1. In this reference, two questions are referred to us as under : '(1) Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the amount of tax on which the computation of penalty leviable against the assessee-firm under section 271(1)(a)(i) read with section 271(2) of the Income-tax Act, 1961, to be based was not the amount of tax assessed on it as on an unregistered firm, but the net amount of tax, if any, payable by it as a registered firm ?
(2) Whether, on the facts an circumstances of the case, Tribunal was justified in holding that since the tax payable by the assessee-firm as a registered firm was 'nil' no penalty was at all imposable on the said defaulters assessee-firm under section 271(1)(a)(i) and that the question of invoking section 271(2) for that purpose did not arise and in cancelling the penalty of Rs. 12,935 imposed on the assessee-firm as per the AAC's order ?'
2. The assessee is a registered firm. For the assessment year 1965-66, it filed its return of income on March 18, 1968, although the same was due under s. 139(1) on June 30, 1965. By reason of this default, the ITO initiated penalty proceedings under s. 271(1)(a) of the I.T. Act on completion of the regular assessment. The assessee gave some explanation for the delay which was that the mother of one of the partners was ill and admitted to a hospital up to October 1965. The ITO condoned the delay up to October 31, 1965, and levied penalty of Rs. 15,015. This amount was determined as being equal to half of the gross tax payable treating the assessee as unregistered firm in terms of s. 271(2) of the Act. The matter was carried by the assessee to the AAC who directed the ITO to recalculate the penalty after taking into account the self-assessment tax paid by the assessee under s. 140A the Act. As result of the recalculation, the penalty got reduced to Rs. 12,935.
3. Being aggrieved by the decision of the AAC, the Department filed an appeal to the Tribunal. The assessee also preferred an appeal to the Tribunal. The Tribunal held that since the tax payable by the assessee on completion of the regular assessment in the status of a registered firm was nil, no penalty was imposable on the assessee. This part of the reasoning of the Tribunal is to be found in paragraph 3 of the appellate order an a portion thereof is extracted in paragraph 3 of the statement of case. The Tribunal, accordingly, allowed the assessee's appeal and it is from that order that the two questions have been referred to us at the instance of the Commissioner.
4. On both the questions, it would appear that the position is concluded by High Court decisions, although as far as question No. 1 is concerned, we are required to apply the decision of the Calcutta High Court.
5. In CIT v. Priya Gopal Bishoyee : 127ITR778(Cal) , the argument which appealed to the Tribunal has been expressly negatived. It may be mentioned that the Calcutta decision would also help us in answering question No. 2, although, as far as that question is concerned, we have a specific decision of our High Court, again in favour of the Revenue, viz., CIT v. K. N. Patel : 138ITR579(Bom) . It would appear that an Explanation was added in 1974 to s. 271, but with retrospective effect, and if the Explanation is applied, then the argument which found favour with the Tribunal would have to be rejected. It may be mentioned that this Explanation has also been referred to by us, in our decision, in Income-tax Reference No. 70 of 1974 CIT v. New Sind Wvg. Factory : 150ITR671(Bom) decided by us on September 15, 1983.
6. In our opinion, we may answer the questions referred to us without further factual discussion as the position would appear to be concluded by the aforesaid two decisions. We express our respectful agreement with the Calcutta decision. Accordingly, the two questions are answered as follows :
Question No. 1 : In the negative and in favour of the Revenue.
Question NO. 2 : Also in the negative and in favour of the Revenue. Parties to bear their own costs of the reference.