Saving clause and penalty liability under the Income-tax Act cannot create a harsher penalty without fresh statutory conditions

Where a return for an assessment year was filed before the Income-tax Act, 1961 commenced, the saved assessment proceedings continued under the repealed Act, and the concealment satisfaction was reached in those proceedings. On that footing, the statutory precondition for initiating penalty under section 271(1) was not satisfied in proceedings under the new Act. Sections 297(2)(f) and 297(2)(g) were treated as saving and allocating the applicable penalty regime, not as creating a fresh liability or displacing the conditions attached to section 271(1). Penalty under section 271(1)(c) read with section 274(2) was therefore not sustainable.

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Issues: Whether, on the facts of an assessment year 1960-61 return filed before 1 April 1962 but assessed after commencement of the new Act, penalty could validly be imposed under section 271(1)(c) read with section 274(2) of the Income-tax Act, 1961 by invoking section 297(2)(g).

Analysis: The return had been filed before the commencement of the Income-tax Act, 1961, so the assessment proceedings were saved by section 297(2)(a) and continued as proceedings under the repealed Act. In such a case, the Income-tax Officer's satisfaction regarding concealment was reached in proceedings under the old Act, not in proceedings under the new Act, which meant that the statutory condition precedent for initiating penalty under section 271(1) was not fulfilled. Section 297(2)(f) and section 297(2)(g) were construed as saving and allocating the applicable penalty regime, not as creating a fresh substantive liability or dispensing with the conditions attached to section 271(1). The Court held that section 297(2)(g) could not be used to impose the more rigorous penalty under the new Act where the defaults arose in proceedings governed by the old Act and the requisite conditions of section 271(1) were absent.

Conclusion: Penalty under section 271(1)(c) read with section 274(2) was not sustainable; the answer to the reference was in the negative and the assessee succeeded.

Final Conclusion: The penalty order lacked jurisdiction because the statutory preconditions for invoking the new penalty provision were not satisfied in a proceeding saved under the repealed regime.

Ratio Decidendi: A saving clause preserving penalty proceedings does not authorise imposition of a new and harsher penalty unless the specific statutory conditions for that new provision are independently satisfied in the proceedings under that enactment.

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