1973 (1) TMI 14 - HC - Income Tax

In this application under article 226 of the Constitution of India the petitioner, challenges a notice, issued by the Income-tax Officer under section 274 read with section 271 of the Income-tax Act, 1961 - Whether show cause notice for penalty for concealment can be issued after the hearing is completed but before passing the assessment order

Summary

Issues Involved:
1. Validity of the notice issued under section 274 read with section 271 of the Income-tax Act, 1961.
2. Satisfaction of the Income-tax Officer regarding the penalty exceeding Rs. 1,000.
3. Compliance with the procedural requirements under sections 271 and 274 of the Income-tax Act.

Detailed Analysis:

1. Validity of the notice issued under section 274 read with section 271 of the Income-tax Act, 1961:
The petitioner challenged the notice dated 27th March 1967, issued by the Income-tax Officer (ITO) under section 274 read with section 271 of the Income-tax Act, 1961. The primary contention was that the notice was issued two days before the assessment order was made on 29th March 1967. According to the petitioner, the ITO could not have been satisfied that the penalty would exceed Rs. 1,000 before finalizing the assessment order.

2. Satisfaction of the Income-tax Officer regarding the penalty exceeding Rs. 1,000:
The petitioner argued that the ITO must be satisfied that the penalty imposable exceeds Rs. 1,000 before referring the case to the Inspecting Assistant Commissioner under section 274(2). The petitioner contended that such satisfaction could only be arrived at after the assessment order was finalized. The ITO's affidavit, however, indicated that during the assessment proceedings, it became clear that the assessee had concealed material particulars of its income, and the penalty would likely exceed Rs. 1,000. The ITO had formed this belief after detailed examination of the books of account and various discrepancies noted during the hearings.

3. Compliance with the procedural requirements under sections 271 and 274 of the Income-tax Act:
The petitioner argued that the expression "it appears to me" used in the impugned notice was not equivalent to "I am satisfied," as required by section 271 read with section 274. The court, however, found that the ITO had ample materials before him to form a prima facie satisfaction regarding the concealment of income and the penalty exceeding Rs. 1,000. The court emphasized that the satisfaction of the ITO need not be recorded in writing before issuing the notice and that the entire conspectus of facts should be considered to determine if the ITO had formed the necessary belief.

Conclusion:
The court concluded that the ITO was justified in issuing the impugned notice on 27th March 1967, as he had formed a tentative belief that the penalty would exceed Rs. 1,000 based on the evidence and discrepancies found during the assessment proceedings. The conditions precedent for the exercise of jurisdiction under section 274(2) were fulfilled. The application was dismissed, and the rule was discharged with no order as to costs.