JUDGMENT R.K. Agrawal, J.
1. The Income Tax Appellate Tribunal, Allahabad has referred the following questions of law under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for opinion to this Court:
1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in canceling the penalty?
2. Whether on the facts and in the circumstances of the case the Hon'ble Tribunal was justified in holding that penalty proceedings Under Section 273(b) cannot be initiated in reassessment proceedings?
2. The reference relates to the Assessment Year 1972-73 in respect of the penalty proceedings initiated under Section 271(1)(a), (b) and (c) and 273(1)(b) of the Act.
3. Briefly stated, the facts giving rise to the present reference are as follow:
The respondent assessee was intercepted on 1.6.1971 by the Police with 2240 Kgs. smuggled ganja valued at Rs. 6,72,000/-. As no return was filed by him, the Income Tax Officer initiated proceedings under Section 147(a) of the Act. The Income Tax Officer completed the assessment on total income of Rs. 6,92,000/- under Section 144 of the Act and treated the entire amount of Rs. 6,72,000/- as unexplained investment. The Income Tax Officer also initiated penalty proceedings under Sections 271(1)(a), 271(1)(b), 271(1)(c) and 273(b) of the Act. The Income Tax Officer levied penalty of Rs. 6,72,000/- under Section 271(1)(c), Rs. 50,000/- under Section 273(b), Rs. 62,000/- under Section 271(1)(b) and Rs. 3,06,590 under Section 271(1)(a) of the Act. Feeling aggrieved, the assessee came up in appeals before the Commissioner of Income Tax (Appeals) and the Commissioner of Income Tax (Appeals) held that since the assessee failed to file the return within the time limit prescribed under Section 139(1) of the Act, imposition of penalty under various sections was justified. Feeling dissatisfied with the order of the Commissioner of Income Tax (Appeals), the assessee filed the appeals before the Appellate Tribunal and the Appellate Tribunal after hearing the parties and the materials on record, held as under:
4. We have considered the submission of the parties and have gone through the ratio of the decisions in the case of C.I.T. v. Paira Singh 124 ITR 40 SC and in the case of C.I.T. v. Smt. Jagjit Kaur 126 ITR 540, Alld. In the case of C.I.T. v. Piara Singh (supra), the Hon'ble Supreme Court held as under:
That the carriage of the currency notes across the border was an essential part of the smuggling operation and detection by the customs authorities and consequent confiscation was a necessary incident and constituted a normal feature of such an operation. The confiscation of the currency notes was a loss occasioned in pursuing the business of smuggling it was a loss in much the same way as if the currency notes had been stolen or dropped on the way while carrying on the business. It was loss which sprang directly from the carrying on of the business and was incidental to it and its deduction had to be allowed under Section 10. In the case of C.I.T. v. Smt. Jagjit Kaur (supra), it was held that the assessments made under Section 147(a) read with Section 143(3) were not "regular assessments" within the meaning of Section 273(b) read with Section 212(3) and, therefore, the levy of penalty was not valid. We have taken into account the decisions of the Hon'ble Supreme Court and Allahabad High Court and we are of the opinion that the smuggled ganja was confiscated by the Police and it was destroyed and, therefore, it was a business loss of the assessee and as such there was a nil income and no penalty was leviable in either Sections 271(1)(a), 271(1)(b), 271(1)(c) and 273(b) of the Income-tax Act, 1961. Further, notice under Section 148 was issued and the assessment was framed accordingly. Therefore, it is hit by the decision in the case of Smt. Jagjit Kaur (supra) as well. In our opinion, there is no case of penalty in either of the sections referred to above and the penalties levied and confirmed by the authorities before were improper and accordingly, the same is knocked off.
4. We have heard Sri Shambhoo Chopra, learned Standing Counsel for the Revenue and Sri Krishna Agrawal, learned Counsel for the respondent assessee.
5. Sri Shambhoo Chopra, learned Standing Counsel, submitted that the respondent assessee was found carrying on the business of Ganja and 2240 Kgs. of Ganja valued at Rs. 6,72,000/- was intercepted by the police which was subsequently confiscated and destroyed. The addition to the extent of Rs. 6,72,000/- towards investment in the aforesaid business has been upheld upto the stage of the Tribunal and, therefore, it was not open to the Tribunal to delete the penalty imposed under the various sub-clauses of Sub-section (1) of Section 271 and 273 of the Act. According to him, it was not open to the Tribunal to entertain the plea of business loss which it had already negatived in the quantum proceeding for determining the leviability of the penalty. He further submitted that the reassessment made for the first time would also be covered within the phrase "regular assessment" under the Act and, therefore, the failure on the part of the respondent assessee to pay the advance tax invited penal provision. In support of his aforesaid pleas, he has relied upon the decision in the case of K. Govindan and Sons v. Commissioner of Income Tax (2001) 247 ITR 192 (SC).
6. Sri Krishna Agrawal, learned Counsel for the respondent assessee, on the other hand, submitted that it is not in dispute that on the own showing of the Revenue the respondent assessee was intercepted on 1.6.1971 by the police alongwith Ganja weighing 2240 Kgs. valued at Rs. 6,72,000/-, which was subsequently confiscated and destroyed. The loss suffered by the respondent assessee on account of confiscation of Ganja valued at Rs. 6,72,000/- ought to be allowed as business loss and, therefore, there was no income which could have been assessed. The respondent assessee was, therefore, under no obligation to either file the return or to pay the advance tax nor it could be said that he has concealed any particular of his income. The Tribunal was perfectly justified in deleting the penalty on the ground that the respondent assessee was entitled to claim business loss of the entire amount of confiscated Ganja. According to him, the assessment made under Section 147 of the Act cannot be treated as regular assessment in view of the specific definition given to the words "regular assessment" under Sub-section (40) of Section 2 of the Act which only means the assessment made under Sub-section (3) of Section 143 or Section 144 of the Act. The Tribunal has, therefore, not committed any illegality in deleting the penalty in question. In support of his aforesaid pleas, he has relied upon the following decisions:
(i) Commissioner of Income Tax, Gujarat v. S.C. Kothari
(ii) Sri Venkata Satyanarayana Rice Mill Contractors Co. v. Commissioner of Income Tax ; and
(iii) Commissioner of Income Tax v. Orissa Cement Ltd.(2002) 258 ITR 365 (Delhi).
7. We have given our anxious consideration to the various pleas raised by the learned Counsel for the parties.
8. It is not in dispute that the Tribunal in the quantum appeal has upheld the addition of Rs. 6,72,000/- towards income of the respondent assessee. The specific plea raised by the respondent assessee regarding the claim of business loss of Rs. 6,72,000/- towards confiscation of Ganja has been negatived by the Tribunal. It has also come on record that the respondent assessee had disclosed his business of carrying sand and by truck and was not engaged in the business of smuggling. The addition of Rs. 20,000/- on account of doing business of smuggling, was deleted by the Commissioner of Income Tax (Appeals). The addition was made on account of unexplained investment in 2240 Kgs. on Nepali Ganja.
9. In the case of S.C. Kothari (supra) the Apex Court has held as follows:
If the business is illegal neither the profits earned nor the losses incurred would be enforceable in law. But, that does not take the profits out of the taxing statute. Similarly, the taint of illegality of the business cannot detract from the losses being taken into account for computation of the amount which can be subjected to tax as "profits" under Section 10(1) of the Act of 1922. The tax collector cannot be heard to say that he will bring the gross receipts to tax. He can only tax profits of a trade or business. That cannot be done without deducting the losses and the legitimate expenses of the business.
10. In the case of Commissioner of Income Tax, Patiala v. Piara Singh , the Apex Court has held as follows:
If the activity of smuggling can be regarded as a business, those who are carrying on that business must be deemed to be aware that a necessary incident involved in the business is detection by the customs authorities and the consequent confiscation of the currency notes. It is an incident as predictable in the course of carrying on the activity as any other feature of it. Having regard to the nature of the activity possible detection by the customs authorities constitutes a normal feature integrated into all that is implied and involved in it. The confiscation of the currency notes is a loss occasioned in pursuing the business; it is a loss in much the same way as if the currency notes had been stolen or dropped on the way while carrying on the business. It is a loss which springs directly from the carrying on of the business and is incidental to it.
11. The Apex Court has further held that the true significance of the distinction between an infraction of the law committed in the carrying on of a lawful business and an infraction of the law committed in a business inherently unlawful and constituting a normal incident of it, has to be kept in mind while considering such cases.
12. In the case of Shri Vishnu Kumar Soni v. Commissioner of Income Tax , the Madhya Pradesh High Court following the decisions of the Apex Court in the case of S.C. Kothari and Piara Singh (supra) has held as follows:
As discussed earlier, the Tribunal maintained the addition of income of Rs. 40,000 on the basis of the finding that the applicant had acquired 28 gold bars and has not explained from what source he got the money to acquire those 28 bars. The Tribunal also accepted the Customs Department's decision that the assessee was caught in the process of smuggling and that this gold was confiscated and it was on this that the Tribunal observed that the assessee was indulging in the activity of smuggling. This, therefore, is a clear finding that the assessee had indulged in the business of smuggling gold which he had acquired and, therefore, if Rs. 40,000 could be added as income from undisclosed source, the confiscation of the gold will have to be given credit as a loss in the course of the business.
13. In the case of Commissioner of Income Tax v. Shri Ram Chander , the Punjab and Haryana High Court had followed the decision of the Apex Court in the case of Piara Singh(supra) where the assessee had been carrying on smuggling of gold for the last several years and it allowed the value of the forfeited gold as trading loss.
14. In the case of C. Krishnalal Jain v. Commissioner of Income Tax , the Karnataka High Court has held that the assessee's claim for set off cannot be denied at all. He was dealing in smuggled gold and 4 1/2 pellets of gold were seized from him and confiscated. The value of the confiscated gold should be considered as a business loss which springs directly from carrying on of his activities of smuggling.
15. Similar view has been taken by the Punjab and Haryana High Court in the case of Parkash Chand Sushil Kumar v. Commissioner of Income Tax.
16. In the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. (supra) the Apex Court has held that where payment is being allowed towards contribution to any welfare fund or for the benefit of any individual which cannot be regarded as a form of illegal gratification and not against the public policy but to secure business, it has to be treated as legitimate expenses of the business.
17. In the case of Ram Saran Nar Singh Prasad v. Commissioner of Income Tax , this Court has held that the value of the gold and gold ornaments and cash confiscated by the custom authorities should be allowed as business loss or an expenditure under Section 37 of the Act.
18. However we find that in the case of Commissioner of Income Tax v. Hira Nand (2004) 187 CTR 32, the Rajasthan High Court has held as follows:
21. We find from the statement of case that the Tribunal accepted that the Central Excise Department, Jaipur, on 24th of Jan., 1979, seized the gold weighing 1.479 gms. Valued at Rs. 1,32,500 from the assessee. A finding of fact has also been recorded that the said gold was confiscated by the authorities. The assessee has admitted before the Central excise authorities that he had carried the gold though on behalf of other persons. It is true that before the Central Excise Department the plea of the assessee was that the gold never belonged to him and the customs authorities had forcibly recorded his statement and got it signed by him. The learned Tribunal was accepted as a fact that the assessee was under MISA and sentence was confirmed by this Court as well. On this fact the learned Tribunal held that the ITO has treated Rs. 1,32,500 as income of the assessee from undisclosed sources. Before the ITO the assessee did claim deduction of amount of business loss by placing reliance on the judgment of the Hon'ble Supreme Court in CIT v. Piara Singh's case (supra). The claim was rejected on the ground that assessee never admitted of having carried on any smuggling business activities. The Revenue cannot be heard to say that it will bring the loss of tax. It can only tax profits of a trade or business and that cannot be done without deducting the losses and the legitimate expenses of the business. The finding of fact recorded by the Tribunal is that the entire facts of the case go to show that the assessee had been carrying on illegal business of smuggling. The consequences of this finding recorded are inevitable. The confiscation of the gold of the assessee is a loss there from which has to be deducted from the amount included as unexplained investment.
19. In all these cases, it has been held that the value of the confiscated goods should be allowed as a deduction as business loss if the business income which has been determined is on account of smuggling or illegal business.
20. In the case of Haji Aziz and Abdul Shakoor Bros. v. Commissioner of Income Tax, Bombay City II , the Apex Court has held as follows:
If a sum is paid by an assessee conducting his business, because in conducting it he has acted in a manner which has rendered him liable to penalty, it cannot be claimed as a deductible expense. It must be a commercial loss and in its nature must be contemplable as such. Such penalties which are incurred by an assessee in proceedings launched against him for an infraction of the law cannot be called commercial losses incurred by an assessee in carrying on his business. Infraction of the law is not a normal incident of business and, therefore, only such disbursements can be deducted as are really incidental to the business itself. They cannot be deducted if they fall on the assessee in some character other than that of a trader.
21. In the case of Kanhaiya Lal Commissioner of Income Tax, Kanpur- II , this Court has held as follows:
lt is correct that the gold recovered from the assessee's possession was confiscated by the Central Excise authorities but before any set-off could be allowed, to the assessee, it was for him to prove that the confiscation of the gold amounted to a business loss. This could have been done by showing that that gold was his stock-in-trade, that he had been carrying on illegal business in gold and that the carriage of gold and its detection and confiscation by the Central Excise authorities amounted to a normal incidence of this business.
22. In the case of Maddi Venkataraman and Co. (P) Ltd. v. Commissioner of Income Tax , the Apex Court has held as follows:
The High Court referred to a large number of decisions where it has been held that payments tainted with illegality cannot be claimed as deduction under the Income-tax Act. Moreover, if an assessee is penalised under one Act, he cannot claim that amount to be set off against his income under another Act because that will be frustrating the entire object of imposition of penalty.
One exception to this rule which has been recognised by the courts is where the entire business of the assessee is illegal and that income is sought to be taxed by the Income-tax Officer then the expenditure incurred in the illegal activities will also have to be allowed as deduction. But if the business is otherwise lawful and the assessee resorts to unlawful means to augment his profits or reduce his loss, then the expenditure incurred for these unlawful activities cannot be allowed to be deducted. Even if the assessee had to pay fine or penalty because of an inadvertent infraction of law which did not involve any moral obliquity the result will be the same. Even in such cases, deduction will not be permitted of the amounts paid as penalty or fine or of the value of. the goods confiscated by the statutory authority as expenditure wholly and exclusively incurred for the purposes of carrying on the trade. It has been consistently held by the English courts that fines or penalties payable for violation of law cannot be permitted as deduction under the Income-tax Act. That will be against public policy. Even though the need for making such payments arose out of trading operation the payments were not wholly and exclusively for the purpose of the trade. One can carry on his trade without violating the law. In fact, Section 37 presumes that the trade will be carried on lawfully.
The English courts have consistently held that penalty or fine or money paid to compound an offence under another statute cannot be allowed as a deduction under the Income-tax Act. For the application of these principles, consideration of moral obliquity was quite immaterial.
23. In the case of Ishwar Das v. Commissioner of Income Tax , this Court after following the decisions of the Apex Court in the case of S.C.Kothari and Piara Singh (supra) has held as follows:
On a careful consideration of the aforesaid decisions cited by counsel for both the parties, we find that the Supreme Court has made, a distinction for allowing losses incurred while indulging in infraction of law committed in carrying on lawful business and infraction of law committed in the business inherently unlawful. If lawful business is carried on by the assessee while carrying on the aforesaid business, the assessee commits infraction of law in smuggling gold resulting in confiscation of the said gold and loss occurs, in such an event no deduction can be allowed for carrying on a lawful business. The said deduction from an illegal business cannot be allowed as a loss in its lawful business. The present case falls under the category where a business is carried on by the assessee in a legal manner and he indulges in infraction of law and the losses suffered due to such infraction cannot be allowed while computing the income of the lawful business. In that view of the matter, we answer the question in the affirmative, in favour of the Revenue and against the assessee.
24. In the case of Fakir Mohmed Haji Hasan v. Commissioner of Income Tax , the Gujarat High Court while considering the provisions of 69, 69A, 69B and 69C of the Act and after referring to the decisions of the Apex Court in the case of S.C. Kothari and Piara Singh (supra) and also the Punjab and Haryana High Court in the case of Shri Ram Chander (supra), has held as follows:
Under Section 4 of the Income-tax Act, income-tax is to be charged in accordance with the provisions of the Act in respect of the total income of the previous year of every person. As provided by Section 5, the total income of any previous year of a person would, inter alia, include all income from whatever source derived which is received or is deemed to be received by such person, subject to the provisions of the Act. It will be seen from Section 69A of the Act that where the bullion, jewellery or other valuable article is not recorded in the books of account and there is no explanation about the nature and source of its acquisition, or the explanation is not satisfactory, the value thereof may be deemed to be the income of the assessee of the financial year immediately preceding the assessment year in which the assessee is found to be the owner of such bullion, etc. The scheme of Sections 69, 69A, 69B and 69C of the Income-tax Act, 1961, would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion, etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then, the. value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under Section 14 of the Act, it would not be possible to classify such deemed income under any of these heads including income from "other sources" which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under Section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of Sections 69, 69A, 69B and 69C will not apply, in which event, the provisions regarding deductions, etc., applicable to the relevant head of income under which such income falls will automatically be attracted.
The opening words of Section 14 "save as otherwise provided by this Act" clearly leave scope for "deemed income" of the nature covered under the scheme of Sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from "other sources" because the provisions of Sections 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head "Income from other sources". Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of Sections 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions.
It is, therefore, clear that, when the investment, in or acquisition of gold, which was recovered from the assessee was not recorded in the books of account and the assessee offered no explanation about the nature and source of such investment or acquisition and the value of such gold was not recorded in the books of account, nor the nature and source of its acquisition explained, there could arise no question of treating the value of such gold, which was deemed to be the income of the assessee, as a deductible trading loss on its confiscation, because, such deemed income did not fall under the head of income "profits and gains of business or profession.
25. In the case of Bimal Kumar Damani v. Commissioner of Income Tax , the Calcutta High Court has held as follows:
Under Section 69A of the said Act, a person is liable to taxation in respect of undisclosed or unexplained income. If such, income is from a business, then the assessee will be entitled to the deduction of business expenditure available under Section 37 of the Act. Business expenditure includes business loss. The question of loss is dependent on the question as to whether it is a loss in the course of the business. If it is not a business, then it would be an income from other sources. If it is an income from other sources, the loss of such income will neither be a loss in business nor a business expenditure deductible under Section 37. When considered in the light of the provisions contained in Section 69A, the question acquires a different dimension and it has to be considered in the light of such a proposition whether it could be allowed or not even if it is a loss. In our view, this loss, not being a business loss, cannot attract the principle of Section 37 for deduction permissible thereunder.
It is a settled proposition of law that whatever is carried on for gain is a business. In Piara Singh's case , smuggling activities were held to be business. Here the asscssee was smuggling the seized US dollars. But that was only the solitary occasion. In ordinary parlance, business means a series of activities not a single transaction. Solitary adventures are also held to be business adventure in Khairagarh Timber Traders case and Bharat Insurance Co. Ltd.'s case in certain cases. The proposition laid down in those decisions is not an absolute proposition. A solitary transaction may be a business but not always. There has to be some element of business in the activities. It depends on the facts of each case. In the facts and circumstances of this case, we are of the view that there is nothing to indicate nor is there any admission of the assessee or even a claim that he had been carrying on business in smuggling activities and, therefore, it is part of his business. On solitary adventure may be a business when it is legally carried on. One solitary illegal activity unconnected with any business activity cannot be said to be a business adventure. Therefore, we are of the view that a smuggling activity on a solitary occasion cannot be considered to be a business. This proposition finds support from the decision in M.B. Abdulla's case by a two-judge Bench of the Supreme Court in which Piara Singh's case , was referred to and distinguished. With similar reasoning, we also distinguish the decision in Piara Singh's case , and hold that on the facts, the said ratio cannot be applied to this case, which is more similar to the facts of the latter decision by the two-judge Bench in M.B. Abdulla's case . In Piara Singh's case , there was a finding of fact that the assessee therein was carrying on the business of smuggling. But in the present case, there is no such finding.
26. In the case of Commissioner of Income Tax v. Bandaru Subba Rao (1996) 185 ITR 631, the Andhra Pradesh High Court the facts were that the assessee was carrying on business of money lending and shells of primary gold and some silver articles valued at Rs. 26,275/-were seized by the Central Excise Department. It had claimed that as the business was illegal, the value of the gold and silver articles should be allowed as deduction as they were confiscated by the Central Custom Authorities. This plea has been negatived by the Court on the ground that the very nature of the business is illegal and during the course of that illegal business the assessee has lost the assets either by way of confiscation or otherwise, which loss could not be allowed when the assessee has indulged in some illegal activity would not justify deduction of the amount of the business loss.
27. These are all cases in which it has been held by the various Courts that the deductions on account of confiscation is not to be allowed where the assessee is not exclusively dealing in illegal activities.
28. We are, however, not called upon to decide as to whether the respondent assessee is entitled to claim deduction of Rs. 6,72,000/-being the value of confiscated Ganja as business loss or not. The fact remains that there has been a divergence of opinion regarding allow ability of such deduction as business loss.
29. In the various Sub-clauses of Sub-section (1) of Section 271 penalty can be imposed only when the act has been done without reasonable cause. In the present case as the respondent assessee was claiming deduction of Rs. 6,72,000/- being the value of confiscated Ganja as the business loss, it cannot be said that he did not have any reasonable cause for not filing the return or had deliberately concealed the particulars of his income. Thus, the Tribunal had rightly deleted the penalty imposed upon the respondent assessee under the provisions, referred to above.
30. Now, coming to the question as to whether reassessment can be treated as a regular assessment or not for the purposes of Sub-section (1) of Section 273 of the Act in order to enable the Assessing Authority to initiate penalty proceedings under Clause (b) of the aforesaid section, we find that Sub-section (1) of Section 273 of the Act empowers the Assessing Authority, in the course of any proceeding in connection with the regular assessment for any assessment year, to initiate proceeding upon satisfaction of certain conditions. The Kerala High Court in the case of Gates Foam and Rubber Co. the Revenue Commissioner of Income Tax ; the Patna High Court in the case of Commissioner of Income Tax v. Ram Chandra Singh. ; the Punjab and Haryana High Court in the case of Kamla Vati v. Commissioner of Income Tax (1978) 111 ITR 248; the Orissa High Court in the case of Commissioner of Income Tax v. Ganesh Ram Nayak ; the Bombay High Court in the case of Income Tax Officer v. Gammon India Ltd. ; the Delhi High Court in the case of Commissioner of Income Tax v. Pratap Singh of Nabha ; the Calcutta High Court in the case of Monohar Gidwani v. Commissioner of Income Tax and Commissioner of Income Tax v. Smt. Radha Devi Poddar and the Rajasthan High Court in the case of Commissioner of Income Tax v. Smt. Padam Kumari Surana , have held that the assessment made under Section 147 of the Act cannot be regarded as a regular assessment for the purpose of levying penalty under Section 273. This Court in the case of Smt. Jagjit Kaur (supra) has held that Section 2(40) of the Act confines a regular assessment to one made either under Section 143 or Section 144. The Court cannot read a regular assessment as occurring under Section 273 as applying to Section 147(a). The lacuna in the Act can only be corrected by the legislature and not by a process of judicial interpretation.
31. On the other hand, the Calcutta High Court in the case of Kashiram Tea Industries Ltd. v. Income Tax Officer , has taken a contrary view and has held that reassessment under Section 147 could be regarded as a regular assessment for the purpose of imposing penalty under Section 273 of the Act.
32. A new Sub-section (6) was inserted in Section 215 of the Act by the Taxation Laws (Amendment) Act, 1984, with effect from 1.4.1985, which is to the following effect:
(6) Where, in relation to an assessment year, an assessment is made for the first time under Section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section and Sections 216, 217 and 273.
33. The aforesaid provision can safely be read to be clarificatory in nature in view of the decision of the Apex Court in the case of K. Govindan and sons (supra) and it would be treated as clarificatory and, therefore, retrospective in nature.
34. In the case of K.Govindan and sons (supra) the Apex Court has held that the assessment made for the first time under Section 147 is a regular assessment. The Tribunal has relied upon a decision of this Court in the case of Commissioner of Income Tax, Lucknow v. Smt. Jagjit Kaur , which after the insertion of Sub-section (6) in Section 215 of the Act by the taxation Laws (Amendment) Act, 1984, having been held by us to be retrospective in operation being clarificatory in nature, cannot be pressed into aid. However, in the present case we find that the assessment had been completed under Section 144 of the Act and, therefore, notwithstanding the fact that it was an assessment made under the provision of Section 148 of the Act, it would be treated to be a regular assessment. Thus, the view of the Tribunal that the penalty under Clause (b) of Sub-section (1) of Section 273 of the Act cannot be initiated in the course of reassessment proceeding is wholly incorrect and cannot be sustained.
35. In view of the foregoing discussions, we answer the first question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue and the second question in the negative, i.e., in favour of the Revenue and against the assessee. In view of the divided success, the parties are left to bear their own costs.