Penalty cannot be imposed on a ceased Hindu undivided family after recorded partition under income-tax law.

Penalty under the Income-tax Act could not be sustained against a Hindu undivided family after a partition had been recorded under section 25A(1), because that order was treated as declaratory of the family's cessation from the date of disruption. Penalty, being in the nature of additional tax, can be imposed only on a person in existence when proceedings are initiated and when the penalty order is passed. As the proceedings had been taken against the assessee in an individual capacity and the Hindu undivided family had already ceased to exist, there was no estoppel by conduct and earlier assessments could not validate penalty action against the non-existent entity.

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Issues: Whether penalty under section 28 could be sustained against a Hindu undivided family after an under section 25A(1) recording partition with retrospective factual effect up to the date of disruption.

Analysis: The order under section 25A(1) was treated as declaratory of the existence of the Hindu undivided family up to the date of partition and of its cessation thereafter. Penalty, though in the nature of additional tax, can be levied only on the same person who is in existence when the proceedings are initiated and when the penalty order is made. The assessee had been proceeded against in the status of an individual, while the family had already ceased to exist on the date of the penalty orders. There was therefore no estoppel by conduct, and the prior assessments as an individual could not authorize penalty proceedings against a non-existent Hindu undivided family.

Conclusion: The levy of penalty was invalid and could not be sustained.

Final Conclusion: The reference was answered against the Revenue and the assessee succeeded with costs.

Ratio Decidendi: Penalty under the Income-tax Act cannot be imposed on a Hindu undivided family unless that family exists both when the proceedings are initiated and when the penalty order is passed; an order recording partition under section 25A(1) prevents such penalty on the ceased entity.

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