High Court Invalidates Penalty Order for Lack of Jurisdiction

Commissioner of Income-Tax, Uttar Pradesh Versus Shadiram Balmukand.

Commissioner of Income-Tax, Uttar Pradesh Versus Shadiram Balmukand. - [1972] 84 ITR 183 Issues:
Jurisdiction of Income-tax Officer to impose penalty under section 28(1)(c) based on income discovered during appellate proceedings.

Analysis:
The case involved a question regarding the validity of the cancellation of a penalty imposed under section 28(1)(c) of the Indian Income-tax Act, 1922. The Income-tax Officer discovered cash credits in the assessee's account books during the assessment proceedings for the year 1954-55. The assessee explained a portion of the cash credits but surrendered the remaining balance for taxation in a revised return. Subsequently, the Appellate Assistant Commissioner detected further cash credits during the appellate proceedings and included them as income from undisclosed sources. The Income-tax Officer then imposed a penalty of Rs. 10,000 under section 28(1)(c), taking into account both the concealed income found by him and the additional income discovered during the appellate proceedings.

The primary issue was whether the Income-tax Officer had the jurisdiction to impose a penalty based on the income discovered during the appellate proceedings. The Tribunal held that the Income-tax Officer lacked the authority to penalize the additional income found during the appellate proceedings. The Tribunal emphasized that the satisfaction required for imposing a penalty must be in the course of proceedings under the Act before the respective authority. In this case, since the additional income was discovered during the appellate proceedings by the Appellate Assistant Commissioner, it fell under his jurisdiction to impose any penalty if deemed necessary.

Furthermore, the Tribunal noted that the penalty order was indivisible and not severable. The Income-tax Officer's order was based on various concealed income items, making the penalty amount a single sum. As such, it could not be apportioned to specific concealed income items falling under different jurisdictions. Therefore, the Tribunal concluded that the penalty order was legally flawed.

In conclusion, the High Court affirmed the Tribunal's decision, stating that the Income-tax Officer did not have the jurisdiction to impose a penalty based on income discovered during the appellate proceedings. The Court held that the penalty order was invalid in law. Additionally, the Court agreed with the Tribunal that the penalty amount was indivisible and not severable. The Court answered the question in favor of the assessee and dismissed the application under section 66(4) of the Act, with no order as to costs.