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TMI Blog1971 (12) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... n of penalty of Rs. 12,000 under section 271(1)(c) of the Income-tax Act, 1961. The penalty was levied on the ground that the cash credits appearing in certain accounts in the books of account maintained by the assessee were actually secreted profits of the assessee. The Inspecting Assistant Commissioner accordingly imposed a penalty of Rs. 12,000 under section 271(1)(c) of the new Act on the assessee. On the appeal against the penalty, the Income-tax Appellate Tribunal set aside the order of penalty on the ground that the proceedings for the imposition of penalty had not been validly initiated. The relevant facts are that the assessment for the year 1958-59 was completed on March 30, 1963. The Income-tax Officer wrote in that order " Issue penalty notice for concealment of income as discussed above. Copy of the assessment order is annexed hereto as other documents ". On 1st June, 1963, the Income-tax Officer referred the case for imposition of penalty to the Inspecting Assistant Commissioner. He did so in pursuance of the provisions of section 274(2) of the new Act under which if the minimum penalty imposable exceeded the sum of Rs. 1,000, the case had to be referred to the Insp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax. Question No. 2 in that case related to the commencement of proceedings for the levy of penalty under section 271(1)(c) of the new Act. On the footing of a decision of the Gujarat High Court in D. M. Manasvi v. Commissioner of Income-tax 2 it was said that the combined effect of section 275 read with section 271(1) was that the proceedings for the levy of penalty must commence before completion of the main proceedings which in the instant case meant assessment proceedings. In the judgment which was written by one of us (Hardy J.), it was observed : "The stand taken by the revenue is that they were in fact so commenced when the Income-tax Officer gave a direction in the assessment order itself that a penalty notice should be issued to the assessee for concealment of particulars of its income. The short question, therefore, is whether such a direction amounts to commencement of penalty proceedings and those proceedings have, therefore, been commenced in the course of assessment proceedings. The case which seems nearest to the case before us is a decision of the Madras High Court in Artisan Press Ltd. v. Income-tax Appellate Tribunal. The decision was no doubt under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the said section did not prescribe any requirement regarding the commencement of the proceedings for the imposition of penalty. The question as to when the penalty proceedings may be said to have commenced and whether the order dated June 10, 1962, in the order sheet could be said to have set in motion the penalty proceedings was, therefore, left undecided. The case is, therefore, of no assistance to the argument of the learned counsel. Learned counsel then referred to a decision of the Calcutta High Court in Commissioner of Income-tax v. A. K. Das. In the order of assessment which was recorded by the Income-tax Officer on August 31, 1964, it was stated that the proceedings under section 271(1)(c) for the imposition of penalty had already been started. A notice under section 271 read with section 274 was issued by the Income-tax Officer to the assessee on August 29, 1964, and on the same day the cases were transferred to the Inspecting Assistant Commissioner as the penalty leviable was more than Rs. 1,000. The Inspecting Assistant Commissioner issued notice to the assessee under section 274(1) on March 11, 1965. The Inspecting Assistant Commissioner held that penal procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the revenue. The last case to which our attention was invited by the counsel for the revenue is a decision of the Bombay High Court (Nagpur Bench) in Padgilwar Brothers v. Commissioner of Income-tax. In his order of assessment dated February 21, 1963, the Income-tax Officer held that the assessee had concealed income and had exposed himself to penal action indicated by section 271(1)(c) of the new Act and that a notice under section 274(1) for concealment of income was being issued separately. On the same day the Income-tax Officer issued a notice to the assessee under section 274(1) read with section 271(1)(c) to show cause why penalty should not be imposed. On November 13, 1964, the Income-tax Officer referred the matter to the Inspecting Assistant Commissioner because the minimum penalty that was leviable was in excess of Rs. 1,000. The Inspecting Assistant Commissioner issued notice to the assessee on December 1, 1964, under section 274(1) and on February 1, 1965, an order imposing a penalty was passed. On a reference to the High Court, after the Tribunal had merely directed the reduction of the amount of penalty, it was contended for the assessee, inter alia, that once ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant Commissioner. That would, however, not make any difference. Once the Income-tax Officer had given a finding that there was a case of concealment of income and he was also of the opinion that the penalty which the assessee was liable to pay exceeded Rs. 1,000, he had to send the case to the Inspecting Assistant Commissioner and it is the latter who had to issue a fresh notice to the assessee to show cause why penalty should not be imposed on him. As in the Bombay case the proceedings for assessment has already been completed but the Inspecting Assistant Commissioner did not lack the power to issue a notice, for the penalty proceedings actually arose out of the assessment order. Counsel for the assessee referred us to a decision of a single judge of the Calcutta High Court in Ram Chandra Sarda v. Income-tax Officer, where a contrary view appears to have been taken. According to the learned judge, the satisfaction which is a condition precedent for the exercise of power under section 271 of the new Act must be arrived at aliunde before the penalty proceedings are commenced. In a case where the penalty imposable exceeds Rs. 1,000, the Income-tax Officer has to defer the passing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to whether the assessee had concealed particulars of his income or has furnished inaccurate particulars of his income. There can be therefore no real satisfaction of the Income-tax Officer that the case attracts penalty. If the Income-tax Officer has to hold the proceedings in abeyance as the learned judge would desire him to do and not pass the order of assessment until the case has been referred to the Inspecting Assistant Commissioner under section 274(2) of the Act, the Income-tax Officer cannot record a finding. On the other hand, he would leave the whole question to the Inspecting Assistant Commissioner and it will be the satisfaction of the Inspecting Assistant Commissioner that will have to be arrived at. This may apply not only to a case where the penalty imposable exceeds Rs. 1,000, but also to a case where the penalty amount may be below that figure. In any event, the assessment proceedings will have to be held in abeyance. This does not seem to us to be a correct approach to the problem. In the case of penalty proceedings where the penalty imposable is less than Rs. 1,000, the case has not to be referred to the Inspecting Assistant Commissioner, but in the other case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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