Penalty on the wrong assessee is unsustainable even where cash-credit facts otherwise attract income-tax penalty.

Penalty under the income-tax law is stated to be unsustainable where proceedings are continued against a person who is no longer the assessee in law. Although the explanation for cash credits and fixed deposits was found unacceptable and the factual ingredients of section 28(1)(c) were said to be attracted, the defect in continuing the penalty in the name of the individual after the assessment status had been corrected to a Hindu undivided family was treated as fatal. The note emphasises that penalty proceedings must be maintained against the correct assessee, and that levy on the wrong person cannot be sustained even where the underlying facts otherwise justify penalty.

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Issues: Whether the levy of penalty under section 28(1)(c) was justified when the assessee's status had been corrected to Hindu undivided family but the penalty proceedings continued in the name of the individual.

Analysis: The explanation offered for the cash credits and fixed deposits was found unacceptable, and the case fell within the mischief of section 28(1)(c) on the facts. However, the penalty proceedings were pursued against a person who was not the assessee in law after the assessment status had been corrected. That defect went to the legality of the penalty itself and was within the width of the question referred, because the challenge to the justification of the penalty covered both the factual ingredients and the correctness of levying penalty on the wrong person.

Conclusion: The levy of penalty was not sustainable and was answered in favour of the assessee.

Ratio Decidendi: A penalty imposed under the income-tax law cannot be sustained where the proceedings are continued against a person other than the assessee in law, even if the factual basis for penalty otherwise exists.

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