1967 (7) TMI 34 - HC - Income Tax

Penalty - return was filed by the assessee before April 1, 1962, being the date of commencement of the new Act - IAC could not impose penalty upon the assessee u/s 271(1)(c) of the IT Act, 1961

Summary

Issues Involved:
1. Applicability of section 271(1)(c) of the Income-tax Act, 1961.
2. Validity of penalty proceedings initiated under the new Act.
3. Interpretation of section 297(2)(g) of the Income-tax Act, 1961.
4. Jurisdiction of the Inspecting Assistant Commissioner to impose penalty.

Detailed Analysis:

1. Applicability of section 271(1)(c) of the Income-tax Act, 1961:
The primary issue was whether section 271(1)(c) of the new Act could be applied to impose a penalty on the assessee. The Tribunal held that since the assessment proceeding was under the old Act, section 271(1)(c) of the new Act could not be applied. The court examined the relevant provisions of the new Act, which came into force on 1st April, 1962. Section 271(1)(c) stipulates that the Income-tax Officer must be satisfied "in the course of any proceedings under this Act" for the imposition of penalty. Since the assessment proceeding was under the old Act, the condition precedent for invoking section 271(1)(c) was not satisfied.

2. Validity of penalty proceedings initiated under the new Act:
The court noted that the penalty proceedings were initiated by the Income-tax Officer under section 274(1) read with section 271(1)(c) of the new Act. The Income-tax Officer referred the matter to the Inspecting Assistant Commissioner under section 274(2) because the minimum penalty exceeded Rs. 1,000. However, since the satisfaction of the Income-tax Officer regarding the concealment of income was arrived at in the course of proceedings under the old Act, the initiation of penalty proceedings under the new Act was invalid.

3. Interpretation of section 297(2)(g) of the Income-tax Act, 1961:
The revenue argued that section 297(2)(g) allowed the imposition of penalty under the new Act for assessments completed on or after 1st April, 1962. The court examined sections 297(2)(f) and 297(2)(g) together and concluded that these sections determine whether the old or new Act applies for the imposition of penalty based on when the assessment was completed. Section 297(2)(g) does not dispense with the need to satisfy the conditions for the applicability of section 271(1). Therefore, the penalty could not be imposed under section 271(1) unless the conditions for its applicability were met.

4. Jurisdiction of the Inspecting Assistant Commissioner to impose penalty:
The court held that the Inspecting Assistant Commissioner lacked jurisdiction to impose a penalty under section 274(2) read with section 271(1)(c) because the conditions for invoking section 271(1) were not satisfied. The satisfaction of the Income-tax Officer regarding the concealment of income was not arrived at in the course of any proceeding under the new Act, thus invalidating the penalty order.

Conclusion:
The court concluded that the order of penalty made by the Inspecting Assistant Commissioner under section 274(2) read with section 271(1)(c) was without jurisdiction. The revenue could not rely on section 297(2)(g) to invoke the applicability of section 271(1). Consequently, the court answered the question referred to it in the negative and directed the Commissioner to pay the costs of the reference to the assessee.