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Issues involved: Validity of penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 1964-65 in a case of protective assessment.
Summary: The High Court of Calcutta addressed the issue of penalty imposition under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 1964-65, arising from a protective assessment made by the Inspecting Assistant Commissioner of Income-tax. The Income-tax Officer included cash credits as the assessee's income from undisclosed sources, leading to the penalty imposition of Rs. 1,80,000. The Tribunal found that penalty proceedings could not be validly initiated due to the protective nature of the assessment, as seen in previous years. The Tribunal held that the penalty proceedings for the year under reference were not validly initiated, prompting a legal question to be referred to the High Court. In the judgment, it was highlighted that while protective assessments are permissible, there cannot be protective penalties. The Court emphasized that before levying a penalty, income must be assessed as concealed income in the assessee's assessment. The competent authority must determine if there has been actual concealment of income. In cases where there is a dispute regarding the assessment of allegedly concealed income, no penalty can be imposed until the Income-tax Officer determines the rightful recipient of the income. Only the person upon whom a substantive assessment is made can be held liable for a penalty, provided all necessary conditions are met. The Court noted that the Revenue did not contest the assessments made in the hands of another individual, indicating that no penalty could be imposed in the present case. Ultimately, the High Court answered the legal question in the negative and in favor of the assessee, ruling that no penalty could be levied in this instance. Costs were not awarded in the judgment, and both judges concurred with the decision. Judge(s): J. N. HORE, AJIT KUMAR SENGUPTA
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