G.P. Singh, C.J.
1. The questions of law referred for our opinion are asfollows:
'(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in recomputing the income from profession for both these years for the purposes of computing penalty ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in reducing the quantum of penalties for these years on the basis of income so recomputed ?'
2. The reference has arisen out of penalty proceedings for the assessment years 1965-66 and 1966-67. In the assessment year 1965-66, the assessee was assessed on the basis of his return which was filed on 13th January, 1966. The assessee had not disclosed in the return any income apart from salary. A notice under Section 148 of the I.T. Act, 1961, was issued to the assessee. The assessee filed the return in pursuance of the said notice on 2nd April, 1969. The assessee showed in this return a sum of Rs. 2,000 as professional income. The ITO collected figures from various Government departments to find out how much had been received by the assessee as consultation and other charges. The total of these figures was Rs. 6,969. The ITO assessed the professional income at Rs. 9,000. The total income was thus assessed at Rs. 12,210.
3. For the assessment year 1966-67, the assessee filed his return on January 17, 1967. In this return, the assessee showed professional income of Rs. 1,325, in addition to the income received from salary. A notice under Section 143(3) was given to the assessee. The assessee then filed another return on April, 2, 1969, in which the assessee showed professional income of Rs. 2,500. The ITO collected information of the professional income received from various departments. The total of these figures amounted to Rs. 5,250. The ITO estimated the professional income at Rs. 8,100 and assessed the total income at Rs. 10,848.
4. The IAC held the assessee liable for penalty under Section 271(1)(c) for both, the years. The IAC levied a penalty of Rs. 8,200 for the year 1965-66 and a penalty of Rs. 7,200 for the year 1966-67.
5. The assessee filed an appeal to the Tribunal. The Tribunal held that the IAC was wrong in levying the penalty on the basis of the law which was in force at the time when the second returns were filed by the assessee and that the penalty could be levied only in accordance with the law which was in force at the time when the first returns for the relevant years were filed by the assessee. So far as this point is concerned, there is no dispute before us. The Tribunal, however, recomputed the income which in its opinion ought to have been assessed in each year for determining the quantum of penalty and it did not accept the tax assessed in assessment proceedings as the basis for purposes of penalty. The Tribunal reduced the penalty for the year 1965-66 to Rs. 800 and for the year 1966-67 to Rs. 700. On an application made by the department, the questions of law set out above were referred by the Tribunal.
6. It would be convenient if we quote here para. 6 of the Tribunal's order to understand how the Tribunal recomputed the income of the assessee for determining penalty. The said paragraph is as follows :
'6. Let us now come to the quantum of penalty that is warranted on the facts and circumstances of the case. We agree with the learnedcounsel that penalty proceedings stand on a different footing than the assessment proceedings and, as the assessments are based both on positive material as well as on estimate, a reappraisal of the totality of facts should be done and the income that is concealed by the assessee which can be said to have been concealed beyond doubt should be redetermined. Taking into consideration the information collected by the ITO and also the fact that the assessee may have received consultation fees and injection charges from even other departments from which the department has not received replies or for want of knowledge it may not have referred, we are of the view that an estimate of receipts at Rs. 7,500 for assessment year 1965-66 and Rs. 6,000 for assessment year 1966-67 would be fair and reasonable and would reduce errors of estimation to as great a degree as practicable. Allowing 1/3rd for short realisation and other expenses, the assessee's minimum income from profession for 1965-66 would be Rs. 5,000 and for 1966-67 Rs. 4,000. The assessee offered for assessment in 1965-66 nil income in the first instance and Rs. 2,000 in the return filed under Section 148 and for the assessment year 1966-67 Rs. 1,325 in the first instance and Rs. 2,500 subsequently in the revised return. Thus, the concealment in the first year in relation to the return originally filed was of Rs. 5,000 and in the second year of Rs. 2,675. The difference of the tax on the assessed income and the originally returned income is of Rs. 809 in 1965-66 and Rs. 708 in 1966-67, as per the calculation provided by the learned authorised representative of the assessee. Penalty of Rs, 800 in the first year and Rs. 700 in the second year would, to our minds, meet the ends of justice.'
7. Section 271(1)(c) at the relevant time provided that if the ITO or the AAC, in the course of any proceedings under the Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,--
'(iii) .....in addition to any tax payable by him, a sum which shallnot be less than twenty per cent, but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income.'
8. A reading of Clause (iii) which has been quoted above will show that the penalty which can be levied under Section 271(1)(c) is 'a sum which shall not be less than twenty per cent. but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income '. For finding out the minimum and maximum amount of penalty leviable under this clause the authorities have to determine the tax which would have been avoided if the income as returned by such person had been accepted as the correct income. In our opinion, for this determination, the authorities have to accept the tax as determined in the assessment proceedings and all that they have to do is to assess the tax on the basis of the return furnished by the assessee. The difference between the tax assessed in the assessment proceedings and the tax which would have been assessed if the return filed by the assessee had been accepted, determines the amount of tax which would have been avoided for purposes of of Clause (iii). It is not permissible under this clause to reject the tax assessed in assessment proceedings and to re-determine the tax which should have been so assessed and then to deduct from it the tax which would have been assessed by accepting the return as correct for finding out the amount of tax which would have been avoided. As already stated, the tax which would have been avoided is to be found by deducting from the tax actually assessed the tax which would have been assessed had the return been accepted. The former is fixed by the assessment proceedings and it is only the latter which has to be found is penalty proceedings. It is true that in penalty proceedings it may be open on the question of concealment of income to accept an explanation which may have been rejected in the assessment or to reject an item as not amounting to income which may have been accepted as income in assessment. But that is altogether a different matter. The tax which would have been avoided if the income as returned by the assessee had been accepted as correct can be only determined by taking the tax in the assessment proceedings and by determining the tax which would have been assessed if the income as returned by the assessee had been accepted and, then, by deducting the latter from the former. In our opinion, the Tribunal went beyond its jurisdiction in reopening the assessment in penalty proceedings for purposes of determining the quantum of penalty payable under Clause (iii).
9. For the reasons given above, our answers to the questions are in the negative, in favour of the department and against the assessee. It would, however, be open to the Tribunal to redetermine the amount of penalty within the maximum and minimum prescribed by Clause (iii). There shall be no order as to costs of this reference.