Later when he ascertained the true facts and realised that a much higher penalty could have been imposed, he was entitled to recall the earlier order and pass another order that would not make the second order invalid. He had full jurisdiction to make the second order and he would not lose that jurisdiction because he had omitted to recall the earlier order, though it may be that the two orders could not be enforced simultaneously or stand together. However, in the present case the earlier order having been cancelled and no objection to the cancellation having been taken, we have only one order and that for the reasons earlier stated is, in our view, a legal order.”

6. On behalf of the Revenue, Shri Menon did not advance an argument that penalty could be imposed as many times as the assessee persisted, in concealing the particulars of income or in furnishing inaccurate particulars of income. His contention, on the other hand, was that the above decision of the Supreme Court, Malbary & Bros. v. Commissioner Of Income-Tax, Bombay North ((1964) 51 I.T.R 295) is an authority for the proposition that though with respect to one assessment order only one penalty could be imposed, the act of concealment could be traced to any of the returns submitted by the assessee without it being confined to the return filed under S. 139. We find it difficult to agree with this line of reasoning; and we are not prepared to accept the contention that the decision of the Supreme Court referred to above, either expressly or by necessary implication, lends any support to this reasoning. The decision of the Supreme Court in Malbary & Bros. v. Commissioner Of Income-Tax, Bombay North (1964) 51 I.T.R 295) is important inasmuch as it makes it clear that with respect to the assessment for one year, there could be one penalty imposed; and if a second time it is found necessary to levy enhanced penalty, it could be done only by recalling the earlier levy of penalty. In other words, there could only be one enforceable order of penalty.

7. Shri Menon cited another decision of the Supreme Court reported in Mansukhlal & Brothers v. Commissioner of Income-tax ((1969) 73 I.T.R 546). The question that arose in that case was whether maximum penalty could be only one and half times on the tax payable of the concealed income or whether it was one and half times the difference between the tax on the total income as finally assessed and the tax on the income shown in the assessee's return, irrespective of the amount of concealed income. We find that this decision has hardly any relevancy on the issue raised in the present case. Shri Menon also cited the decision of the Supreme Court in Commissioner of Sales Tax, Madhya Pradesh v. H.M Esufali H.M Abdulali ((1973) 90 I.T.R 271), wherein at page 280 it is observed:

“What is true of the assessment must also be true of reassessment because re-assessment is nothing but a fresh assessment. When reassessment is made under S. 19, the former assessment is completely re-opened and in its place fresh assessment is made. While reassessing a dealer, the assessing authority does not merely assess him on the escaped turnover but it assesses him on his total estimated turnover…”

8. The importance of this decision is that it asserts that what is true of assessment must be true of reassessment also. This, however, could not be understood to imply that if a penalty could be imposed after the assessment, another penalty also could be imposed after reassessment while the penalty earlier imposed remains without being recalled. In fact, as already noticed, what is relevant for the purpose of imposing penalty is the amount of tax attempted to be avoided or the income sought to be concealed and that could be arrived at by the process of deducting from the income found to be chargeable to tax ultimately, the income returned by the assessee when he filed the return under S. 139.

9. The Supreme Court found in the decision reported in Commissioner of Wealth-Tax, Madras v. M.V Rajamma ((1979) 120 I.T.R 132) that “the law applicable for the imposition of penalty will have to be determined with reference to the date on which the original return for wealth-tax was filed, and even though the same concealment existed in the return filed in the re-assessment proceedings, no fresh cause of action arose for the levy of penalty when the second return was filed as it was only a continuation or what had happened earlier”.

10. Shri Menon also drew our attention to the decisions of the various High Courts reported in Addl. Commissioner of Income-tax v. Balwatsingh Sulakshanmal (1981) 127 I.T.R 597) (Madhya Pradesh High Court), Addl. Commissioner of Income-tax v. Brijmohan (1983) 139 I.T.R 568) (Madhya Pradesh High Court), B.N Sharma v. Commissioner of Income-tax (1977) 110 I.T.R 538) (Orissa High Court). Commissioner Of Income-Tax, Bihar v. Lalji Ram Bhagat. (1984) 147 I.T.R 645) (Patna High Court), and Commissioners of Income-tax v. Monghyr Gun Mf. Co-op. Society Ltd. (1984) 147 I.T.R 649) (Patna High Court) and also the dissenting judgment of Tewatia, J., of the Punjab & Haryana High Court reported in Commissioner of Income-tax v. Ram Singh Harmohan Singh (1980) 121 I.T.R 381). On a careful consideration of these decisions, we find ourselves not in a position to accept the reasoning of the minority judgment of Tewatia J., in 121 I.T.R 381. As far as the other decisions relied on by Mr. Menon, we find no detailed discussions for the conclusions reached. We are persuaded to hold that these decisions do not lay down the correct position of law on the point.

11. We are very much impressed by the forceful arguments of Sri P. Gopalakrishna Barrier for the assessee, who took us through the relevant provisions of the Act and the following decisions in which we find support for the view we have taken, viz., majority decision of the Punjab & Haryana High Court in Commissioner of Income-tax v. Ram Singh Harmohan Singh (1980) 121 I.T.R 381, in Commissioner Of Income-Tax, Bihar v. A. Rahman (1979) 119 I.T.R 475) (Patna High Court), (to which reference does not appear to have been made in subsequent decisions), Commissioner of Income-tax v. Gopal Krishna Singhania (1973) 89 I.T.R 27 (F.B) (of the Allahabad High Court), Commissioner of Income-tax, Tamil Nadu III v. S.S.K.C Arthanariswamy Chettiar (1982) 136 I.T.R 145 (of the Madras High Court) and Commissioner of Income-tax, Andhra Circle I, Hyderabad v. Rameswar & Co. (1981) 130 I.T.R 51 (of the Andhra Pradesh High Court). In the result, we answer the reference in the affirmative, that is, in favour of the assessee and against the revenue.

12. A copy of this judgment under the signature of the Registrar and seal of the High Court would be forwarded to the Income-tax Tribunal, Cochin Bench.