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TMI Blog1970 (7) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... eas the penalty proceedings have to be referred to the Inspecting Assistant Commissioner of Income-tax according to sub-section (2) of section 274 of the Income-tax Act, 1961, you are hereby informed that the case for levy of a penalty under clause (c) of sub-section (1) of section 271 is being referred by me to the Inspecting Assistant Commissioner of Income-tax, Range XII (Cal.). Further proceedings in regard to the levy of a penalty will take place before the said Inspecting Assistant Commissioner of Income-tax as provided in sub-section (2) of section 274." On the 24th February, 1967, i.e., after nearly two years from the completion of the assessment proceedings, the Inspecting Assistant Commissioner addressed the following notice to the petitioner: "NOTICE UNDER SECTION 274(2) READ WITH SECTION 271 OF THE INCOME-TAX ACT, 1961. Office of the Inspecting Assistant Commissioner of Income-tax. Dated: 24-2-1967. To Sri Ram Chandra Sarda, 4, Dayahatta Street, Calcutta. Whereas the Income-tax Officer, 'B' Ward, District I(I), has, under sub-section (2) of section 274 of the Income-tax Act, 1961, referred your case to me in connection with the penalty proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the powers conferred under this Chapter for the imposition of penalty." With reference to the above provisions of the Act it is submitted that in penalty proceedings to which the provisions of section 271(1)(a) and section 271(1)(b) apply, i.e., where it is a case of failure to furnish the return without reasonable cause or non-compliance with notices mentioned in the above sub-sections without reasonable cause, the Income-tax Officer is the appropriate authority to initiate and complete the penalty proceedings. In a case, however, which is governed by section 271(1)(c), i.e., where the penalty is to be levied for concealment of income or deliberate furnishing of inaccurate particulars of income, the legislature has introduced a different scheme for the imposition of penalty. In such a case, if the minimum penalty imposable exceeds a sum of rupees one thousand, the Income-tax Officer has to refer the case to the Inspecting Assistant Commissioner, who is a higher officer in the hierarchy, by virtue of the provisions of section 274(2) of the Act. Upon such a reference being made to the Inspecting Assistant Commissioner by the Income-tax Officer, the Inspecting Assistant Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words, where a particular officer is the person designata vesta with the exclusive power to impose a penalty, viz., the Inspecting Assistant Commissioner in a case which is governed by section 274(2) of the Act, the ordinary rules of construction of statutory powers and functions would require that the officer who has to exercise that power must also perform the functions which are conditions precedent to the exercise of that power. Reference is made in this connection to a decision of the Supreme Court in the case of M/s. Daluram Pannalal Modi v. Assistant Commissioner of Sales Tax. In that decision, the Supreme Court quoted with approval a passage from the decision of the Judicial Committee of the Privy Council in the case of Mungoni v. Attorney-General of Northern Rhodesia. The Supreme Court also observed that the decision of the Judicial Committee in Mungoni's case had been cited with approval in an earlier decision of the Supreme Court in the case of Hazrat Syed Shah Mastarshid Ali Al Quadari v. Commissioner of Wakfs, West Bengal. Reference was next made to the decision of the Judicial Committee of the Privy Council in the case of Mungoni v. Attorney-General of Northern R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny proceedings' under the Act. In the context, therefore, the proceedings referred to in section 28(1) are proceedings other than penalty proceedings......." On a close reading of the judgment, however, it appears that the above observation was merely a recording of the contention of a party and not the decision of the Madras High Court. This will be clear if the entire paragraph in which those two sentences occur is reproduced. The appropriate paragraph at pages 612 and 613 of the report is quoted below: "The next point that has been raised for argument is as regards the proper construction of section 28 on the basis that the provision is valid. Under section 28(1)(a) the Income-tax Officer or the other authorities named have to be satisfied that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income before he or they may levy the penalty. This satisfaction must be in the course of any proceedings under this section. Under sub-section (3) the assessee should be heard or should be given a reasonable opportunity of being heard before a penalty is imposed. The points made in regard to these provisions are: The pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment proceedings was sufficient for a valid initiation of the penalty proceedings. The following observations of the Supreme Court, which are to be found at page 745 of the report, may be quoted: "The power to impose penalty under section 28 depends upon the satisfaction of the Income-tax Officer in the course of proceedings under the Act; it cannot be exercised if he is not satisfied about the existence of conditions specified in clauses (a), (b) or (c) before the proceedings are concluded. The proceeding to levy penalty has, however, not to be commenced by the Income-tax Officer before the completion of the assessment proceedings by the Income-tax Officer. Satisfaction before conclusion of the proceeding under the Act, and not the issue of a notice or initiation of any step for imposing penalty is a condition for the exercise of the jurisdiction." According to Dr. Pal this decision of the Supreme Court is an authority for the proposition that the satisfaction of the appropriate authority should be in the course of the assessment proceedings. Therefore, it is submitted, that such satisfaction cannot be arrived at in the course of the penalty proceedings. In my view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se which is referable to section 274(2) of the Act and which satisfaction is to be arrived at "in the course of the proceedings under this Act" must necessarily be of a tentative or prima facie nature. There can be no finality about the formation of such satisfaction. It is merely the satisfaction of the Inspecting Assistant Commissioner that the question whether the assessee may be held liable to a penalty or not under the Act requires investigation. Apart from this modicum of satisfaction the entire thing is wide open. It may be that, in the ultimate analysis, it will be found out that the case is not a fit one for the imposition of penalty. The final satisfaction on the question as to whether the penalty is to be imposed or not can only be arrived at after the proceedings have commenced and the assessee has been given a reasonable opportunity of being heard in the penalty proceedings according to the mandate of the statute. But, then, it is said on behalf of the revenue, that to put this interpretation on section 271 of the Act read with section 274(2) thereof would be to make the scheme of imposing penalty unworkable. It is submitted that the Income-tax Officer can come to hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary steps to alleviate the hardships or remove the difficulties. After a careful and anxious consideration of the relevant statutory provisions, however, I am of the view that the only possible interpretation is that which, in this case, favours the assessee's contention. In the instant case, the assessment was completed by the Income-tax Officer on the 31st March, 1965, as noted above. The notice issued by the income-tax Officer under section 274 read with section 271 of the Act, which has been set out earlier and is dated the 31st March, 1965, merely states that the "case for levy of a penalty" is being referred to by the Income-tax Officer to the Inspecting Assistant Commissioner. Thereafter, the notice under section 274(2) read with section 271 of the Act is issued by the Inspecting Assistant Commissioner on the 24th February, 1967, nearly two years after the completion of the assessment proceedings. There is nothing on record to show that, before the completion of the assessment proceedings, i.e., the 31st March, 1965, the Inspecting Assistant Commissioner had arrived at the modicum of satisfaction which, in my view, he was required to do under the mandate of the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Tribunal in a case at the instance of an assessee who is not the applicant for reference, P. B. Mukharji J. (as he then was), after a review of the authorities and the appropriate sections of the Income-tax Act, came to the following conclusion: "We hold that section 256 of the Income-tax Act, 1961, lays down the whole procedure how reference has to be made. That procedure, in our view, does not give the Appellate Tribunal any jurisdiction or power to admit cross-objections within the meaning of the Civil Procedure Code to raise a question of law not raised by an application in the prescribed form and not within the time prescribed and make a reference of the same to this court. We hold further that it is a course which can never be taken specially where it is beyond the express limitations stated in section 256 of the Income-tax Act. Our observations should not be understood as limiting any scope for argument on the question raised on the reference according to the procedure laid down in section 256 even though that argument is not raised by way of a question..... But that is not the same as saying that a wholly unrelated question can be allowed to be raised which was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew, the submissions of Dr. Pal for the assessee should be accepted. The second question that their Lordships of the Division Bench had to consider was the point of time when the proceedings commenced as will appear from the discussion of P. B. Mukharji J. (as he then was) in the judgment. That is not the question that I am concerned with here. The question of the "satisfaction in the course of proceedings under this Act" by the appropriate authority and the question as to who is the appropriate authority to arrive at the satisfaction in a case which is covered by section 274(2) of the Act do not appear to have been canvassed before or decided by their Lordships of the Division Bench. Therefore, in my view, the decision of the Division Bench in the case of Commissioner of Income-tax v. A. K. Das (Income-tax Reference No. 44 of 1967) is of no assistance to the revenue in the present case. That disposes of all the contentions raised on behalf of the parties. The contention of the petitioner, therefore, succeeds. With regard to the reliefs claimed, there is, in my view, no infirmity attached to the notice dated the 31st March, 1965, which has been issued by the Income-tax Office ..... X X X X Extracts X X X X X X X X Extracts X X X X
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