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Validity of penalty levy on the assessee under section 28 of the Income-tax Act for suppressed income and black market dealings. Analysis: The case involved the levy of a penalty of Rs. 15,000 on the assessee, a Hindu undivided family engaged in business as agents of a company. The Income Tax Officer imposed the penalty on the grounds of suppressed income from black market dealings. The key issue was whether the disrupted members of a joint Hindu family are liable to pay a penalty under section 28 of the Income-tax Act. Section 25A of the Act provides for assessing disrupted family members but does not explicitly address the imposition of penalties on divided families. The court examined the legislative intent behind the provisions and noted that while the Act allows for joint assessment of tax on divided family members, it lacks a mechanism for imposing penalties on such families. The court referred to judgments from the Patna High Court and the Madras High Court which highlighted the legislative gap in imposing penalties on disrupted Hindu families. The Patna High Court observed that section 25A failed to provide for penalty imposition on divided families. Similarly, the Madras High Court noted the absence of a mechanism in the Act to penalize divided families under section 28(1) after the assessee ceases to exist. The court concurred with these observations, emphasizing that the Act does not empower authorities to levy penalties on members of a divided Hindu family once the family has been disrupted. In conclusion, the court held that as the Hindu family had become divided before the penalty proceedings under section 28 were initiated, the members of the erstwhile family are not liable to be penalized under that section. Therefore, the court answered the reference in the negative, ruling in favor of the assessee. The judgment underscores the importance of legislative clarity in tax laws to ensure proper enforcement mechanisms, especially concerning penalties on disrupted family entities.
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