TMI Blog1970 (2) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, proceedings for the imposition of penalty have been commenced validly and within the time limit, if any, prescribed by the Income-tax Act, 1961? " The facts are as follows: The assessee is a firm dealing in gunnies, twines, etc. For the assessment year 1961-62, the firm returned a total income of Rs. 99,672. The Income-tax Officer, however, held that the total income of the assessee was Rs. 1,57.434. He found that the firm had camouflaged certain of its transactions as those of a different firm and another individual. The assessment was completed on June 5, 1962, and in the order of assessment the Income-tax Officer observed : " " Since the firm has deliberately diverted its profits by creating a bogus firm and carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings as required by section 275 of the Income-tax Act, 1961, and therefore, the penalty proceedings were void. The Inspecting Assistant Commissioner rejected the contentions of the assessee and imposed a penalty of Rs. 60,000. The Income-tax Appellate Tribunal confirmed the order of the Inspecting Assistant Commissioner imposing the penalty. Thereafter, at the instance of the assessee, the Income-tax Appellate Tribunal stated a case and referred the question mentioned above for our decision. The first submission of the learned counsel for the assessee was that the notice dated June 5, 1962, was issued under section 28(3) of the Income-tax Act of 1922, and not under the provisions of the Act of 1961 and was, therefore, inval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh. In that case also their Lordships of the Supreme Court observed that it was well settled that a wrong reference to the power under which action was taken by the Government would not Per se vitiate that action if it could be justified under some other power under which the Government could lawfully do that act. In the light of the pronouncements of the Supreme Court we agree with the learned counsel for the department that the notice dated June 5, 1962, is not invalid merely because it refers to the provisions of the Income-tax Act of 1922 instead of to the provisions of the Act of 1961. The next submission of the learned counsel for the assessee was that section 275 of the Income-tax Act, 1961, required that penalty proceedings shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the completion of the assessment and this marked the commencement of the proceedings." The statement of the case by the Tribunal also refers to the order in the order sheet. It looked to us that it was common ground throughout the proceedings that there was an order dated June 5, 1962, in the order sheet directing the issue of a penalty notice. We, therefore, did not allow the learned counsel to raise the question whether there was such an order in existence as that would have necessitated our going behind the statement of the case into a question of fact which was undisputed before the Tribunal. The first question for our consideration is whether section 275 of the Income-tax Act of 1961 requires that penalty proceedings should co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty have been commenced " can only be interpreted to mean that penalty proceedings must commence before the completion of assessment proceedings. In support of his contention relied on the observations of a Division Bench of the Bombay High Court in Shakti Offset Works v. Inspecting Assistant Commissioner of Income-tax. At page 646, the learned judge observed : " Under the 1922 Act there was no limit of time for commencement of penalty proceedings, but tinder the new Act the penal proceedings are required to be commenced before the completion of the proceedings in which the Income-tax Officer or the Appellate Assistant Commissioner are satisfied that the default attractions the penalty has been committed." Again at page 655, they ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner which are referred to in clauses (a), (b) and (c) of section 271 (1) rather than to prescribe when a penalty proceeding may commence. There is also, as pointed out by the learned counsel for the income-tax department, an insuperable difficulty in the way of accepting the contention of the assessee. If the contention of the assessee is accepted, section 275 would mean that in the case of proceedings in the course of which proceedings for imposition of penalty have commenced, no order imposing a penalty shall be passed after the expiration of two years from the date of completion of such proceedings. Does it mean that section 275 is attracted only to cases where penalty proceedings are commenced in the course of assessment proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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