1969 (4) TMI 25 - HC - Income Tax

Concealment of income - notice by the Income-tax Officer under section 271(1)(c) - penalty proceedings were later transferred to IAC, who also issued the notice - validity of notice - whether imposition of penalty is justified - jurisdiction of the respective officers

Issues Involved:
1. Legality and validity of the penalty order in view of the assessee's concession.
2. Jurisdiction and validity of notices issued under Section 271(1)(c) and Section 274(1).
3. Establishment of concealment of income and justification of penalty imposition.

Issue-wise Detailed Analysis:

1. Legality and Validity of the Penalty Order:
The court examined whether the assessee could challenge the legality and validity of the penalty order despite conceding that the penalty was attracted. The court held that the assessee could object to the legality and validity of the penalty order. It emphasized that even if there was an admission of concealment, the assessee could still argue that the Income-tax Officer failed to follow the mandatory legal procedures, thereby vitiating the penalty order. The court stated, "It is well-settled that the exercise of powers in these proceedings initiated for imposition of penalty has to be directly in conformity with law and the statutory provisions regarding the procedure."

2. Jurisdiction and Validity of Notices:

a. Validity of Notices Issued by the Income-tax Officer and Inspecting Assistant Commissioner:
The court analyzed the validity of the notices dated February 21, 1963, and December 1, 1964, issued by the Income-tax Officer and the Inspecting Assistant Commissioner, respectively. It referred to Sections 271(1)(c) and 274(1) of the Income-tax Act, 1961. The court noted that the Income-tax Officer must be satisfied that there has been concealment of income during the course of any proceedings under the Act. It held that the satisfaction must be reached during the proceedings, but the actual issuance of the notice could occur after the completion of those proceedings. The court concluded, "Thus, our answer to question No. 2(a) is that the notice dated February 21, 1963, by the Income-tax Officer and the notice dated December 1, 1964, issued by the Inspecting Assistant Commissioner are not beyond the jurisdiction of the respective officers or bad in law."

b. Procedure for Imposition of Penalty:
The court examined the procedural requirements for imposing a penalty, particularly the jurisdiction of the Income-tax Officer and the Inspecting Assistant Commissioner. It held that the Income-tax Officer must initially record a finding of concealment and issue a notice. If the penalty exceeds Rs. 1,000, the case must be referred to the Inspecting Assistant Commissioner, who then has all the powers conferred under Chapter XXI for imposing a penalty. The court emphasized that the Inspecting Assistant Commissioner did not need to follow all steps de novo but could proceed based on the referral by the Income-tax Officer.

3. Establishment of Concealment of Income and Justification of Penalty:
The court addressed whether the concealment of income was established and whether the imposition of the penalty was justified. It noted that the assessee had understated the closing stock and certain purchases were not accounted for in the books. The court found that the non-mention of transactions in the books led to the concealment of income. It emphasized that the concealment was established through deliberate non-mention of transactions, and the authorities were justified in concluding that there was concealment of income. The court observed, "The charge of concealment of income was found to have been established in this case because of a deliberate non-mention of certain transactions in the books." The court also noted that the assessee had conceded the concealment before the authorities, and there was no dispute regarding the concealment of income.

In conclusion, the court answered the substantial questions against the assessee and in favor of the department, affirming the validity of the notices and the imposition of the penalty. The assessee was held liable for the costs of the department, with a hearing fee fixed at Rs. 250.

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