1968 (5) TMI 7 - HC - Income Tax

Penalty u/s 28(1)(c) of the IT Act, 1922 - leviability - jurisdiction to the ITO to impose the penalty

Summary

Issues:
Assessment of undisclosed income from share dealings, imposition of penalty under section 28(1)(c) of the Income-tax Act, 1922, justification of penalty based on concealment of income or false explanation.

Analysis:
The case involved the assessment of undisclosed income of an individual from share dealings for the assessment year 1951-52. The individual had purchased shares but failed to account for the entire investment in his books. The Income-tax Officer treated a portion of the investment as income from undisclosed sources. The Appellate Assistant Commissioner upheld the addition of the undisclosed income to the individual's total income.

In the subsequent penalty proceedings under section 28(1)(c) of the Act, the Income-tax Officer imposed a penalty for failure to prove the source of funds used for the share investments. The Officer considered the individual's explanation as false and imposed a penalty of Rs. 20,000. The Appellate Assistant Commissioner rejected the individual's contention that the penalty was only applicable for concealment of income and not for providing a false explanation.

The individual then appealed to the Tribunal, which overturned the penalty decision. The Tribunal held that the penalty was unjustified as there was no concrete evidence of income concealment by the individual. The Tribunal emphasized that the penalty under section 28(1)(c) should be imposed only for concealment of income, not for providing a false explanation.

The revenue appealed to the High Court on the question of law regarding the justification of the penalty under section 28(1)(c). The High Court reiterated that the penalty should be based on concealment of income, not merely on providing a false explanation. Citing precedents, the High Court emphasized that inaccurate particulars about income constitute the offense under section 28, not giving false explanations. Therefore, the High Court ruled in favor of the individual, holding that the penalty was not justified in law and directed the revenue to pay the costs of the reference to the individual.

In conclusion, the High Court's judgment clarified the distinction between concealment of income and providing false explanations in penalty proceedings under section 28(1)(c) of the Income-tax Act, 1922. The case highlighted the importance of establishing actual concealment of income to justify the imposition of penalties, rather than penalizing individuals solely for providing false explanations without concrete evidence of income concealment.