1984 (9) TMI 18 - HC - Income Tax

Summary

Issues:
- Computation of penalty under section 271(1)(c) of the Income-tax Act, 1961 before and after April 1, 1968.

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, to determine the quantum of penalty leviable against the assessee. The assessee, a sole proprietor of a watch company, had 270 foreign watches confiscated by Customs and Central Excise officers on suspicion of smuggling. The Income Tax Officer (ITO) reopened the assessment for the year 1964-65 based on this information. The Collector of Customs concluded that the watches belonged to the assessee and were illegally acquired. The ITO, after finding no evidence from the assessee, estimated the investment at Rs. 10,000 from undisclosed funds, treating it as income from undisclosed sources, which was upheld by the Appellate Authority (AAC).

During reassessment, penalty proceedings under section 271(1)(c) were initiated by the ITO, and the Income-tax Appellate Tribunal upheld the penalty. The Tribunal considered the provisions of section 271(1)(c) before and after April 1, 1968, noting the increase in minimum penalty from 20% to 100% of the concealed income. However, as the concealment occurred in the return filed on June 30, 1964, the Tribunal applied the law as it stood on that date, imposing a penalty of 20% of the tax that would have been avoided.

The Supreme Court precedent in Brij Mohan v. CIT was cited, emphasizing that the law at the time of concealment governs the penalty. Therefore, the Tribunal's decision to apply the law as of June 30, 1964, was deemed correct. Consequently, the High Court ruled in favor of the assessee, directing the Revenue to pay the costs of the reference.

This judgment clarifies the application of penalty provisions under section 271(1)(c) of the Income-tax Act, emphasizing the importance of considering the law in force at the time of concealment when determining the quantum of penalty. The decision provides a precedent for similar cases involving undisclosed income and penalties for non-disclosure.