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TMI Blog1971 (9) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... registered firm and derives income from a printing press. Until the assessment year 1962-63 its income was being assessed by applying rates of profit to the sales disclosed and not on the basis of its account books. For the first time, in assessment proceedings for the assessment year 1962-63, the Income-tax Officer scrutinised the account books and discovered various omissions and mistakes in the totals and also found that the balance-sheet had been incorrectly prepared. The net increase in the excess of assets over liabilities came to Rs. 57,082 during the previous year. The assessee explained that part of its records for the relevant year had been washed away by floods and that the accounts were reconstructed from the material available to it. It admitted that the trial balance could not be reconciled. The Income-tax Officer added the amount of Rs. 57,082 to the total income disclosed by the assessee, and that addition was maintained by the Appellate Assistant Commissioner and thereafter by the Income-tax Appellate Tribunal. The Income-tax Officer, being of opinion that the assessee had concealed the particulars of its income and had furnished inaccurate particulars of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examination of the customer's ledger showed that the assessee had not accounted for the debit balance in the customer's accounts. The debit balances totalled Rs. 58,217. Deducting the opening debit balance amounting to Rs. 25,674 the balance of Rs. 32,543 represented the concealed income. In arriving at these figures the Inspecting Assistant Commissioner referred to the findings in the assessment case. Before the Inspecting Assistant Commissioner it was contended on behalf of the assessee that as the account books were defective it was possible that some of the undisclosed income related to earlier years. The plea was rejected for want of evidence. The Tribunal observed that the excess of assets over liabilities was apparent from the record, and in case the assessee claimed that the amounts received by it did not represent its income it should have disclosed those amounts in Part F of the return. The Tribunal held that the assessee had failed to disclose the excess of Rs. 57,082 in its income and, therefore, penalty was attracted. It is settled law that in the matter of imposing penalty the burden lies on the income-tax department to establish that the assessee has consciousl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of the entries, there is no justification for the the observation of the Tribunal that those amounts should have been disclosed in Part F of the return. There was no dispute that there was an increase in the excess of the assets over liabilities, but whether that was consciously and deliberately suppressed is another matter. The Tribunal appears to have accepted the case of the assessee that a part of its records were washed away by floods. Indeed, for that reason it reduced the quantum of penalty. If upon incomplete records the assessee had to reconstruct its accounts there must be something more than mere inaccuracies in the accounts to justify the finding that there was a conscious concealment of income or a deliberate furnishing of inaccurate particulars. It may be a case for enhancing the total income returned by the assessee, but we are not satisfied that there is any material on the record to prove that the assessee consciously concealed the particulars of its income or deliberately furnished inaccurate particulars. In this view of the matter, the penalty imposed cannot be sustained. On the other point, that is whether the procedure adopted in levying the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that section 271(1) is divided into two parts. The first part contains clauses (a), (b) and (c) specifying the cases in which a penalty is attracted. It is under this first part that the Income-tax Officer must be satisfied that the case attracts one or more of those clauses and that, therefore, the penalty proceeding should be initiated. That satisfaction is effected by the Income-tax Officer during the pendency of the relevant proceeding before him. The second part deals with the power to be finally exercised in such cases. The conferment of power is contained in that part. Before reaching the stage when the second part comes into play, the Income-tax Officer decides whether the case is one in which he has jurisdiction to exercise the power contained in that part or it is one over which the Inspecting Assistant Commissioner has jurisdiction. When section 274(2) declares that the Inspecting Assistant Commissioner shall, for the purpose of imposing a penalty, " have all the powers conferred under this Chapter for the imposition of penalty it refers to the powers contained in the second part of section 271(1). There is no doubt that before actually imposing any penalty in the exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is that the authority, prima facie, belongs to the Income-tax Officer. It is before him that the first foundations of penalty are laid. That foundation is his 'satisfaction' in the course of assessment proceedings that there has been concealment. He is, therefore, the fons et origo of this penalty proceeding. Unless he initiates or the Appellate Assistant Commissioner initiates, the Inspecting Assistant Commissioner cannot initiate. In the natural context that is what should be when one remembers that after all the assessment proceedings are being held by the Income-tax Officer or the Appellate Assistant Commissioner who are the persons likely at all to know whether there has been a concealment and not the Inspecting Assistant Commissioner who, not dealing with the regular assessment proceedings, would have little or no knowledge of concealment. It is significant to emphasise also that section 271 of the Income-tax Act does not breathe a word about the Inspecting Assistant Commissioner. " The learned judge also explained the expression " for the purpose of " in section 274(2) to mean " for the purpose of imposing the penalty and not for commencing the penalty proceedings but fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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