1969 (12) TMI 32 - HC - Income Tax

Assessment was made under IT Act, 1922 - whether penalty proceedings can be completed under Income-tax Act, 1961 - proceedings for penalty had been initiated under the provisions of section 297(2)(g) of the 1961 Act, such proceedings cannot be challenged on the ground that section 271 of the 1961 Act was not applicable

Summary

Issues:
Validity of notice for imposing penalty under sections 271 and 2764 of the Income-tax Act, 1961. Interpretation of provisions under section 297(2)(g) of the Income-tax Act, 1961. Applicability of penalty provisions under section 271 of the Income-tax Act, 1961 to cases assessed under the repealed Act of 1922.

Analysis:
The petitioner challenged the validity of a penalty notice issued by the Income-tax Officer under sections 271 and 2764 of the Income-tax Act, 1961, for the assessment year 1960-61. The key contention raised was regarding the application of section 297(2)(g) of the Income-tax Act, 1961, which deals with the continuation of penalty proceedings for assessments completed before the Act came into force. Various High Courts had conflicting decisions on this issue, with some holding the provision ultra vires and others upholding its validity.

The Supreme Court, in a recent judgment, clarified the applicability of penalty provisions under section 271 of the 1961 Act to cases assessed under the repealed Act of 1922. The Court emphasized that penalty proceedings could be initiated under the new Act even if the assessment was completed under the old Act. The Court rejected arguments against the validity of section 297(2)(g) and upheld that penalty proceedings must be in accordance with the provisions of section 271 of the 1961 Act for cases falling under the transitional provisions.

The Supreme Court's decision in the case of Jain Brothers v. Union of India set a precedent by affirming that penalty provisions under section 271 of the 1961 Act apply to cases assessed under the old Act. The Court clarified that the crucial date for penalty imposition is the completion of assessment, not the assessment year or return filing date. The judgment emphasized the legislative discretion in tax matters and upheld the classification based on preventing tax evasion.

The Court dismissed attempts to distinguish the Supreme Court's decision and held that penalty proceedings initiated under section 297(2)(g) of the 1961 Act cannot be challenged on the grounds of inapplicability of section 271 of the 1961 Act. The judgment concluded that the rule must be discharged, interim orders vacated, and no order as to costs. Additionally, the Court declined to intervene in the restoration of an appeal withdrawn from the Tribunal against the penalty order.