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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 ..... ) 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 Inspecting Assistant Commissioner. On 3rd April, 1964, the Inspecting Assistant Commissioner issued notice to the assessee under section 274 calling upon him to show cause as to why he should not be penalised for concealing his income. Meanwhile the Inspecting Assistant Commissioner was transferred and his successor issued another notice on 8th September, 1964, again under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section 28 of the Act of 1922, which empowered also the Appellate Tribunal in addition to the Income-tax Officer and the Appellate Assistant Commissioner to initiate action for levy of penalty. " The next case referred to by Shri G. C. Sharma is a Bench decision of the Andhra Pradesh High Court in Navayuga Traders Gunnies Firm v. Commissioner of Income-tax. The assessment in tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, 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 proceedings were attracted to the case, but in view of the co-operation extended by the assessee, limited the penalty to 33 1/3 per cent. of the tax sought to be evaded. On appeal to the Tribunal the assessee contended that the penalty proceedings were vitiated as they were commenced only with the Inspecting Assistant Commissioner's notice dated March 11, 1965, and were not commenced be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Income-tax Officer found that the amount of penalty leviable would be in excess of Rs. 1,000, he had no jurisdiction to issue a notice and it should be held that no notice in law was issued. The notice issued by the Inspecting Assistant Commissioner was also claimed to be invalid on the ground that when the Inspecting Assistant Commissioner issued the notice there were no proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the final order of assessment until the case has been referred to the Inspecting Assistant Commissioner under section 274(2) of the Act and his tentative satisfaction as to whether the penalty proceedings should be commenced or not is arrived at. The learned judge referred to a decision of the Supreme Court in Commissioner of Income-tax v. S. V. Angidi Chettiar, where section 28 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Income-tax Officer has to refer the case to the Inspecting Assistant Commissioner. In either event, he has to record a satisfaction that the case attracts penalty. It is only thereafter and not till then that a reference has to be made to the Inspecting Assistant Commissioner under section 274(2) of the new Act and once a reference has been made to the Inspecting Assistant Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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