1973 (7) TMI 37 - HC - Income Tax

Validity of Penalty Proceedings for Reassessment: Key Court Interpretation on Tax Law

Deviprasad Kejriwal Versus Commissioner Of Income-Tax (Central), Bombay

The court held that the penalty proceedings initiated under section 18A(9)(a) read with section 28(3) after the first reassessment but before the second ... Advance Tax, Assessment Proceedings, Reassessment Proceedings, Regular Assessment, Taxing Statutes Issues Involved:1. Validity of penalty levied under section 18A(9)(a) read with section 28 for the assessment year 1948-49.2. Interpretation of the term 'regular assessment' in section 18A(9) of the Indian Income-tax Act, 1922.3. Applicability of reassessment proceedings under section 34(1) to the term 'regular assessment'.Issue-wise Detailed Analysis:1. Validity of Penalty Levied under Section 18A(9)(a) Read with Section 28 for the Assessment Year 1948-49:The primary question referred to the court was whether the penalty of Rs. 2,000 levied by the Income-tax Officer (ITO) on March 31, 1962, under section 18A(9)(a) read with section 28 for the assessment year 1948-49 was valid in law. The assessee, a Hindu undivided family, had initially submitted an estimate of income showing no tax payable due to a loss. However, subsequent reassessments revealed higher incomes, leading to the penalty for furnishing an untrue estimate. The Tribunal upheld the penalty, and the court was asked to opine on its validity.2. Interpretation of the Term 'Regular Assessment' in Section 18A(9) of the Indian Income-tax Act, 1922:The court had to determine whether the term 'regular assessment' in section 18A(9) included reassessment proceedings under section 34(1) or was limited to the initial assessment under section 23. The assessee argued that 'regular assessment' referred only to the first original assessment, citing decisions in Sarangpur Cotton Manufacturing Co. Ltd. v. Commissioner of Income-tax and M. RM. M. M. N. Natarajan Chettiar v. Income-tax Officer. However, the Tribunal held that 'regular assessment' signified the assessment determining the final liability, not just the initial assessment.3. Applicability of Reassessment Proceedings under Section 34(1) to the Term 'Regular Assessment':The court examined whether reassessment proceedings under section 34(1) could be considered 'regular assessment' under section 18A(9). It was noted that section 34(1) allows de novo assessment proceedings for income escaping assessment, with provisions of the Act applying as if the notice were issued under section 22(2). The court concluded that 'regular assessment' in section 18A(9) includes reassessment proceedings under section 34(1), as the reassessment process involves determining the final tax liability, similar to the initial assessment.Conclusion:The court held that the penalty proceedings initiated under section 18A(9)(a) read with section 28(3) after the first reassessment but before the second reassessment were valid in law. The term 'regular assessment' in section 18A(9) was interpreted to cover reassessment proceedings under section 34(1). The decisions in Sarangpur Cotton Manufacturing Co. Ltd. and Natarajan Chettiar were distinguished based on the different contexts in which 'regular assessment' was used. The question referred to the court was answered in the affirmative and against the assessee, who was ordered to pay the costs of the reference to the department.