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Issues involved: Assessment under s. 147(a) of the I.T. Act, 1961, imposition of penalty under s. 271(1)(c) of the Act, interpretation of s. 274(2) and s. 275 of the Income-tax Act, 1961.
Assessment under s. 147(a) of the I.T. Act, 1961: The assessee, originally assessed as an unregistered firm for the assessment year 1957-58, disclosed additional income of Rs. 10,000 which had escaped assessment. The Income Tax Officer (ITO) reopened the assessment u/s 147(a) and issued a notice u/s 148. The assessee filed a return including Rs. 12,500 as hundi loan, but failed to prove its genuineness. Consequently, the ITO added Rs. 12,500 as income from undisclosed sources. Imposition of penalty under s. 271(1)(c) of the Act: During reassessment, the ITO found that the assessee had concealed income particulars. On the same day, penalty proceedings were initiated u/s 274 read with s. 271(1)(c) and referred to the Income-tax Appellate Tribunal (IAC) as the minimum penalty exceeded Rs. 1,000. Despite a reasonable opportunity, the assessee did not appear before the IAC, who imposed a penalty of Rs. 2,750 on 17th March, 1972. Interpretation of s. 274(2) and s. 275 of the Income-tax Act, 1961: The Tribunal, on appeal, canceled the penalty levy citing s. 275(b) and the Taxation Laws (Amendment) Act, 1970. However, the High Court held that the IAC had the jurisdiction to impose the penalty, as the amended s. 274(2) did not affect ongoing penalty proceedings. The Court clarified that s. 274 governs the penalty procedure, while s. 275 sets the limitation period for penalty imposition. As the penalty was initiated and imposed within the prescribed time frame, the Court ruled in favor of the revenue, answering the question in the negative. *Note: Separate judgment delivered by Judge R. N. PYNE, agreeing with the decision.*
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