TMI Blog1972 (4) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the year. Before the Income-tax Officer the assessee had ultimately admitted that P. Shanmugam is a fictitious name and that the credit entry in that account really represented his own transactions in consignment sales of plantains and that the credits represented his profits and the debits his losses in such sales and offered for assessment the closing credit balance of Rs. 6,062 in the name of P. Shanmugam. But the Income-tax Officer while treating the credits as the assessee's profits, however, declined to treat the debits as the losses of the assessee. However, taking a liberal view, of the matter, and allowing for probable loss in the consignment sales, the Income-tax Officer estimated the net profit in consignment sales at Rs. 25,000 and, therefore, converted the loss of Rs. 1,736. returned by the assessee into a profit of Rs. 23,364 by his order, dated March, 30, 1963. As the Income-tax Officer was satisfied that the assessee had concealed a good portion of his profits in consignment sales, he initiated penalty proceedings and issued a notice under section 274(1) of the Income-tax Act. But, later he referred the assessee's case to the Inspecting Assistant Commissioner un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction to pass the order of penalty under section 271(1)(c) read with section 274(2) of the Income-tax Act, 1961 ? " Before us the question as to whether there was any concealment of income, or whether the penalty was properly levied in the case, or the quantum thereof was not raised by the assessee. The only question raised is as to whether the Inspecting Assistant Commissioner acting under section 274(2) has to satisfy himself that the assessee has concealed the income in the course of the assessment proceedings. Section 271(1), so far as it is relevant is set out below : Section 271(1) : " If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person-... (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty-......... (iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than twenty per cent. but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided, if the income as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Inspecting Assistant Commissioner cannot exercise the power to impose penalty unless he imposes the levy during the course of the assessment proceedings taken by him. It is true, the contention advanced on behalf of the assessee finds support from the decision in Ram Chandra Sarda v. Income-tax Officer. In that case the Income-tax Officer had completed the assessment of an assessee for the year 1963-64 on March 31, 1965. On the same day he issued a notice under section 274 read with section 271 of the Income-tax Act, 1961, to the effect that as he was satisfied in the course of the assessment proceedings before him that there is a deliberate concealment of income by the assessee and as the minimum penalty imposable exceeded a sum of Rs. 1,000, he is referring the penalty proceedings to the Inspecting Assistant Commissioner in accordance with section 274(2) of the Income-tax Act. But, it is only on February 24, 1967, nearly two years from the completion of the assessment proceedings, the Inspecting Assistant Commissioner issued a notice under section 274(2) read with section 271 requiring the assessee to show cause on or before March 2, 1967, as to why an order imposing penalty shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned judge in that case, the satisfaction referred to in section 271 is a condition precedent to the exercise of the power thereunder, and it must be arrived at aliunde before the penalty proceedings are commenced, and the function or duty to form the satisfaction and the power to impose a penalty are closely inter-woven and interlinked that they should be held to be parts of an integrated process and, therefore, the formation of satisfaction and the imposition of penalty cannot be bifurcated so that the satisfaction can be that of the Income-tax Officer, while the imposition of the penalty would be by the Inspecting Assistant Commissioner. With due respect we are not in a position to agree with the principle enunciated, in that case. If the formation of the satisfaction contemplated in section 271(1) and the imposition of the penalty should be by the same person in cases falling under section 274(2) as has been held by the learned judge in the case referred to above, it will practically make section 274(2) ineffective and otiose. It is a well-established canon of statutory construction that, in construing a statutory provision, the court must assume that the legislature had a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner, the Inspecting Assistant Commissioner cannot initiate penalty proceedings. According to the learned judges in that case, even in a case falling under section 271(1)(c), and where the minimum penalty imposable exceeds Rs. 1,000, the satisfaction that there has been a concealment and the initiation of penalty proceedings should be only by the Income-tax Officer or the Appellate Assistant Commissioner concerned. In Durga Timber Works v. Commissioner of Income-tax also the same view was taken. There a Division Bench of the Delhi High Court has expressed the view that the direction given by the Income-tax Officer in the course of his assessment order that the penalty notice should be issued to the assessee for concealment of particulars of income, amounts to a valid initiation of the penalty proceedings, and that there is nothing in section 274(2) which requires that all action for initiating penalty proceedings where the minimum penalty imposable is more than Rs. 1,000 should be taken by the Inspecting Assistant Commissioner before the assessment order is passed by the Income-tax Officer. According to the learned judges, the power conferred on the Inspecting Assistant Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-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. " If, as pointed out by the Supreme Court, the penalty proceedings have to be commenced only after the completion of the assessment proceedings on the basis of the satisfaction arrived at by the Income-tax Officer earlier during the assessment proceedings, there is no possibility of the Inspecting Assistant Commissioner acting under section 274(2), satisfying himself as to the existence of the conditions specified in clause (c) of section 271(1) in the assessment proceedings. The position appears to be that once the Income-tax Officer initiates penalty proceedings after satisfying himself as to the existence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs and, therefore, it is not necessary for him to initiate the penalty proceedings afresh after an independent satisfaction as to the concealment of income. The true position appears to be this. In the first place, the Income-tax Officer has to be satisfied in the course of the assessment or other proceedings that there has been a concealment of income by an assessee. Then he initiates proceedings and passes an order himself levying a penalty if the penalty leviable is less than Rs. 1,000, but if the penalty leviable exceeds Rs. 1,000, he refers the matter to the Inspecting Assistant Commissioner who has been empowered to act as an Income-tax Officer for the purpose of the levy of penalty. It, therefore, appears to be that it is the Income-tax Officer or the Appellate Assistant Commissioner who initiates the penalty proceedings on the basis of a satisfaction come to by him in the course of assessment or other proceedings under the Act that the assessee has concealed his income, and it is only on this foundation laid by the Income-tax Officer, the Inspecting Assistant Commissioner proceeds to act, and he being a person unconnected with the regular assessment proceedings cannot and c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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