Penalty proceedings under the Income-tax Act upheld where earlier assessment was completed after commencement of the 1961 Act.

Section 297(2)(g) of the Income-tax Act, 1961 was upheld as constitutionally valid because the classification of penalty cases by the date of completion of assessment had a rational nexus with preventing tax evasion, so the article 14 challenge failed. Penalty proceedings for concealment in respect of an assessment completed under the Income-tax Act, 1922 were held to be maintainable under section 271 of the 1961 Act where the assessment was completed after 1 April 1962, with sections 271 and 297(2)(g) operating together to apply the new penalty machinery; the impugned penalty notice therefore could not be struck down.

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Issues: (i) Whether section 297(2)(g) of the Income-tax Act, 1961 was unconstitutional as violating article 14 of the Constitution of India; (ii) Whether penalty proceedings for concealment in respect of an assessment completed under the Income-tax Act, 1922 could be initiated and imposed under section 271 of the Income-tax Act, 1961.

Issue (i): Whether section 297(2)(g) of the Income-tax Act, 1961 was unconstitutional as violating article 14 of the Constitution of India.

Analysis: The saving clause in section 297(2)(g) classified penalty cases by the date of completion of assessment and linked the applicable penalty regime to that date. That classification was held to have a rational nexus with the object of preventing tax evasion. The decision of the Supreme Court was treated as conclusive on the constitutional challenge.

Conclusion: Section 297(2)(g) of the Income-tax Act, 1961 was upheld as valid and the challenge under article 14 failed, against the assessee.

Issue (ii): Whether penalty proceedings for concealment in respect of an assessment completed under the Income-tax Act, 1922 could be initiated and imposed under section 271 of the Income-tax Act, 1961.

Analysis: The Court read sections 271 and 297(2)(g) together and held that, where assessment for an earlier year was completed after 1 April 1962, penalty proceedings were to be initiated and completed under the 1961 Act. The satisfaction required for penalty could arise in proceedings governed by the new Act, and the provisions were to operate mutatis mutandis in cases falling within the saving clause.

Conclusion: Penalty proceedings under section 271 of the Income-tax Act, 1961 were applicable and maintainable in the present case, against the assessee.

Final Conclusion: The writ petition failed because the saving provision and the penalty machinery of the 1961 Act were held applicable to the case, and the impugned penalty notice could not be struck down.

Ratio Decidendi: For assessments of earlier years completed after the commencement of the Income-tax Act, 1961, penalty proceedings fall to be governed by section 271 read with section 297(2)(g), and the classification based on the date of assessment completion does not offend article 14.

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