1. The following questions said to arise out of the order of the Income-tax Appellate Tribunal are referred to this court :
'(1) In view of the concession of the assessee that penalty was attracted, it is open to the assessee to object to the legality and the validity of the penalty order
(2) If the answer to the above question is in the affirmative and in favour of the assessee,
(a) Whether, on the facts and in the circumstances of the case, the notice dated February 21, 1963, by the Income-tax Officer under section 271(1)(c) and the notice dated December 1, 1964, issued by the Inspecting Assistant Commissioner under section 274(1) read with section 271(1)(c) are beyond the jurisdiction of the respective officers and bad in law
(b) Whether, on the facts and in the circumstances of the case, was the concealment of income established and the imposition of penalty justified ?'
2. [The learned Judge set out the statement of case which ran as follows :]
3. The assessee-firm has been carrying on business as a commission agent for the sale of the products of M/s. Kirloskar Bros. Ltd., M/s. American Spring and Pressing Works (Private) Ltd. and M/s. Tata Fison Ltd. besides selling hardware goods, agricultural implements and accessories. On sales of Rs. 13,38,774 the accounts books maintained by the assessee-firm disclosed gross profit of Rs. 70,072 or 5.2 per cent. as against 6.3 per cent. on sales of Rs. 6,38,726 in the preceding assessment year 1961-62. The opening stock at the commencement of the relevant accounting year was shown in the account books at Rs. 95,960 and the closing stock at the end of the accounting year at Rs. 60,923. In view of the large turnover disclosed by the assessee and the low closing stock, the Income-tax Officer refused to believe the correctness of the figure of the closing stock shown by the assessee's accounts books. The Income-tax Officer, therefore, picked out some of the purchases made by the assessee during the last fortnight of the relevant accounting year and asked the assessee to prove that they had either been sold or accounted for in the closing stock at the end of the accounting year. The assessee failed to establish the correctness of the figure of the closing stock disclosed by its account books. The partner of the assessee-firm, Shri Balabhau Damodhar, stated on solemn affirmation before the Income-tax Officer that the closing stock of Rs. 60,923 as per books was purely an estimated figure taken at such value so as to show the gross profit of 5 per cent. to 5 1/2 per cent. and that the real closing stock was of the value of Rs. 1,34,981. The Income-tax Officer then wanted to verify whether at least the latter figure of closing stock furnished by the assessee-firm was the value of the correct closing stock. The Income-tax Officer then called for statement of stock pledged by the assessee-firm with the banks from which it had obtained overdrafts and on comparison with the figures of stocks pledged with the banks and the figures of closing stock of Rs. 1,34,981 furnished by it to the Income-tax Officer in its inventory, the Income-tax Officer found that goods of the value of Rs. 17,732 pledged with the bank as security for overdraft were not even accounted for by the assessee in its account books. The Income-tax Officer, therefore, came to the conclusion that the assessee had concealed its income by under statement of the stock to the tune of Rs. 91,790 and, accordingly, raised the disclosed gross profits by Rs. 91,790. Copies of the statement made by the partner of the assessee-firm, Balabhau Damodhar and of the assessment order form part of the statement of the case as annexures 'A' and 'B'.
4. On the first appeal, the Appellate Assistant Commissioner upheld the addition and on second appeal the Tribunal sustained an addition of Rs. 33,655. In sustaining the addition to the extent of Rs. 33,655 the Tribunal observed as follows :
'This is a clear case where the assessee had understated the closing stock with a view to see that the estimated profit did not exceed the so-called normal profit. Even according to the assessee's own admission, the assessee had understated the closing stock by Rs. 74,058. With regard to the other 4 items, which have not been accounted for by the assessee even in its books, we are satisfied that on the basis of the invoices which included 200 ploughs, the banks gave the overdraft loan to the assessee. We are, however, actually satisfied that the assessee received these 200 ploughs only after the close of the relevant accounting year. This is clear by the evidence afforded by the entries made in the account books. Therefore, the further amount that has to be added to the closing stock is Rs. 17,732 reduced by Rs. 11,806, i.e., Rs. 5,926. The addition that has to be made for under valuation of the closing stock is, therefore, Rs. 79,984 in place of Rs. 91,790. When the closing stock has been taken as per statements of pledged goods supplied by the bank, it is fair that the opening stock of the current year should also be taken on a similar basis for arriving at the true and correct income. According to the bank statement produced by the assessee, the pledged stock on the last day of the year was Rs. 1,42,289. This figure has to be substituted for the opening balance of Rs. 95,960 in computing the addition to be made. Thus, the addition on account of under valuation of closing stock of Rs. 79,984 has to be reduced by Rs. 46,329. Thus, we sustain an addition of Rs. 33,655 to the profit.'
5. Copies of the orders of the Appellate Assistant Commissioner and of the Tribunal form part of the statement of the case as annexures 'C' and 'D'.
6. In the assessment proceedings the Income-tax Officer was satisfied that the assessee had concealed the particulars of income and, accordingly, in the assessment order directed the issue of notice under section 274(1) to the assessee for default under section 271(1)(c). Accordingly, the Income-tax Officer issued a show cause penalty notice dated February 21, 1963, to the assessee. Since the maximum impossibly penalty exceeded Rs. 1,000, the Income-tax Officer then referred the penalty proceedings to the Inspecting Assistant Commissioner and also communicated that fact to the assessee by his notice dated November 13, 1964.
7. After the proceedings were referred to him under section 274(2) read with section 271(1)(c) of the Income-tax Act, 1961, the Inspecting Assistant Commissioner once again issued notice dated December 1, 1964, to the assessee. Before the Inspecting Assistant Commissioner the assessee raised the following objections to the penalty proceedings :
(1) Notice under section 274 read with section 271 issued by the Income-tax Officer on February 21, 1963, was invalid, as the penalty imposable was in excess of the sum of Rs. 1,000, and as such he had no jurisdiction to issue such notice.
(2) The notice issued by the Inspecting Assistant Commissioner on December 1, 1964, was invalid, as it was not issued during the course of the assessment proceedings, which were completed by the assessment order dated February 21, 1963.
8. The Inspecting Assistant Commissioner rejected those contentions and held that this was a case of deliberate suppression of stock and not of under-valuation. The Inspecting Assistant Commissioner accordingly imposed penalty of Rs. 70,000 under section 271(1)(c) read with section 274(2) of the Income-tax Act, 1961. A copy of the penalty order passed by the Inspecting Assistant Commissioner forms part of the statement of the case as annexure 'B'.
9. Aggrieved by the penalty order, the assessee filed an appeal to the Appellate Tribunal. Before the Appellate Tribunal the assessee's counsel conceded that the penalty was attracted on merits, but raised the following objections to the legality of the said order :
(1) In the past the profits have been determined not on the basis of opening the closing stock, but on the basis of sales and purchases and in this year the Income-tax Officer could not change over to a different method of computation of income; and
(2) just before the assessment was about to be made the Income-tax Officer knew that the minimum imposable penalty exceeded Rs. 1,000 and as soon as he knew that he should have immediately referred the penalty proceedings to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner alone had the jurisdiction to issue notice under section 274(2) to the assessee. Having not done so, the penalty noticed issued by the Income-tax Officer is bad, since he had no jurisdiction to issue.
10. The Tribunal rejected these contentions. The Tribunal observed that :
'The whole argument is neither convincing nor in accordance with the provisions of law. It is the Income-tax Officer that should be satisfied in the course of proceedings that the assessee had concealed particulars of income and it is he who should take cognisance of the offence committed by the assessee and it is he who in the initial stages has to issue notice before the completion of the assessment. The Income-tax Officer had jurisdiction to issue penalty notice.
On merits we are satisfied that the penalty is attracted. We have also stated that the assessee had conceded that the penalty was attracted in this case. Since the quantum of income has been reduced by us, we direct the Inspecting Assistant Commissioner of proportionately reduce the penalty.'
11. A copy of the Tribunal's order dated February 22, 1967, forms part of the statement of the case as annexure 'F'.
12. The draft statement was served on both the parties with a view to elicit their suggestions to it, if any. The Commissioner of Income-tax has no suggestions to offer, but the assessee's counsel suggested that paragraph 10 of the statement should be deleted and the question stated in its reference application should be referred to the High Court. The suggestion is partly accepted and the draft statement is accordingly finalised.
[After setting out the statement of case as above, ABHYANKAR J. continued :]
13. So far as the question No. 1 is concerned, it should not detail us for long. It has been argued that even though there is an admission on the part of the assessee that there was some concealment of income, yet before the validity of the penalty imposed or initiation of penalty proceedings is affirmed, the assessee will be entitled to say that there has been a failure on the part of the Income-tax Officer to follow the requirements of the law and if the assessee is entitle to substantiate this contention, we do not think that there should be any impediment in the way of the assessee to object to the legality and validity of the order imposing penalty even assuming that the finding as to concealment or other infraction for which a penalty could be imposed was not a finding which could be challenged. It is well-settled that the exercise of powers in thee proceedings initiated for imposition of penalty has to be directly in conformity with law and the statutory provisions regarding the procedure. It would, therefore, still be open to an assessee against whom penalty proceedings have been taken and completed resulting in imposition of penalty to point out that even though there may have been a case for initiation of proceedings for imposing a penalty, the procedure as required by law and its mandatory provisions not having been followed, the ultimate order is vitiated. The answer to the first question, therefore, must be in the affirmative.
14. This takes us to sub-question (a) of question No. 2, namely, the validity of the notice issued by the Income-tax Officer and the Inspecting Assistant Commissioner in the instant case and ultimate order passed by the Inspecting Assistant Commissioner. The contentions raised on behalf of the assessee are principally based on the construction which has to be put on these two sections, 271(1)(c) and 274(1), and the scheme of Chapter XXI, which speaks of penalties imposable under the Income-tax Act, 1961.
15. The relevant provision of section 271(1)(c), applicable at the material times was as follows :
'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 of deliberately furnished inaccurate particulars of such income.'
16. The penalty that could be imposed for infraction of section 271(1)(c) is given in sub-clause (iii), as it then stood, and that was in the following terms :
'(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 avoided if the income as returned by such person had been accepted as the correct income.'
17. The next important provisions of this Chapter which requires to the noticed is section 274, which prescribes the procedure. That section is as follows :
'274. (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard.
(2) Notwithstanding anything contained in clause (iii) of sub-section (1) of section 271, if in a case falling under clause (c) of sub-section the minimum penalty imposable accedes 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.
(3) An Appellate Assistant Commissioner on making an order under this Chapter imposing a penalty, shall forthwith send a copy of the same to the Income-tax Officer.'
18. In order to appreciate the argument advanced on behalf of the assessee, it is necessary to recapitulate a few facts and dates. The assessee had filed a return showing profits in respect of its business on the basis of the sales of the goods in which it dealt. The Income-tax officer was not satisfied on the scrutiny of the accounts that the valuation of the stock, in particular of the closing stock, was properly maintained in the books. It was explained on behalf of the assessee that the valuation of the closing stock relates to the account year which is the year ending Diwali 1961 in this case and was not the actual valuation of the stock at the end of the year but was a notional value determined so as to show gross profits between 5 to 5 1/2 per cent. It is stated that in the previous years, the question of valuation of either the opening stock was not considered material because the assessee was assessed on the basis of actual sales. It was undoubtedly true that the computation of profits which were determined was not on the basis of percentage returned by the assessee and it was invariably increased, but, the basis of valuation was the turnover of sales and not with reference to the opening and the closing stocks of goods. In the relevant years out of which this reference arises, the Income-tax Officer preferred to arrive at the particular figure of profits or income by finding out the correct valuation of the closing stock. These figures admittedly were supplied by the assessee and on that basis the Income-tax Officer came to the conclusion that there was under-valuation of the closing stock to a large extent. He, therefore, added a substantial amount as income which represented the true income of the assessee. When this matter was taken before the appellate authority, that authority gave some relief to the assessee by reducing the amount by which addition could be made. When that matter was further challenged before the Income-tax Appellate Tribunal, the Appellate Tribunal accepted the contention of the assessee that if the income or profits so added were with reference to the valuation of the stock, then the correct valuation as far as could be practicable should be obtained in respect of not only the closing stock, but also of the opening stock on the same basis and if such valuation were arrived at and determined, the profits which could be determined will be substantially reduced. This contention was accepted by the Tribunal and yet the ultimate decision of the Tribunal resulted in the total income on which the assessee was found liable to pay which was substantially greater than the amount of income returned by the assessee.
19. The Income-tax Officer passed the order of assessment on February 21, 1963, and a copy of that order is annexed as part of the statement of the case. In paragraph 9 of his order, the Income-tax Officer has observed as follows :
'It is obvious that even the closing stock inventory of Rs. 1,34,981 is not correct. Thus, there is a total under-statement of closing stock to the extent of Rs. 74,058 referred to in the above paragraph and Rs. 17,732, as revealed in the verification of the stocks pledged with the bank. It is now clear that the assessee has concealed the income on account of the under-statement of the stock to the tune of Rs. 91,970 by furnishing inaccurate particulars of income, as is obvious, from the deposition dated February 6, 1962, and has rendered himself liable for penal action indicated in section 271(1)(c) of the Income-tax Act, 1961. Notice under section 274(1) for concealment of the income is being issued separately.'
20. The statement dated February 6, 1962, to which a reference is made in the above paragraph on behalf of the assessee of one Balabhau was as follows :
'I am a partner in the above mentioned firm having 2/3rd share and almost all the transactions are being looked after by me. Our firm deals in agricultural implements and pesticides, etc. On the close of the Diwali 2017, i.e., an on November 8, 1961, as per books of accounts, the value of closing stock is shown at Rs. Sixty thousand nine hundred and twenty-three only (Rs. 60,923). The value of closing stock is shown in such a manner which will yield gross profit between 5 to 5 1/2 per cent. in fact, the actual closing stock is much more by Rs. 70,000 to Rs. 72,000 than already shown. I will furnish the inventory of actual closing stock before you tomorrow.
The reasons for not disclosing the entire goods in closing balance are -
(1) every year in income-tax assessment gross profit is estimated at 7.5 per cent.
(2) if the true position of closing stock had been disclosed, the rate of gross profit would have gone over 7.5 per cent.....'
21. Accordingly, the Income-tax Officer issued the notice under section 271(1)(c) of the Income-tax Act, 1961, to show cause why the penalty should not be . Though the actual notices issued either by the Income-tax Officer or by the Inspecting Assistant Commissioner have not been produced, the learned counsel for the department made available to us a true copy of the notice issued by the Income-tax Officer. The assessee was called upon to show cause as per this notice and to appear for that purpose on March 12, 1963. It seems that the penalty proceedings were pending for a considerable time before the Income-tax Officer and on November 13, 1964, the Income-tax Officer referred the matter to the Inspecting Assistant Commissioner because the minimum penalty that was liable to be levied was in excess of Rs. 1,000. This fact is not disputed. When the Inspecting Assistant Commissioner was thus in seisin of the matter as a result of the reference made by the Income-tax Officer, he issued another notice on December 1, 1964, and thereafter passed an order on 1st February, 1965, imposing a penalty of Rs. 70,000. The contentions raised with regard to question No. 2 (a) in this reference also seem to have been agitated before the Inspecting Assistant Commissioner, but he over-ruled these objections.
22. Against this order imposing the penalty, the assessee preferred an appeal before the Income-tax Appellate Tribunal, as it did also against the appellate order of the Appellate Assistant Commissioner against the substantive order of assessment. Both the appeals were heard together and disposed of by a common order by the Tribunal. Regarding the imposition of penalty and the procedure followed therefore, the Tribunal took the view that this was clearly a case in which penalty was attracted and has also observed in paragraph 5 of its order that is also conceded by the assessee's counsel. The Tribunal did not accept the contentions against the penalty about the procedure, but, so far as the quantum of penalty was concerned, the Tribunal gave some relief inasmuch as the total amount of income determined by the Tribunal was less than the valuation by the Income-tax Officer as well as Appellate Assistant Commissioner in appeal. The Tribunal's direction in paragraph 6 was, therefore, as follows :
'On merits we are satisfied that the penalty is attracted. We have also stated above that the assessee had conceded that the penalty was attracted in this case. Since the quantum of income has been reduced by us, we direct the Inspecting Assistant Commissioner to proportionately reduce the penalty.'
23. Now the contention of the assessee appears to be that, on a proper construction of the provisions of section 271 as well as section 274 of the Income-tax Act, 1961, the Income-tax Officer would lose all jurisdiction to issue a notice under section 274(1) the moment the Income-tax Officer found that the penalty liable to be imposed in this case would be in excess of Rs. 1,000. According to the learned counsel for the assessee, the jurisdiction of the Income-tax Officer to issue a notice under section 274(1) is lost by him the moment he comes to the conclusion that the higher penalty, that is, penalty in excess of Rs. 1,000 is liable to be imposed in the case of an assessee who is found to have concealed income. Thus, the notice issued under section 274(1) by the Income-tax Officer in this case was itself without jurisdiction and it should be held that no notice was in law issued or could have been issued. So far as the proceedings before the Inspecting Assistant Commissioner to whom the matter was referred by the Income-tax Officer and who also issued a notice on December 1, 1964, under section 274(1) to the assessee are concerned, the contention of the assessee is that at that stage there was no proceeding pending out of which the penalty proceedings could be said to have arisen because according to the provisions of section 271(1) it is only during the course of any proceedings that a notice under section 274(1) could be issued. The two-fold contention, therefore, is that the Income-tax Officer had not the power to issue any notice or initiation of penalty proceedings because the penalty liable to be levied was in excess of Rs. 1,000 and the Inspecting Assistant Commissioner could not be lawfully in seisin of the case or could not exercise jurisdiction in respect of penalty proceedings because at the date by which he took cognizance of the matter, there was no proceeding pending out of which it could be said that the penalty proceedings would arise.
24. In our opinion, neither of these contentions is well founded or can be accepted. A careful perusal of section 271(1) of the Income-tax Act, 1961, will show that the condition precedent for imposition of a penalty under the Act is a satisfaction that a person has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. It is undoubtedly true that this satisfaction, which must necessarily be found in the form of a finding or an adjudication, must be arrived at in the course of any proceedings under this Act. Up to that stage this satisfaction must be reached only in proceedings but in view of the general words used in sub-section (1), namely, 'in the course of any proceedings under this Act', it is obvious that such satisfaction could be reached by either the Income-tax Officer or by the Appellate Assistant Commissioner, whatever be the nature of the proceedings, provided they are proceedings under the Income-tax Act, 1961. Thus, the initial condition that has to be satisfied for taking proceedings for imposing a penalty under this chapter is the satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner. It is obvious that this satisfaction must be in the course of the proceedings pending before the Income-tax Officer or the Appellate Assistant Commissioner. In other words, the requirements of the statute that the satisfaction must be reached 'in the course of any proceedings under this Act' means that the Income-tax Officer or the Appellate Assistant Commissioner must be acting within the jurisdiction in exercise of his powers under this Act and cannot otherwise act if he is not exercising the powers under that Act in respect of the assessee.
25. Sub-clause (iii) makes statutory provision for the quantum of penalty that could be imposed, both a minimum and maximum limit. The determination whether the penalty may be imposed is a matter judicially to be arrived at. Once it is decided that a case attracts the imposition of penalty then the statute prescribes what shall be the minimum and what shall be the maximum up to which amount the penalty may be imposed. The provision for a minimum and maximum amount of penalty that may be imposed has its impact on the further procedure that is required to be followed at least so far as the Income-tax Officer is concerned. Sub-section (2) of section 274 provides that if in a case where the penalty is required to be imposed on being satisfied that there has been concealment of the particulars of income or that the assessee has deliberately furnished inaccurate particulars of such income and if the penalty imposable exceeds the sum of Rs. 1,000, the Income-tax Officer cannot himself proceed further in the matter or impose penalty. In such a case, he is enjoined by the legislature to refer the case to the Inspecting Assistant Commissioner. Section 274(2) further provides that in dealing with such matter referred to him the Inspecting Assistant Commissioner shall have all the powers conferred under this chapter for the imposition of penalty. In our opinion, investing the Inspecting Assistant Commissioner, to whom the matter is referred, with all the powers conferred under this chapter, namely, Chapter XXI, for imposition of penalty, is an enabling provision, but it does not mean, and cannot possibly mean, that when a matter is referred to the Inspecting Assistant Commissioner, he has to follow all the steps de novo. Some steps have properly got to be taken by the Income-tax Officer who has been given the power to refer in particular cases the matter of penalty to the Inspecting Assistant Commissioner.
26. Another argument which has been addressed is a sort of conundrum, namely, that whereas the law requires, as it were, that the authority has to be satisfied that there has been concealment of particulars of income or deliberately furnishing of inaccurate particulars of income and a case for imposition of penalty has been made out while the proceedings are pending, the actual issuance of notice is at a subsequent point of time and unless the proceedings are pending when the notice is issued if the notice is required to be issued by the Inspecting Assistant Commissioner then the Inspecting Assistant Commissioner must be issue the notice at a point of time when the proceedings are pending before the Income-tax Officer. In other words, what seems to have been urged is that in no case where the proceedings for assessment have been completed and in which a satisfaction is recorded by the Income-tax Officer that there has been concealment of income, where the minimum penalty is in excess of Rs. 1,000 the Inspecting Assistant Commissioner would be able to exercise his powers under sub-section (2) of section 274 of the Income-tax Act. In our opinion, such a construction of the provisions of this Chapter, in particular, of sections 271 and 274 of the Act, cannot be accepted. We are not prepared to hold that proceedings for imposition of penalty commence only on the issuing of a notice under section 274(1). What section 274(1) requires is that no order imposing penalty under this Chapter shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. In other words, this is a salutary rule accepting the principle of natural justice that no penal consequences should follow or a penalty be imposed unless adequate opportunity has been given to the person who is to be penalised of being heard or having his say. So far as the primary condition which is required to be satisfied is concerned, namely, satisfaction that there has been concealment of income or that there has been deliberate furnishing of inaccurate particulars of income, according to the provision of clause (c) of section 271(1), as it then stood, we cannot conceive of any case where such satisfaction will be reached without hearing the persons or the assessee normally. In the proceedings which are commenced under the Act, there is no provision for proceeding against a person without issuing a notice. By and large, when an enquiry is being made into the income earned by an assessee for the purpose of bringing it to tax, or where there has been a case of concealment of income, it will be after a notice, but that is not the notice referred to in section 274(1) of the Act. The satisfaction that is to be reached by the Income-tax Officer or the Appellate Assistant Commissioner regarding the concealment of income or other infraction enumerated in section 271(1) will obviously be in the course of proceedings pending before the Income-tax Officer. We, therefore, do not see any reason why the subsequent notice required to be given under section 274(1) to the assessee, who is found to have concealed income to show cause why penalty should not be imposed, cannot issue after the completion of the proceedings in which a satisfaction is reached by the Income-tax Officer that the case of concealment of income has been established. In this connection, our attention was invited on behalf of the revenue to the decision of the Supreme Court in Commissioner of Income-tax v. Angidi Chettiar. At page 745 their Lordships have observed as follows :
'Counsel contended that, in any event, penalty for the assessment year 1949-50 could not be imposed upon the assessee-firm because there was no evidence that the Income-tax Officer was satisfied in the course of any assessment proceedings under the Income-tax Act that the firm had concealed the particulars of its income or had deliberately furnished inaccurate particulars of the income. The power to impose penalty under section 28 depends upon the satisfaction of the Income-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 proceedings to levy penalty have, 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 proceedings 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.'
27. Though this case arose out of the proceedings under section 28 of the Indian Income-tax Act, 1922, so far as the material provisions of section 271(1) read with section 274(1) are concerned, we do not find there is any difference. The provisions are in pari materia and the above decision of the Supreme Court must, therefore, conclude the matter as to the stage when the notice under section 274(1) under the Income-tax Act, 1961, can be issued.
28. It is true that the Income-tax Officer is required in the first instance to record a finding that he is satisfied that there has been a concealment of income or that there has been a deliberate furnishing of inaccurate particulars of such income. In those cases where the penalty liable to be imposed is less than Rs. 1,000, there is no question of making a reference and it can hardly be contended that even in such cases a notice under section 274(1) of the Act must also issue before the completion of assessment proceedings. In fact, it appears to us that separate provisions made in Chapter XXI for imposition of penalties seek to keep apart the penalty proceedings from the proceedings for assessment or other proceedings out of which a cause of action for making an enquiry whether there is infraction of the relevant provisions under clauses (a), (b) or (c) of sub-section (1) of section 271 which may attract imposition of penalty arise.
29. The learned counsel for the assessee seemed to suggest that investing of all the powers to an Inspecting Assistant Commissioner in a case where the matter is referred to him under this chapter necessarily postulates the Inspecting Assistant Commissioner exercising powers under all the sections of the chapter, and, therefore, it necessarily would imply a power in the Inspecting Assistant Commissioner to come to an independent decision whether there is or is not a concealment of income requiring the penalty to be imposed. In this case, we are not called upon to decide this question. What is the ambit of jurisdiction of the Inspecting Assistant Commissioner and his exercise of the powers under section 274(2) when any penalty proceedings are referred to him because the minimum penalty imposable is in excess of Rs. 1,000 is a matter which does not arise for our decision in this case and we do not want to express any opinion on it; but it seems to us that if such a power, as is claimed in the Inspecting Assistant Commissioner, exists in that officer, in some cases it is likely to lead to an anomalous result; whereas the Income-tax Officer would be referring the matter for imposition of penalty to the Inspecting Assistant Commissioner after being satisfied that there is a concealment of income, if the contention of the assessee were correct, the assessee would be able to reagitate the question of there being a concealment of income when the proceedings are before the Inspecting Assistant Commissioner because the minimum amount of penalty that is leviable is in excess of Rs. 1,000. We only mentioned some of the possible angles of this question and we leave it out from our decision.
30. Thus it is clear that, in the instant case, there is neither infraction of section 271(1)(c) nor of section 274(1) or (2) at all. As we have pointed out above, the Income-tax Officer recorded a finding in the very order of assessment that there has been a concealment of income and also directed issuance of notice. The actual issuance of the notice was also on the same date by the Income-tax Officer in this case. We do not think that th issuance of a notice is prohibited to find out whether there is a case for imposition of penalty and where it is found that the penalty liable to be imposed will be in excess of Rs. 1,000 in the minimum, the requirement that the matter should be referred to the Inspecting Assistant Commissioner restricts the jurisdiction of the Income-tax Officer to issue notice as in the instant case. We also do not think, in view of the pronouncement of the Supreme Court, that the Inspecting Assistant Commissioner lacks the power to issue notice under section 274(1) which he was bound to do on December 1, 1964, because the proceedings for assessment were already completed before the Income-tax Officer being the proceedings out of which the penalty may arise.
31. Thus, our answer to question No. 2 (a) is that the notice dated February 21, 1963, by the Income-tax Officer and the notice dated December 1, 1964, issued by the Inspecting Assistant Commissioner are not beyond the jurisdiction of the respective officers or bad in law.
32. The last question which requires to be answered is whether the concealment of income was established and the imposition of penalty was justified. In our opinion, the case of the assessee is weakest so far as this question is concerned. It is urged that the assessee cannot be held to have concealed its income merely because its books showed notional valuation of the opening and closing stock when the valuation of such stock was not relevant in determining the income to be returned which was done previously and also in the year of account on the basis of certain percentage of total sales. We do not think that this contention is well founded. It has been found that it is not merely the understatement of the valuation of the closing stock that was taken into account, but also the fact that certain purchases did not find place in the books of account at all. It is the non-mention of the transaction in the books of account which was a factor taken into consideration in determining whether there was a concealment of income. Concealment of income is the ultimate result in those cases where there is a discrepancy in the income returned and the income ultimately found, though it may not be invariably so. The charge of concealment of income was found to have been established in this case because of a deliberate non-mention of certain transactions in the books. Whatever be the reason for non-mention, if the non-mention of the transactions has resulted in the failure to disclose true income of the assessee, the authorities were entitled to come to a conclusion that this was a case of concealment of income. Moreover, from the statement of the representative of the assessee and the finding recorded by the Tribunal, there is hardly any doubt that at no stage was it a matter of dispute between the parties that there was concealment of income. Repeatedly, the Tribunal has referred to the concession, that is, admission of the position that there has been concealment of income. The manner in which it was sought to be explained away in argument before us, does not appear to have been the contention or the case of the assessee before the authorities. What the assessee seems to say in this court is that though there is a discrepancy or a variation in the amount of income returned and the income found, that is not necessarily an admission of concealment of income because it was explicable on the ground of returning the valuation of the stock on the notional basis. If such a contention were raised its could have been adequately dealt with by the Tribunal. No such contention was raised and the Tribunal has mentioned again and again that there is no dispute that this is a case of concealment of income. Once it is shown that the assessee does not dispute that this was a case of concealment of income, we fail to see how there is any lack of jurisdiction or authority in the officer to proceed to determine the penalty if he comes to the conclusion that there has been concealment of income. The answer to the second question (b) is that, on the facts and in the circumstances of the case, the concealment of income having been established, the imposition of penalty was justified.
33. Thus, the result is that the substantial questions, namely, 2 (a) and 2 (b), are answered against the assessee and in favour of the department and the assesee will be liable for the costs of the department. We fix the hearing fee at Rs. 250.