Penalty on a dissolved firm was invalid because section 44 does not extend penalty liability beyond existence.

Penalty under section 28(1)(c) of the Income-tax Act could not be levied on a firm after its dissolution, because the liability attached only to the person alleged to have concealed income and a non-existent entity could not be penalised. Section 44, which governs assessment and tax recovery in the case of a discontinued firm, did not extend to penalty proceedings and did not create vicarious liability for the erstwhile partners. The Court therefore held that the penalty orders against the dissolved firm were without jurisdiction and quashed the orders, including the revisional orders affirming them.

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Issues: Whether penalty under section 28(1)(c) of the Income-tax Act could be levied on a registered firm after its dissolution by invoking section 44 of the Act.

Analysis: The liability to penalty under section 28(1)(c) attached to the assessee that had concealed income in the relevant assessment years. The firm ceased to exist on dissolution, and a penalty could not be imposed on a person that was not in existence on the date of the penalty order. Section 44 dealt with assessment and tax payable in the case of a discontinued firm, but its language did not extend to penalty proceedings. Penalty proceedings were distinct from assessment proceedings, and the statutory distinction between tax and penalty was preserved throughout the Act. Section 44 therefore did not create any vicarious liability for penalty against the erstwhile partners of the dissolved firm.

Conclusion: Section 44 did not authorise levy of penalty under section 28(1)(c) on the dissolved firm, and the penalty orders were without jurisdiction.

Final Conclusion: The writ petitions succeeded, and the penalty orders against the firm and the revisional orders upholding them were quashed.

Ratio Decidendi: Penalty under section 28(1)(c) can be imposed only on a person in existence when the order is made, and section 44 of the Income-tax Act does not extend the liability of a dissolved firm or its partners to such penalty.

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