Dissolved registered firm penalty liability under income-tax law upheld where concealment was found during assessment proceedings.

A dissolved registered firm remained liable to penalty under section 28(1)(c) of the Indian Income-tax Act, 1922 for defaults committed during assessment proceedings, because the penalty machinery applied to the firm as a "person" and dissolution did not extinguish that liability. The Income-tax Officer's jurisdiction to levy penalty arose once satisfaction about concealment or other statutory conditions was formed during the assessment proceedings; that satisfaction did not require a separate notice or a penalty proceeding before completion of assessment. The penalty proceedings were therefore valid, and the challenge to them failed.

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Issues: (i) Whether penalty under section 28(1)(c) of the Indian Income-tax Act, 1922 could be imposed on a registered firm after its dissolution; (ii) Whether the Income-tax Officer had recorded the requisite satisfaction in the course of the assessment proceedings for imposition of penalty.

Issue (i): Whether penalty under section 28(1)(c) of the Indian Income-tax Act, 1922 could be imposed on a registered firm after its dissolution.

Analysis: Section 44 applied to firms whose business had been discontinued and extended the assessment machinery to their partners or members. A firm fell within the meaning of "person" under the Act and the General Clauses Act, and the penalty provisions were not confined to cases where tax was payable by the assessee. The liability of a registered firm to penalty was not excluded by the scheme of section 23(5), and dissolution did not prevent continuation of penalty proceedings where the default occurred during the assessment process.

Conclusion: The penalty under section 28(1)(c) could validly be imposed on the registered firm notwithstanding its dissolution, and this issue was decided against the assessee.

Issue (ii): Whether the Income-tax Officer had recorded the requisite satisfaction in the course of the assessment proceedings for imposition of penalty.

Analysis: The power to impose penalty depended on the Income-tax Officer being satisfied during the assessment proceedings that the conditions in section 28(1)(c) existed. Such satisfaction need not be recorded by a separate notice or by initiation of penalty proceedings before completion of assessment. The assessment order and its endorsement indicated that action under section 28 had been taken for concealment of income, showing the necessary satisfaction within the assessment proceedings.

Conclusion: The requisite satisfaction existed in the course of the assessment proceedings, and this issue was decided against the assessee.

Final Conclusion: The orders of the High Court were set aside and the writ petitions challenging the penalty orders were dismissed, affirming the validity of the penalty proceedings against the firm.

Ratio Decidendi: A dissolved registered firm remains liable to penalty under section 28 of the Indian Income-tax Act, 1922 for defaults committed in assessment proceedings, and the jurisdiction to impose such penalty arises once the Income-tax Officer is satisfied during those proceedings that the statutory conditions for penalty exist.

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