1961 (3) TMI 135 - HC - Income Tax

Summary

Issues:
1. Imposition of penalty under section 28(1)(c) read with section 18A(9) of the Indian Income-tax Act, 1922.
2. Validity of the penalty imposed by the Income-tax Officer.
3. Consideration of interest received under the Land Acquisition Act as assessable income.

Analysis:

1. The petitioner sought to quash exhibit P-7, where the Income-tax Officer imposed a penalty under section 28(1)(c) read with section 18A(9) of the Income-tax Act based on discrepancies in income estimation for the assessment year 1956-57. The petitioner's income was assessed at thirty-four thousand nine-hundred and nine rupees, inclusive of interest received as compensation under the Land Acquisition Act and share of firm income. The Income-tax Officer noted the petitioner's failure to disclose the interest amount separately, leading to the penalty imposition.

2. The Income-tax Officer's grounds for imposing the penalty were twofold: first, rejecting the petitioner's explanation for delayed profit determination by the firm, and second, alleging that the petitioner knowingly provided false income estimates. The court found the first ground beyond its review jurisdiction but considered the second ground as an error of law. Mere income disparity does not necessarily indicate dishonesty, and such inference cannot be drawn as a matter of law. This error was deemed sufficient to cancel the penalty imposed.

3. The petitioner's counsel argued the assessability of interest received under the Land Acquisition Act, citing conflicting views among High Courts. The petitioner did not raise this argument before the Income-tax Officer, and the notice for penalty did not specify the grounds. The revisional authority rejected this argument. The court inferred that the Income-tax Officer might have been influenced by the recent receipt of the interest amount, contributing to the income disparity. While this inference was reasonable, the court primarily based its decision on the error in law regarding the second ground, leading to the quashing of exhibit P7.

In conclusion, the court allowed the petition, quashing the penalty imposed under section 28(1)(c) read with section 18A(9) of the Indian Income-tax Act, 1922, without costs.