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Issues Involved:
1. Validity of penalty under section 271(1)(c) of the Income-tax Act, 1961 on legal heirs. 2. Merits of penalty imposition under section 271(1)(c) on legal heirs. Issue-wise Detailed Analysis: 1. Validity of Penalty under Section 271(1)(c) on Legal Heirs: The Revenue filed an appeal challenging the Appellate Commissioner's (A/C) order canceling a penalty of Rs. 28,934 imposed under section 271(1)(c) of the Income-tax Act for the assessment year 1974-75. The penalty was initially imposed on Shri Birendra Prasad, the legal heir of the deceased assessee, Shri Nageshwar Prasad, for alleged concealment of income or furnishing inaccurate particulars. The legal representative (L/R) argued that the deceased did not deliberately conceal income and that any mistakes were bona fide. The Appellate Commissioner found no specific omission of concealment by the deceased and canceled the penalty, which led to the Revenue's appeal. The Departmental Representative (DR) argued that the L/R failed to prove the absence of deliberate concealment and that the statutory explanation under section 271(1)(c) applied, justifying the penalty. The DR sought reversal of the A/C's order. The assessee's counsel contended that section 271(1)(c) could not be invoked against the legal heir, citing the Calcutta Tribunal's decision in Bhuban Mohan Mitter Charitable Trust, which held that legal representatives cannot be penalized under section 271(1)(c). The Tribunal, agreeing with the A/C, held that the facts did not warrant penalty imposition on the legal heir. The deceased had not acted deliberately in failing to file the correct taxable income, as evidenced by the voluntary filing of a revised return. The Tribunal emphasized that penal provisions being quasi-criminal in nature die with the person, and the legal representative cannot be penalized for the deceased's actions. The Accountant Member dissented, arguing that under section 159 of the Income-tax Act, legal representatives are liable to pay "any sum" the deceased would have been liable to pay, including penalties. He cited various commentaries and judicial precedents supporting the view that penalties can be imposed on legal representatives for defaults committed by the deceased. The Third Member, resolving the difference, held that penalty proceedings can be validly initiated against legal heirs when the return of income was filed by the deceased during his lifetime. He cited the Allahabad High Court's decision in Kalawati Devi, which upheld penalty imposition on legal representatives for defaults by the deceased. 2. Merits of Penalty Imposition under Section 271(1)(c) on Legal Heirs: The Tribunal examined whether the penalty should be upheld or canceled on merits. The original assessment included additions to the deceased's income, leading to the penalty. The legal representative argued that the deceased had voluntarily filed a revised return declaring higher income, indicating no dishonest intention. The Tribunal noted that the penalty proceedings were initiated specifically for concealment of interest income from fixed deposits. However, the final penalty order considered other items of income, which was not permissible. The Tribunal also found procedural irregularities in the assessment order, which did not comply with the Appellate Commissioner's directions. The Third Member, agreeing with the Judicial Member, concluded that the penalty could not be sustained on merits. He noted that the penalty was barred by limitation under section 275 of the Income-tax Act and that the initiation of penalty proceedings was restricted to interest income, not other items. In conclusion, the Tribunal upheld the A/C's order canceling the penalty, agreeing that penal provisions being quasi-criminal in nature do not survive the death of the assessee and that the legal representative cannot be penalized for the deceased's actions. The Revenue's appeal was dismissed.
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