1984 (7) TMI 58 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the penalty notice issued by the Income Tax Officer (ITO).
2. Applicability of the Explanation to Section 271(1)(c) of the Income Tax Act, 1961.
3. Limitation period for passing the penalty order.
4. Sanction for the levy of penalty for deemed income under Section 69 of the Income Tax Act, 1961.

Summary:

1. Validity of the Penalty Notice:
The Tribunal quashed the penalty order on the grounds that the penalty notice issued by the ITO was invalid due to vagueness and ambiguity, as the ITO did not strike out inappropriate portions of the notice. The Tribunal relied on the Kerala High Court decision in Subramania Iyer v. Union of India [1974] 97 ITR 228 (Ker). However, the High Court disagreed, stating that the notice under s. 274 is not prescribed under the rules and is administratively devised to inform the assessee of the initiation of penalty proceedings. The High Court held that the notice was valid as it fulfilled the requirement of natural justice and did not cause any prejudice to the assessee.

2. Applicability of the Explanation to Section 271(1)(c):
The Tribunal failed to properly examine the applicability of the Explanation to s. 271(1)(c). The High Court directed the Tribunal to reconsider this issue, taking into account the judgments of the Supreme Court and other High Courts. The Tribunal must determine whether the Explanation to s. 271(1)(c) applies, considering the explanation given by the assessee regarding the money-lending advances.

3. Limitation Period for Passing the Penalty Order:
The assessee contended that the penalty order was barred by limitation. The High Court found that the assessment order was made on March 30, 1972, and the penalty order was passed on March 30, 1974, within the two-year limitation period as per the provisions of law prior to the Taxation Laws (Amendment) Act, 1970.

4. Sanction for Levy of Penalty for Deemed Income:
The assessee argued that there is no sanction for the levy of penalty for deemed income under s. 69. The High Court rejected this contention, stating that once an amount is deemed as income under s. 69, all necessary consequences, including the levy of penalty under s. 271(1)(c), would follow.

Conclusion:
The High Court upheld the validity of the penalty notice and rejected the contentions regarding limitation and deemed income. The Tribunal was directed to reconsider the applicability of the Explanation to s. 271(1)(c) and rehear the appeal accordingly. The reference was answered with no costs.