High Court limits penalty under Income-tax Act, 1961 to 1.5 times tax amount. Assessee awarded costs. The High Court of Orissa ruled in a case involving the imposition of a penalty under section 271(1)(c) of the Income-tax Act, 1961. The court held that ...
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High Court limits penalty under Income-tax Act, 1961 to 1.5 times tax amount. Assessee awarded costs.
The High Court of Orissa ruled in a case involving the imposition of a penalty under section 271(1)(c) of the Income-tax Act, 1961. The court held that the penalty rate of 150 per cent. of concealed income was not justifiable and should be capped at one and a half times the amount of tax that would have been avoided if the declared income was accepted as accurate. The court favored the assessee, awarding costs of the reference and a hearing fee. Judges N. K. Das and R. N. Mishra concurred with the decision.
Issues: 1. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961 at the rate of 150 per cent. of concealed income.
Detailed Analysis:
The judgment by the High Court of Orissa involved a case where the Appellate Tribunal referred a question to the court regarding the imposition of a penalty at the rate of 150 per cent. of the concealed income under section 271(1)(c) of the Income-tax Act, 1961. The penalty was imposed on the assessee by the Inspecting Assistant Commissioner for failing to explain cash credits in its books of account amounting to Rs. 20,500 for the assessment year 1965-66. The Tribunal acknowledged that a portion of the cash credit had been relieved in a quantum appeal, leading to a proportional scaling down of the penalty, but did not alter the rate of penalty set by the Inspecting Assistant Commissioner.
The court considered the contention of the assessee that while they may be liable for penalty under section 271(1)(c) of the Act, a penalty at the rate of 150 per cent. on the concealed income was not justifiable. The court highlighted that the law applicable for determining the penalty is the one in force at the time of assessment, which, in this case, was December 1967. The court referred to the case law to establish that the penalty cannot exceed the prescribed limits set by the law in force at the time of assessment.
The court noted that under the law prevailing before the amendment by the Finance Act of 1968, the penalty was capped at one and a half times the amount of tax that would have been avoided if the income as declared by the assessee was accepted as correct. However, post the amendment, the upper limit of penalty was fixed at twice the amount of the concealed income. The Inspecting Assistant Commissioner had imposed a penalty close to one and a half times the concealed income, which was within the permissible limit. Therefore, the court concluded that the assessee was liable for a penalty at one and a half times the amount of tax that would have been avoided if the declared income was accepted as accurate.
In the final verdict, the court ruled that the Tribunal was incorrect in imposing a penalty at the rate of 150 per cent. of the concealed income in the given circumstances. The judgment favored the assessee, awarding them costs of the reference along with a hearing fee. Both judges, N. K. Das and R. N. Mishra, concurred with the decision.
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