COMMISSIONER OF INCOME TAX Vs. MADANLAL SOHANLAL

JUDGEMENT

(1.) At the instance of the Commissioner of Income-tax, West Bengal-VI, the following question of law has been referred to this court under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1965-66 :

(2.) The facts leading to this reference are that the assessee is a registered firm and the reference relates to the assessment year 1955-56. The assessment in this case was originally made in March, 1960, bringing to tax Rs. 12,26,206 on account of deemed dividend under the provisions of Section 12(1B) read with Section 2(6A)(e) of the Indian Income-tax Act, 1922. In the course of the reopened assessment proceedings, action for penalty under Section 271(1)(c) was also initiated and the Inspecting Assistant Commissioner of Income-tax imposed a penalty of Rs. 2,56,000 under Section 271(1)(c).

(3.) The assessee, being aggrieved by this order of the Inspecting Assistant Commissioner, came up in appeal before the Appellate Tribunal. The Appellate Tribunal held that since in the appeal against the assessment reopened under Section 147, the addition of Rs. 12,26,206 on account of deemed dividend had been deleted, the very basis of penalty under Section 271(1)(c) ceased to exist. The penalty under Section 271(1)(c) imposed by the Inspecting Assistant Commissioner was, therefore, cancelled and the appeal was allowed.