1. On the application of the Additional Commissioner of Income-tax, A.P., Hyderabad, the Income-tax Appellate Tribunal has referred the following question for our consideration:
'Whether, on the facts and in the circumstances of the case, the penalties levied by the Income-tax Officer on March 4, 1972, under Section 271(1)(a) of the Income-tax Act, 1961, for the assessment years 1966-67 and 1967-68 were barred by limitation ?'
2. The facts giving rise to this reference in brief are these :
The assessee is a firm of two partners carrying on business of running a hotel and bar. It is registered under the Income-tax Act. For the assessment years 1966-67 and 1967-68, the assessee had to file returns of its income before September 30, 1966, and September 30, 1967, respectively. But the assessee-firm filed the returns for both the assessment years on October 29, 1969. The Income-tax Officer completed the assessments but initiated penalty proceedings under Section 271(1)(a) of the Income-tax Act, 1961, hereinafter referred to as the Act, for the default on the part of the assessee in not filing the returns within the time allowed by the Act. In reply to the notice issued by the Income-tax Officer for the levy of penalty the assessee's explanation was that the returns could not be filed due to ill-health of both the partners. Not being satisfied with this explanation the Income-tax Officer imposed Rs. 5,158 as penalty for the first assessment year and Rs. 8,939 as penalty for the second assessment year calculated in accordance with the provisions of Section 271(1)(a) of the Act, Aggrieved by the order of the Income-tax Officer the assessee appealed to the Appellate Assistant Commissioner and reiterated the same contentions as were advanced before the Income-tax Officer. But the Appellate Assistant Commissioner did not accept the contentions of the assessee. He was, however, of the opinion that since the assessee applied for extension of time up to December 31, 1966, for the first assessment year and December 31, 1967, for the second assessment year and did not apply for extension after those dates, the assessee had reasonable cause for not filing the returns only up to the aforesaid dates and not for the subsequent period, and held that the period of default has to be counted from January 1, 1967, and January 1, 1968, for the two years under consideration. He, therefore, directed that consequential reliefs should be given in the quantum of penalty in respect of the assessment year 1967-68. He did not grant anyrelief for the assessment year 1966-67 because he was of the opinion that even if the period of default is reduced by three months, the penalty leviable will not be less than what the Income-tax Officer has actually levied. The assessee further appealed to the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal held that the penalty proceedings as initiated by the Income-tax Officer were barred by limitation for the reason that the amendment to Section 275 of the Act came into force on April 1, 1971, and since that amendment was not retrospective in operation, the penalty proceedings in question which related to the assessment years 1966-67 and 1967-68 were not covered by the amended Section. The Tribunal also observed : 'It was settled law.....that the law governing the assessment wasone which was in existence on the first day of April of the relevant assessment year and any subsequent amendment cannot have any effect on assessments prior to the date of the amendment unless a specific provision exists making the amendment retrospective in operation.'
3. Mr. Rama Rao, the learned standing counsel for the revenue, contends that the assessment was completed on February 9, 1970, and having regard to the provisions of Section 275 of the Act, two years were provided for the initiation of penalty proceedings from the date of completion of assessment and, therefore, the two years would elapse by February 8, 1972. But while the period was still in force, the amendment to Section 275 was promulgated on April 1, 1971, by which the period was enlarged to two years from the end of the financial year in which the proceedings in the course of which action for imposition of penalty has been initiated, were completed. He submits that the Tribunal was incorrect in holding that the unamended Section 275 was applicable to the case. In support of his contention, he relied upon Venkateswara Rao v. Dy. Commissioner of Commercial Taxes  10 STC 162 Munaga. Peraiah v. State of Andhra Pradesh  13 STC 26 Prashar v. Vasantsen Dwarkadas : 49ITR1(SC) and Navayuga Traders Gunnies Firm v. Commissioner of Income-tax : 79ITR519(AP) .
4. In order to appreciate the contention of Mr. Rama Rao, it is necessary to read the amended Section 275 which provides :
'No order imposing a penalty under this Chapter shall be passed-
(a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the Appellate Assistant Commissioner under Section 246 or an appeal to the Appellate Tribunal under Sub-section (2) of Section 253, after the expiration of a period of-
(i) two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or
(ii) six months from the end of the month in which the order of the Appellate Assistant Commissioner, or, as the case may be, the Appellate Tribunal is received by the Commissioner,
whichever period expires later ;
(b) in any other case, after the expiration of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed.' The above is the position of law as it stood on April 1, 1971, but before this amendment came into force, the provision was as follows : 'No order imposing a penalty under this Chapter shall be passed after the expiration of two years from the date of the completion of the proceedings in the course of which the proceedings for the imposition of penalty have been commenced.'
5. One aspect that is to be noted in this case is that Section 275 as amended does not give any retrospective effect nor any such retrospective operation can be deduced by implication. But, as contended by Mr. Rama Rao, if during the continuation of the period, a law is passed enlarging the period, then the period would be enlarged according to the amended law. Generally speaking, this aspect of the law is well settled and in conformity with what is submitted by the learned advocate for the revenue. But it is to be noted that the Income-tax Act is a special Act and there are principles which specifically regulate the proceedings under the Income-tax Act; therefore, the special principles applicable to the Income-tax Act would override the general principles.
6. In Karimtharuvi Tea Estate Ltd. v. State of Kerala : 60ITR262(SC) , the Supreme Court held that it is well-settled that the Income-tax Act, as it stands amended on the first day of April of any financial year, must apply to the assessments of that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment of that year, even if the assessment is actually made after the amendments came into force. In Continental Commercial Corporation v. Income-tax Officer : 100ITR170(Mad) where, for the assessment year 1970-71, the assessee filed the return on 22nd December, 1970, the Income-tax Officer included Rs. 4,000 as income from undisclosed sources by his order dated January 25, 1973. Thereafter, penalty proceedings were initiated under Section 271(1)(c), and the Income-tax Officer by his order dated October 9, 1973, levied a penalty of Rs. 4,000. This was confirmed by the Commissioner. The assessee preferred a writ petition to the High Court of Madras which held that the law that was in force on 22nd December, 1970, when the return was filed, would be applicable. Section 274(2) as it stood prior to its amendment on 1st April, 1971, was the relevant provision that was to be applied.
7. On the other hand, the rulings relied upon by Mr, Rama Rao have no relevancy to the case under consideration. The case of Prashar v. Vasantsen Dwarkadas : 49ITR1(SC) cannot assist the revenue as that was a case where the amendment came into force after the period of limitation had expired, and it was held that such an amendment could not revive a remedy which was already lost to the Income-tax Officer.
8. In Navayuga Traders Gunnies Firm v. Commissioner of Income-tax : 79ITR519(AP) a Bench of this court had the occasion to interpret the provisions of Section 275 of the Act. A contention was advanced as to when should the penalty proceedings be initiated. It was held that Section 275 is plainly and exclusively intended to prescribe a limit of time within which penalty proceedings must be completed.
9. In J. P. Jani, Income-tax Officer v. Induprasad Devshanker Bhatt : 72ITR595(SC) the Supreme Court held that the Income-tax Officer cannot issue a notice under Section 148 of the Income-tax Act, 1961, in order to reopen the assessment of an assessee in a case where the right to reopen the assessment was barred under the 1922 Act on the date when the new Act of 1961 came into force. The cases of Munaga Peraiah v. State of Andhra Pradesh  13 STC 26 and Venkateswara Rao v. Dy. Commr. of Commercial Taxes  10 STC 162 were cases under the Sales Tax Act.
10. To our mind, the contention advanced by Mr. Rama Rao cannot be acceded to in view of the settled law that any amendment in the Income-tax Act which comes into force after the first day of April of any financial year would not apply to the assessments of that year. Therefore, the amendment as introduced in Section 275 of the Act on April 1, 1971, cannot be applicable to the penalty proceedings initiated for the late filing of the returns for the assessment years 1966-67 and 1967-68.
11. Hence, the reference is answered against the revenue and in favour of the assessee with costs. Advocate's fee Rs. 250.