Income-tax penalty powers upheld: anti-evasion penalties were valid, Article 14 challenge failed, and proceedings could continue after assessment.

Section 28 of the Income-tax Act, 1922 was treated as within the Central Legislature's competence because the power to tax income extends to anti-evasion measures and penalties for concealment or inaccurate particulars. The article 14 challenge also failed: penalty and prosecution were held to serve different objects, with penalty operating as a remedial measure to protect revenue and prosecution as punishment for offences. Penalty proceedings were further held to remain valid where initiated during pending assessment proceedings, even if concluded after assessment ended, since jurisdiction is preserved once valid notice is issued in time.

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Issues: (i) Whether section 28 of the Income-tax Act, 1922 was within the legislative competence of the Central Legislature. (ii) Whether section 28(1)(c), read with the scheme of penalty and prosecution, offended article 14 of the Constitution of India by conferring an arbitrary and unguided discretion. (iii) Whether penalty proceedings under section 28 could validly be completed after the assessment proceedings had ended, provided the proceedings were initiated while the assessment was pending.

Issue (i): Whether section 28 of the Income-tax Act, 1922 was within the legislative competence of the Central Legislature.

Analysis: The power to legislate on taxes on income was held wide enough to include measures to prevent evasion and to impose penalties for concealment or deliberate furnishing of inaccurate particulars. The provision was also treated as supported by ancillary power necessary to make the taxing entry effective. The legislative practice relating to income-tax, both in India and in the United Kingdom, was relied upon as showing that anti-evasion and penalty provisions are ordinarily part of income-tax law.

Conclusion: The challenge to the legislative competence of section 28 failed.

Issue (ii): Whether section 28(1)(c), read with the scheme of penalty and prosecution, offended article 14 of the Constitution of India by conferring an arbitrary and unguided discretion.

Analysis: Penalty under section 28 and prosecution under sections 51 to 53 were treated as serving different objects. The former was remedial and compensatory in character, intended to make evasion unprofitable and protect the revenue, while the latter was penal and directed to punishment for offences. The statutory provision barring prosecution on the same facts once a penalty had been imposed was treated as a concession to the assessee and not as a basis for invalidity. The prior approval requirement for the Income-tax Officer and the differing position of the appellate authorities were also held not to create unconstitutional inequality.

Conclusion: The article 14 challenge to section 28 failed.

Issue (iii): Whether penalty proceedings under section 28 could validly be completed after the assessment proceedings had ended, provided the proceedings were initiated while the assessment was pending.

Analysis: The quantum of penalty depended on the final assessment figures, so the penalty machinery had to be initiated during the course of assessment or other proceedings in which concealment came to light. Once valid notice had been issued while the authority was seised of the matter, the later completion of assessment did not destroy jurisdiction to continue and conclude the penalty proceedings. A contrary construction was considered impractical and would make the provision unworkable.

Conclusion: Penalty orders made after completion of assessment were valid because the proceedings had been initiated in time.

Final Conclusion: The writ petitions were rejected, and the penalty levies were upheld as lawful.

Ratio Decidendi: A penalty proceeding under section 28 of the Income-tax Act, 1922 is valid if initiated while the assessing authority is seised of the assessment proceedings, and it may be concluded thereafter; the provision is constitutionally competent and does not offend article 14 merely because it operates alongside prosecution provisions.

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