1943 (3) TMI 17 - HC - Income Tax

Summary

Issues:
1. Application of Section 28(1)(b) of the Income-tax Act for non-compliance with notice.
2. Applicability of the Income-tax Act as amended in 1939 to penalty proceedings.
3. Requirement of evidence for imposing a penalty under Section 28.

Analysis:
1. The case involved a reference made by the Income-tax Appellate Tribunal regarding the imposition of a penalty under Section 28(1)(b) for non-compliance with a notice to produce account books. The Income-tax Officer issued a notice on 4th January 1940, after the amendment of Section 28, which allowed for the imposition of penalties for failure to comply with notices. The Court held that the Officer was entitled to act under Section 28(1)(b) for non-compliance with the January 1940 notice, as the amendment was in force by then. The failure to comply with the notice justified the penalty under Section 28(1)(b), and the section was not applied retrospectively.

2. The second issue revolved around the applicability of the Income-tax Act as amended in 1939 to the penalty proceedings. The Court determined that the amended Act applied to the case, as the proceedings were completed in 1940, after the amendment came into force. The default for non-compliance with the notice in January 1940 fell under the amended Act, not the Act as it stood in 1938-39 during the assessment year.

3. The final issue addressed the requirement of evidence for imposing a penalty under Section 28 compared to a "best judgment" assessment under Section 23(4). The Court clarified that while a best judgment assessment involves estimation based on available information, the imposition of a penalty under Section 28 requires concrete evidence. The Income-tax Officer must possess sufficient evidence to convince a reasonable person of the existence of a second set of account books before imposing a penalty. Each case's circumstances dictate the evidence needed, and it is not a matter of guesswork as in a best judgment assessment.

In conclusion, the Court upheld the imposition of the penalty under Section 28(1)(b) for non-compliance with the notice issued in January 1940, under the amended Income-tax Act. The judgment clarified the distinct evidentiary requirements for penalty imposition under Section 28 compared to best judgment assessments under Section 23(4). The Commissioner was awarded costs of &8377; 250 in the matter.