1990 PLP 375 (PTD)

Income‑tax‑‑ ‑‑‑Penalty‑‑‑Concealment of income‑‑‑There can be protective assessment but there cannot be protective penalty‑‑‑Only person on whom substantive assessment is made liable for penalty‑‑‑Dispute as to whether income allegedly concealed assessable in hands of X or Y‑‑‑Unless same determined by I.T.O., charge of concealment cannot be made against person in whose hands income is added on protective basis. There can be a protective assessment but there cannot be any protective penalty. Before any penalty can be levied, the income has to be assessed as concealed income in the assessment of an assessee. Thereafter, in penalty proceedings, the competent authority has to probe into and decide whether there has been any concealment of income. But, where there is a dispute as to whether such income allegedly concealed would be assessed in the hands of X or Y, unless the determination is made by the Income‑tax Officer, no charge of concealment can be made against the person in whose hands the income is added on protective basis. He is liable only if it is his income which has been concealed. In other words, a person upon whom a substantive assessment is made would only be liable for penalty provided the conditions precedent for the imposition of the penalty are satisfied. R.C. Prasad for the Commissioner. JUDGMENT AJIT K. SENGUPTA, J.

‑‑This reference relates to the assessment year 1964

65. It arises in consequence of the order of the Inspecting Assistant Commissioner of Income‑tax imposing a penalty of Rs. 1,80,000 under section 271(1)(c) of the Income‑tax Act, 1961. The assessment had been made in the status of an unregistered firm. The Income‑tax Officer stated, while making the assessment, that as in the previous years, the application for registration by the assessee was rejected and the assessment was completed as a protective measure. It was stated before the Tribunal that for the last several years, the income had been assessed actually in the hands of Shri Mahabir Prasad Modi and that in the assessee's case only protective assessments were made. In the present assessment, the Income‑tax Officer included certain cash credits aggregating to Rs. 1,58,000 treating the same as the assessee's own income from undisclosed sources and this addition was primarily the subject‑matter of the levy of the impugned penalty. Before the Tribunal, the assessee raised contention that the assessment giving rise to the impugned penalty proceedings being a protective one, the Inspecting Assistant Commissioner had no authority and/or jurisdiction to initiate penalty proceedings and/or hold that there are no extenuating circumstances. This very issue came up before the Tribunal in the assessee's case for the assessment years 1963‑64, 1966‑67 and 1967‑

68. On going through the orders of the Tribunal for these years, the Tribunal found that the penalty proceedings under section 271(1)(c) could not be validly initiated. Accordingly, the Tribunal held that the penalty proceedings for the year under reference had not been validly initiated. On these facts, the following question of law has been referred to this Court under section 256(2) of the Income‑tax Act, 1961: "Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that the penalty proceedings under section 271(1)(c) of the Income‑tax Act, 1961, had not been validly initiated and in that view cancelling the order of penalty made under the said section?" It appears that in this case the assessment was made on protective basis and for the last several years, the income had actually been assessed in the hands of one Mahabir Prasad Modi and not in the hands of the assessee. There can be a protective assessment but there cannot be any protective penalty. Before any penalty can be levied, the income has to be assessed as concealed income in the assessment of an assessee. Thereafter, in penalty proceedings, the competent authority has to probe into and decide whether there has been any concealment of income. But where there is a dispute as to whether such income allegedly concealed would be assessed in the hands of X or Y, unless the determination is made by the Income‑tax officer, no charge of concealment can be made against the person in whose hands the income is added on protective basis. He is liable only if it is his income which has been concealed. In other words, only person upon whom a substantive assessment is made would be liable for penalty provided the conditions precedent for imposition of the penalty are satisfied. It has been stated by counsel for the Revenue that the Department did not dispute the assessments made in the hands of the said Mahabir Prasad Modi. In either ' view of the matter, no penalty can be levied in this case. For the reasons aforesaid; the question in this reference is answered in the negative and in favour of the assessee. There will be no order as to costs. J.N. HORE, J.‑‑I agree. Z.S./753/T Order accordingly.