1969 (3) TMI 21 - HC - Income Tax

Penalty u/s 271(1)(c) - If the conditions precedent to the applicability of section 271 are not satisfied in a case, although the case may otherwise come under the provisions of s. 297(2)(g) of the Act, no proceedings for the imposition of penalty can be initiated nor can penalty be imposed under the new Act

Issues Involved:
1. Jurisdiction to initiate penalty proceedings under section 271 of the Income-tax Act, 1961, when assessment proceedings were conducted under the repealed Indian Income-tax Act, 1922.
2. Validity of notices issued under section 271 of the Income-tax Act, 1961, when the assessment was under the repealed Act.
3. Applicability of section 297(2)(g) of the Income-tax Act, 1961, and its constitutionality under Article 14 of the Constitution of India.

Detailed Analysis:

1. Jurisdiction to Initiate Penalty Proceedings:
Dr. Debi Pal, representing the petitioner, argued that penalty proceedings under section 271 of the Income-tax Act, 1961, can only be initiated if the assessment proceedings were also conducted under the 1961 Act. Since the assessment proceedings in this case were commenced and concluded under the repealed Indian Income-tax Act, 1922, the Income-tax Officer lacked jurisdiction to initiate penalty proceedings under section 271 of the 1961 Act. This argument was supported by the opening words of section 271(1) of the 1961 Act, which states "in the course of any proceedings under this Act."

2. Validity of Notices Issued:
Dr. Pal further contended that penalty proceedings under section 271 of the 1961 Act should only be initiated if there was a default or non-compliance with notices issued under the 1961 Act. Since all the notices in this case were issued under the repealed Act, the conditions precedent for initiating penalty proceedings under section 271 of the 1961 Act were absent, rendering the notices void and without jurisdiction. This argument was supported by decisions from the Bombay High Court in Shakti Offset Works v. Inspecting Assistant Commissioner of Income-tax and the Gujarat High Court in Commissioner of Income-tax v. Hiralal Mohanlal Shah.

3. Applicability and Constitutionality of Section 297(2)(g):
Mr. Amiya Kumar Basu, representing the respondents, argued that the notice under section 271 of the 1961 Act should be construed as a notice under section 28(1) of the repealed Act, relying on the Supreme Court decision in L. Hazari Mal Kuthiala v. Income-tax Officer, Special Circle, Ambala Cantt. However, Dr. Pal countered that the provisions of section 28(1) of the repealed Act and section 271 of the 1961 Act were not in pari materia, making the Supreme Court's decision inapplicable.

Dr. Pal also challenged the constitutionality of section 297(2)(g) of the 1961 Act under Article 14 of the Constitution of India, arguing that it created an unreasonable classification between assessees based on the date of assessment completion, which had no rational connection with the object of the statute. This argument was supported by the Bombay High Court's decision in Shakti Offset Works.

The court held that the conditions precedent for the applicability of section 271 of the 1961 Act were not fulfilled in this case, as the assessment proceedings were under the repealed Act. Consequently, the notices issued under section 271 were invalid. The court did not find it necessary to rule on the constitutionality of section 297(2)(g) but noted that even if it were intra vires, it did not confer substantive power for penalty imposition but merely procedural requirements.

Conclusion:
The application succeeded, and the court issued a writ of mandamus directing the respondents to recall, cancel, and withdraw the two notices issued on 23rd March 1966. The court also issued a writ of prohibition restraining the respondents from acting on these notices. The court clarified that this decision does not preclude the respondents from proceeding according to law. No order as to costs was made.

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