TMI Blog1968 (8) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... dividual and the relevant assessment years are 1959-60, 1960-61, 1961-62 and 1962-63. So far as the assessment years 1959-60 and 1960-61 were concerned, the assessee was initially assessed under section 23 of the Income-tax Act, 1922. However, the Income-tax Officer subsequently found that the income from the business, which was carried on in the name of M/s. Kohinoor Grain Mills Sales Depot, was not included in the returns filed by the assessee ; nor had the assessee shown any connection or interest with the said business so far as the assessment year 1959-60 was concerned. For the remaining three years, 1960-61, 1961-62 and 1962-63, the assessee had only disclosed 20% as his share of the profit of the said Messrs. Kohinoor Grain Mills Sales Depot (hereinafter referred to as the alleged firm). The Income-tax Officer was of the opinion that the alleged firm was not a genuine partnership but was the sole proprietary concern of the assessee and the whole of the income from the alleged firm belonged to the assessee. Therefore, the Income-tax Officer reopened the assessment for the years 1959-60 and 1960-61 and so far as the assessment year 1961-62 was concerned, he assessed the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1962-63. Against the order refusing registration, there was an appeal and the Appellate Assistant Commissioner confirmed the refusal. There was a second appeal for each of these three years to the Tribunal and by a common judgment delivered by the Tribunal on June 14,1965, all the three appeals were dismissed and the Tribunal confirmed the orders of the income-tax authorities refusing registration to the firm for all the three assessment years for which registration had been sought. The order passed by the Tribunal while disposing of those three appeals is part of the record of this reference and, while disposing of the four appeals regarding the levy of the penalty, the Tribunal quoted from its order, dated June 14, 1965, regarding registration of the firm. In the group of three appeals, while disposing of the three applications for registration of the firm, the Tribunal held that not only was there no firm in existence as alleged by the partnership deed but that the business belonged to Shri D. M. Manasvi (the assessee before us). The Tribunal in that order of June 14, 1965, appreciated the evidence on the record of the Income-tax Officer in registration proceedings and came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning words of that section were : "If the Income-tax Officer, the Appellate Assistant Commissioner, or the Appellate Tribunal, in the course of any proceedings under this Act, is satisfied that any person-... (c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he or it may direct that such person shall pay by way of penalty..." No period of limitation for starting the penalty proceedings was laid down in the Act of 1922. Section 271 of the Act of 1961 provides that, if the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under the Act is satisfied that any person has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, the penalty proceedings can be started. Section 275 is material for the purposes of this judgment and is in these terms : "No order imposing a penalty under this Chapter shall be passed after the expiration of two years from the date of the completion of the proceedings in the course of which the proceedings for the imposition of penalty have been commenced." The Explanation to section 275 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssues notice to the assessee to show cause why a penalty should not be levied under section 28(1) and (3). But the assessee is not heard and no final conclusion is reached at that stage. The assessment is completed and a demand is made for the tax, of course including that on the concealed income which is added to the income returned. The assessee may take the matter on appeal and it is possible that the income as assessed may undergo variations during this process. Until the final assessment figures are known, it is in the nature of things not possible for the Income-tax Officer to determine the exact amount of penalty which might be levied on the assessee. He, therefore, waits until the appeals as regards the assessment are all over. After obtaining these assessment figures as finally determined, the Income-tax Officer pursues the notice already issued. In cases where the addition of the income discovered by the Income-tax Officer is sustained by the appellate authorities, the Income-tax Officer resumes the penalty proceedings, hears the assessee and being then in possession of figures to enable him to properly assess the penalty leviable, passes an order in proper cases under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hronise it with the assessment order." Thus, the Lahore High Court's decision mainly turned upon the question whether the penalty order was to be contemporaneous with or simultaneous with the assessment order itself ; and the High Court proceeded upon the footing that the proceedings were required to be initiated on the satisfaction of the officer concerned under section 28(1) during the pendency of the main proceedings. In Anant Ram Kanhaiyalal v. Commissioner of Income-tax, the Allahabad High Court pointed out that section 28(3) of the Income-tax Act, 1922, nowhere requires the issue of a notice to show cause against the imposition of a penalty. Such a notice not being prescribed under any provision of law, no question can arise regarding the validity of such a notice or the fresh issue of such a notice. The only basis on which a penalty imposed can be challenged under section 28(3) of that Act is that the assessee was neither heard nor given a reasonable opportunity of being heard. At page 80 of the report, Bhargava J., delivering the judgment of the Division Bench, has pointed out : "The practice of the income-tax department no doubt is that a printed notice is issued ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court referred to its earlier decision in Sivagaminatha's case and held that "to initiate" means "to originate" or "take the first step". In that case it was held that the direction given by the Appellate Tribunal while disposing of the appeal under section 33(4) of the Act of 1922 to issue notice under section 28 contained in the notes on the record was initiation of penalty proceedings and, therefore, the terms of section 28(1) were satisfied and the order of the Tribunal was within its jurisdiction. In that case, the Appellate Tribunal, in the proceedings in appeal before it, discovered that the assessee-company had concealed its income and furnished inaccurate particulars thereof in its return and the Tribunal had recorded a note to that effect in the order while disposing of the appeal. This note was recorded on October 7, 1955, and on the same date directions for the issue of the notice under section 28, as evidenced by the notes on record, were given. The order disposing of the appeal was served only on October 13 and in the meanwhile the notice under section 28 was issued and served on October 10, 1955 ; and it was held that the direction to the office to issue a notice on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the completion of the main proceedings, i.e., the proceedings in the course of which the satisfaction of the officer concerned was reached. Since this is the view which is more favourable to the assessee, and since some support for the view in favour of the assessee can be derived from the language of section 275, though there is no direct provision to that effect, we will proceed, in view of the fact that this is a penal provision, by adopting the view which is favourable to the assessee. The question then arises as to whether, in the instant case, the penalty proceedings were commenced by the Income-tax Officer concerned during the pendency of the main proceedings. In each of the assessment orders for the four assessment years 1959-60, 1961-61, 1961-62 and 1962-63, the Income-tax Officer concerned has mentioned as follows : "Issue notice under section 275 for the proposed penal action under section 271(1)(c) in respect of concealment or furnishing inaccurate particulars of income from M/s. Kohinoor Grain Mills Sales Depot." And necessarily the amount which was held to have been concealed for each of the four years was different but the directions for issuing a notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1962. The Income-tax Officer did not accept the figure of total income and passed the assessment order in November, 1962, under the Act of 1922. He, therefore, initiated the proceedings for the imposition of penalty under section 271(1)(c) of the Act of 1961, and passed an order imposing penalty under section 271(1)(c) read with section 297(2) of the Act of 1961 ; and it was held by this court that by reason of section 297(2)(a), the proceedings for assessment were proceedings under the Act of 1922 and it was in the course of that proceeding that the Income-tax Officer was satisfied that the assessee had concealed particulars of his income. The condition precedent for the exercise of power under section 271(1) was not satisfied and so the order of penalty was not valid. In the instant case also as the return was filed by the assessee for the assessment year 1961-62 before April 1, 1962, the assessment proceedings were in respect of an assessment year prior to April 1, 1962 ; and as shown by the order, which is on the record of this reference, the assessee was assessed for the year 1961-62 under section 23(3) of the Act of 1922. Under these circumstances, it is clear that the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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