1970 (5) TMI 11 - HC - Income Tax

Whether the penalty order is in contravention of the provisions of sections 274 and 275 of the Income-tax Act, 1961 - Whether the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, is justified

Summary

Issues Involved:

1. Whether the penalty order is in contravention of the provisions of sections 274 and 275 of the Income-tax Act, 1961.
2. Whether the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, is justified.

Issue-wise Detailed Analysis:

1. Contravention of Sections 274 and 275:

The first issue concerns whether the penalty order violated sections 274 and 275 of the Income-tax Act, 1961. The assessee argued that the penalty proceedings were not commenced during the assessment proceedings, as the notice was issued after the assessment order was passed. The court examined section 275, which states that no penalty order can be passed after two years from the completion of the proceedings during which the penalty proceedings were commenced. The court noted that the proceedings for the levy of penalty must be commenced before the completion of the main proceedings, i.e., assessment proceedings.

The court referred to the case of Shakti Offset Works, which supported the view that penalty proceedings should be initiated before the completion of assessment proceedings. However, it also noted that in Jain Bros. v. Union of India, this view was dissented from and approved by the Supreme Court. The court held that the direction given by the Income-tax Officer in the assessment order to issue a penalty notice amounted to the commencement of penalty proceedings. Therefore, the proceedings were commenced in the course of the assessment proceedings, complying with sections 274 and 275.

2. Justification of Penalty under Section 271(1)(c):

The second issue concerns whether the levy of penalty under section 271(1)(c) was justified. The assessee had surrendered amounts totaling Rs. 31,600 for inclusion in its income after failing to provide evidence for cash credits and investment in the karkhana account. The Tribunal upheld the penalty, and the court examined whether there was material to justify the penalty.

The court noted that the assessee admitted the amounts as its income and did not challenge their inclusion in its appeal against the assessment order. The court referenced the Supreme Court's decision in Commissioner of Income-tax v. Anwar Ali, which established that penalty proceedings are quasi-criminal, and the onus is on the department to prove the assessee's guilt. However, the court distinguished the present case, stating that it involved a deliberate attempt to conceal income through false entries and a supposed factory investment. The assessee's surrender of the amounts indicated an admission of concealment.

The court held that requiring the department to provide independent evidence in such circumstances would render the penalty provisions unworkable. The assessee's failure to provide further evidence or a bona fide explanation justified the penalty for concealment of income.

Conclusion:

Both questions were answered in favor of the revenue and against the assessee. The court concluded that the penalty proceedings were properly commenced during the assessment proceedings, and the levy of penalty under section 271(1)(c) was justified based on the assessee's admission and the deliberate attempt to conceal income. The Commissioner was awarded costs of Rs. 250 for the proceedings.