M/s. Gopichand Sarju Prasad vs The Commissioner of Income Tax, M. P., Nagpur

P. V. Dixit, C. J.

This is a reference u/s 256(1) of the income tax Act, 1961, at the instance of the assessee M/s. Gopichand Surjuprasad. The question which the Tribunal has propounded before us for decision is: -

Whether on the facts and circumstances of the case, penalty u/s 271(1)(o) read with section 274 of the income tax Act, 1961 could be imposed on the assessee for the assessment year 1959-1960?

The material facts are that for the assessment year 1959-1960 the assessee filed a return of its income u/s 22 (2) of the income tax Act, 1922, on 21st October 1959 showing an income of Rs. 7,896. The assessee took forest contracts. It ran a saw mill and also manufactured and sold furniture. It also did stone quarrying business. In the assessment proceedings the income tax Officer noticed some discrepancies in the accounts and registers maintained by the assessee of its business and called upon the assessee to explain the discrepancies and furnish certain particulars. Thereupon, the assessee filed a revised return of its income on 17th January 1964 disclosing its total income as Rs. 50,605. The income tax Officer finalized the assessment on 19th March 1964 on a total income of Rs. 84.475 after taking into consideration the revised return and issued a notice to the assessee u/s 271(i)(c) of the 1961 Act for concealment of income. As the minimum penalty imposable on the assessee exceeded Rs. 1,000 the income tax Officer referred the matter to the Inspecting Assistant Commissioner of income tax u/s 274 of the Act.

The Inspecting Assistant Commissioner finding that the assessee had concealed the particulars of its income made an order imposing a penalty of Rs. 25,000 on the assessee. This order of the Inspecting Assistant Commissioner was upheld in the appeal which the assessee preferred before the Tribunal.

Before the Tribunal three contentions were raised by the assessee: first, that the assessment having been completed u/s 23 (3) of the Indian income tax Act, 1922, no penalty could be imposed u/s 271 of the Income tax Act, 1961; secondly, that the satisfaction which was a condition precedent for the exercise of jurisdiction u/s 271(1) was reached by the Inspecting Assistant Commissioner after the completion of the assessment proceedings; and thirdly, that there was no deliberate concealment of income on the part of the assessee. All these contentions were rejected.

It is no doubt true that the assessment against the assessee was by virtue of section 297 (2) (a) under the 1922 Act; but clause (g) of section 297 (2) specifically provides that any proceeding for the imposition of a penalty in respect of any assessment for the year ending on 31st March 1962, or any earlier year, which is completed after 1st April 1962 may be initiated and any such penalty may be imposed under the Act of 1961. The decisions of this Court in KISHANLAL Vs. COMMISSIONER OF Income Tax, M. P., and Commissioner of Income Tax, M.P. and Nagpur Vs. Champalal Sukhram, leave no doubt that in the case before us penalty proceedings were validly taken against the assessee u/s 271 of the 1961 Act.

In regard to the contention that the Inspecting Assistant Commissioner reached the satisfaction about default on the part of the assessee after the order of assessment was made and not before it, it has been pointed out by us in Gopichand Sarjuprasad v. Union of India and 3 others Misc. Petition No. 147 of 1988 decided on 24-1-1969 that the proper construction of sections 271, 274 and 275 is that the income tax Officer or the Appellate Assistant Commissioner should first be satisfied on a preliminary examination of the material before him that the assessee has committed any of the defaults referred to in clauses (a), (b) or (c) of section 271(1) and that, therefore, a notice to the assessee u/s 274(1) should be issued, then he may at any later time issue a notice mentioned in section 274(1) and, after complying with the requirements of that provision, make an order imposing the penalty and that the penalty proceedings should be commenced before the termination of proceedings in which the income tax Officer or the Appellate Assistant Commissioner is provisionally satisfied about the default which attracts the penalty. In the present case, the income tax Officer was provisionally satisfied in the assessment proceedings itself that the assessee had concealed its income. In the assessment order, which was made on 19th March 1964, he passed the following order:

Assessed as per IT. 30. Partners will be assessed separately on their share income. Issue demand notice and challan Issue penalty notice u/s 277(1)(c)(sic) of I T. Act 1961 for conceal meat as above.

It cannot, therefore, be said that the penalty proceedings were initiated after the assessment order. u/s 274 it is the income tax Officer or the Appellate Assistant Commissioner who has first to reach the requisite satisfaction. The Inspecting Assistant Commissioner comes into picture only when the income tax Officer finds that the minimum penalty imposable exceeds a sum of Rs. 1,000. Section 274(2) of the Act says:-

Notwithstanding anything contained in clause (iii) of sub-section (I) of section 271, if in a case falling under clause (o) of that sub section, the minimum penalty imposable exceeds a sum of rupees one thousand, the Income- tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose, have all the powers conferred under this Chapter for the imposition of penalty.

Reading this provision with section 271 it is clear that in the present case the satisfaction necessary for the initiation of proceedings for imposition of penalty was of the income tax Officer and, as already stated, that satisfaction was reached and the penalty proceedings were initiated before the assessment order. The contention, therefore, that the Inspecting Assistant Commissioner did not form his satisfaction about default on the part of the assessee before the assessment order and hence the order imposing penalty was invalid, cannot be accepted.

On the question of concealment, the Tribunal has found that it was the income tax Officer who discovered discrepancies in the account-books of the assessee; that the assessee did not make any attempt to reconcile the discrepancies and the difference in the balance-sheet; that there was huge disparity between the sales as disclosed in the original return and the sales disclosed at the time of filing the revised return; that the assessee knew very well that the figures of its income furnished to the income tax Officer were wrong. On these facts and circumstances the Tribunal reached the conclusion that the assessee had concealed its income. As held by this Court in Commissioner of income tax v. Punjabhai Shah (1) the question whether the assessee has concealed particulars of his income is a question of fact to be determined on the circumstances of the case. It is not, therefore, open to the assesses to question the correctness of the opinion formed by the Tribunal that there was concealment of income.

For these reasons, our answer to the question referred is in the affirmative. The assessee shall pay costs of this reference. Counsel''s fee is fixed at Rs. 150.