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Issues Involved:
1. Application of section 154 of the Income-tax Act for levying enhanced penalty by relying on section 271(2). 2. Justification of the Tribunal's decision that the validity of an order imposing penalty under section 271(1)(a) cannot be challenged in an appeal against an order under section 154. Issue-wise Detailed Analysis: 1. Application of section 154 for levying enhanced penalty by relying on section 271(2): The Income-tax Officer (ITO) initially imposed a penalty of Rs. 2,280 under section 271(1)(a) for delay in filing the return. Upon reviewing the records, the ITO discovered that the penalty was incorrectly calculated. The assessee, assessed on a total income of Rs. 72,791 as a registered firm, should have had its penalty calculated as if it were an unregistered firm, per section 271(2). This recalculation yielded a tax of Rs. 36,464, and with a 50-month delay, the penalty should have been Rs. 36,400, but limited to 50% of the tax, resulting in Rs. 18,232. The ITO rectified this mistake under section 154, enhancing the penalty to Rs. 18,232. The Appellate Assistant Commissioner (AAC) upheld the ITO's rectification, noting that the mistake was apparent from the record. The Tribunal also agreed, stating that section 271(2) mandates treating a registered firm as an unregistered firm for penalty calculations, which was missed in the original order. The Tribunal cited several precedents, including CIT v. Assam Travels Shipping Service and K. R. Velayudha Mudaliar and Sons v. Addl. CIT, confirming that such mistakes of law can be rectified under section 154. 2. Justification of the Tribunal's decision on the validity of the penalty order: The Tribunal held that the right of appeal arises only when expressly conferred by statute, and separate rights of appeal exist for different orders under section 246. The Tribunal concluded that the validity of the original penalty order, which had become final due to no appeal being filed, could not be challenged in an appeal against the rectification order under section 154. The Tribunal referenced decisions such as Gaurishankar Kedia v. CIT and M. M. Muthuwappa v. CIT, supporting the view that appeals under section 154 are limited to the rectification itself and cannot reopen the original penalty's validity. The High Court agreed with the Tribunal, emphasizing that the original penalty order became final when no appeal was filed. The rectification under section 154 only addressed the calculation error, not the imposition's legality. The Court cited several cases, including Mandal Ginning and Pressing Co. Ltd. v. CIT and CIT v. Vellingiri Gounder and Brothers, affirming that appeals against rectification orders cannot challenge the original penalty's validity. In conclusion, the Court held that the provisions of section 154 were rightly applied for levying the enhanced penalty, and the Tribunal was justified in its decision. Both questions were answered in the affirmative, in favor of the Revenue and against the assessee, with no order as to costs.
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