Penalty for concealment survives later disclosure, but prior approval remained a mandatory condition before the order could stand.

Later disclosure of income and reassessment did not erase concealment in the original return, so penalty under section 271(1)(c) was not barred on that ground. An alleged procedural defect in the assessment for want of reference under section 144B also did not, by itself, invalidate the penalty proceedings where the additions had not been annulled. However, the penalty orders were unsustainable because they were made before the required prior approval of the Inspecting Assistant Commissioner had been communicated, meaning the statutory condition precedent was absent at the time of the order. The matter was remitted for fresh action after obtaining the necessary approval.

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Issues: (i) Whether disclosure of income in later proceedings and reassessment based on such material negatived concealment so as to bar penalty under section 271(1)(c); (ii) Whether alleged irregularity in the assessments for want of reference under section 144B invalidated the penalty orders; (iii) Whether the penalty orders were vitiated because they were passed before the previous approval of the Inspecting Assistant Commissioner had been communicated.

Issue (i): Whether disclosure of income in later proceedings and reassessment based on such material negatived concealment so as to bar penalty under section 271(1)(c).

Analysis: The original returns had not disclosed the income later brought to tax. The later disclosure petition and admissions did not erase the concealment already committed in the original returns. Reassessment proceedings can sustain penalty for concealment in the original assessment year, and a revised or belated disclosure does not by itself immunise the assessee from penalty where the earlier return was false or incomplete.

Conclusion: The contention was rejected; penalty was not barred on the ground of voluntary disclosure or reassessment.

Issue (ii): Whether alleged irregularity in the assessments for want of reference under section 144B invalidated the penalty orders.

Analysis: An unchallenged procedural defect in assessment does not render the assessment ab initio void. Such an irregularity, even if assumed, does not automatically vitiate penalty proceedings. Since the assessments stood and the additions had not been annulled, the penalty proceedings could proceed on their basis.

Conclusion: The contention was rejected; the penalty orders were not invalid on this ground.

Issue (iii): Whether the penalty orders were vitiated because they were passed before the previous approval of the Inspecting Assistant Commissioner had been communicated.

Analysis: The penalty orders were passed on a date when the required approval had not yet been received. The statutory condition of previous approval was therefore not satisfied when the orders were made. The proper course in such a situation is to treat the defect as arising at the relevant stage and to restore the proceedings so that the lacuna can be cured in accordance with law.

Conclusion: The penalty orders were set aside and the matter was remitted to the Income-tax Officer for fresh action after obtaining the required approval.

Final Conclusion: The substantive challenge to penalty failed on merits, but the orders could not stand because the mandatory prior approval had not been in place when they were made. The penalties were therefore sent back for fresh consideration in accordance with law, and the appeals were treated as allowed only for statistical purposes.

Ratio Decidendi: Penalty proceedings under the Income-tax Act cannot be sustained where a statutory condition precedent, such as previous approval of the competent authority, was absent at the time of the order; however, a later voluntary disclosure does not wipe out concealment committed in the original return, and an unchallenged procedural defect in assessment does not by itself invalidate penalty proceedings.

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