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Issues: Liability of assessee to pay a penalty under Section 28 of the Income Tax Act for failure to comply with a notice under Section 22(4); Interpretation of Section 28(1)(b) in the context of a registered firm; Retroactive application of an amendment to impose penalties on registered firms; Benefit of lacuna in the law to the assessee.
Analysis: The judgment in question revolves around the issue of whether the assessee is liable to pay a penalty imposed by the Income Tax Officer under Section 28 of the Income Tax Act for failing to comply with a notice under Section 22(4). The court examined the timeline of events leading to the penalty imposition, noting that the assessee, initially unregistered as a firm, was later registered by the Income Tax Commissioner. The crux of the matter lies in the interpretation of Section 28(1)(b), which deals with penalties for non-compliance with notices under Section 22(4). The court emphasized that penalties under Section 28 can only be imposed on those liable to pay tax. In the case of a registered firm, where the tax liability lies with individual partners, no penalty can be imposed on the firm itself. The Commissioner argued for the retroactive application of an amendment (sub-clause (d) to the proviso of Section 28(1)) passed in 1940 to treat registered firms as unregistered for penalty purposes. However, the court rejected this argument, stating that the amendment could not retrospectively create an offense where none existed before. The court highlighted that a default must carry consequences, such as penalty imposition, to be considered an offense. The court acknowledged the lacuna in the law, which was addressed by the 1940 amendment, but held that the assessee should benefit from the pre-amendment situation. In conclusion, the court ruled against the imposition of the penalty, affirming that registered firms cannot be penalized under Section 28 as the tax liability rests with individual partners. The judgment underscores the principle that penalties should align with the legal framework in force at the time of the offense. Consequently, the court held the penalty imposed on the assessee to be invalid under the law, and the Tribunal's decision in favor of the assessee was upheld. The court directed the Commissioner to bear the costs, and the reference was answered in the negative with the assent of Tendolkar, J.
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