1. This is a reference under s. 256(1) of the I.T. Act, 1961 (referred to hereinafter as 'the said Act'). The question referred to us for our determination under the reference is as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that it would be sufficient compliance with the provisions of sub-section (2) of section 274 of the Income-tax Act, 1961, if the Income-tax Officer records, in the course of the assessment order, that notice for penalty proceedings should be issued to the assessee and all further action thereafter is taken by the Inspecting Assistant Commissioner ?'
2. The assessee earned in the previous year, relevant to the assessment year 1961-62, interest of Rs. 4,757 from the money deposited with one Gwalior Investment Co. Pvt. Ltd. In the return for the said assessment year, which was field on March 17, 1962, this income was not disclosed and even in the revised return field on November 2, 1965, it was not disclosed. The assessee merely disclosed the amount deposited by him with the aforesaid company in his wealth-tax return for the assessment year 1961-62. As far as income-tax proceedings were concerned, it was only in the course of the assessment proceedings before the ITO that the representative of the assessee requested that the aforesaid interest of Rs. 4,757 from the said company may be included in the return. In finalising the assessment, the ITO added a sum of Rs. 14,000 as the undisclosed income of the assessee, and in that sum the amount of interest of Rs. 4,757, earned as aforesaid, was included. Regarding the aforesaid item of interest the ITO in the assessment order observed that the fact remained that the assessee did not disclose this income in this return or revised return and became liable to the consequences provided in s. 271(1)(c) of the said Act. The ITO referred the penalty proceedings to the IAC (Inspecting Assistant Commissioner) (Central), Bombay. This assessment order was passed on March 28, 1966. On the same day the ITO issued a notice informing the assessee that since the penalty proposed to be levied exceeded Rs. 1,000, the case was referred to the IAC, The IAC by his noticed dated December 20, 1967, called upon the assessee to show cause why penalty should not be levied under s. 271(1)(c) of the said Act read with s. 274(2) of the Act. The IAC rejected the contention of the assessee as to why penalty should not be levied. He held that in the return field by the assessee on March 17, 1962, there was no indication regarding the aforesaid interest received from Gwalior received from Gwalior Investment Co. Pvt. Ltd., and even in the revised return there was nomination of the same, although at the hearing a note was made by the ITO that the representative of the assessee requested that the said item of interest might be included in the income. He held that this was a clear omission, but in view of the fact that the assessee had disclosed that item at the stage of hearing, the penalty should be confined to the minimum provided under the said Act. The assessee preferred an appeal to the Income-tax Appellate Tribunal against this decision of the IAC. It was contended on behalf of the assessee before the Tribunal that the IAC had no jurisdiction to levy the penalty and that the quantum of the penalty was excessive. The Tribunal rejected both these contentions. The Tribunal went on to consider as to whether there has been any concealment in the present case within the meaning of s. 271(1)(c) of the said Act. The Tribunal held that it was not possible to accept the contention of the assessee that he omission by him to disclose this item of interest in his return as well as revised return was merely an accidental slip or that the omission was by inadvertence. The Tribunal, however, looking to all the facts and circumstances, directed the ITO to recompute the penalty and to impose the minimum penalty permissible under the law. It is from this decision of the Tribunal that the aforesaid question has been referred to us for our determination.
3. We may at this stage refer to the relevant sections of the said Act. Section 271 deals with the failure to furnish returns required to be furnished under the sections referred to in the said section and also with concealment of particulars of income or furnishing of inaccurate particulars of income. The relevant part of s. 271(1)(c) at the relevant time read thus :
'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 deliberately furnished inaccurate particulars of such income,
he may direct that such person shall pay by way of penalty....'
4. Sub-section (2) of s. 274 of the said Act, which has now been deleted, but which was in force at the relevant time, read thus :
'Notwithstanding anything contained in clause (iii) of sub-section (1) of section 271, if in a case falling under clause (c) of that sub-section, the minimum penalty imposable exceeds a sum of Rs. 1,000, the Income-tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose, have all the powers conferred Commissioner who shall, for the purpose, have all the powers conferred under this Chapter for the imposition of penalty.'
5. Mr. Naik, learned counsel for the assessee, made only two submissions. His first submission is that as the ITO proposed to levy a penalty, he should not have finalised the assessment at all but referred the matter to the IAC for the consideration of the levy of penalty and finalised the assessment after the decision regarding the levy of penalty had been rendered by the IAC. As the ITO had completed the assessment proceedings before the penalty was levied, the proceedings the levy of penalty became bad in law. His second submission is that before penalty is levied, the IAC must be satisfied that there was a deliberate concealment and this was not done in the present case.
6. In our view, there is no substance in either of the contentions of Mr. Naik. The order of the IAC levying the penalty, the contents of which we have discussed earlier, makes it quite clear that in his opinion there was a clear omission on the part of the assessee to disclose this income and this was not an accidental omission. This is made more clear still by the judgment of the Tribunal. Hence, there is no substance in the second submission of Mr. Naik set out above. As far as the first submission is concerned, the question is concluded, as far as we are concerned, by the decision of a Division Bench of this court in Padgilwar Brothers v. CIT : 81ITR258(Bom) , where it has been held that the proceedings to levy penalty have not to be commenced before the commencement of the assessment proceedings by the ITO. What is required is satisfaction before conclusion of the proceedings under the said Act and not the issue of a notice or intimation for the exercise of the jurisdiction. The IAC did not lack the power to issue a notice under s. 274(1) of the said Act, which he was bound to do, because the proceedings for assessment were already completed before the ITO. It has also been held in that case that the power to impose penalty depends upon the satisfaction of the ITO in the course of proceedings under the said Act and the ITO had recorded a finding in the very order of assessment that there had been a concealment of income and had also directed the issuance of a notice. This satisfaction was clearly established. The assurance of the notice was not prohibited to find out whether there was a case for the imposition of penalty and where it was found that the penalty liable to be imposed would be in excess of Rs. 1,000, the requirement that the matter should be referred to the IAC did not restrict the jurisdiction of the ITO to issue a notice. Needless to say, we are bound by this decision. Moreover, in D. M. Manasvi v. CIT : 86ITR557(SC) , it has been held by the Supreme Court that proceedings for imposition of penalty under s. 271(1) of the said Act have necessarily to be initiated by the ITO or by the AAC. The requirement that the ITO has to refer the case to the IAC, if the minimum penalty liable to be imposed exceeded Rs. 1,000 in a case falling under s. 271(1)(c), does not show that the proceedings in such a case cannot be initiated by the ITO. As against these decisions, which are binding on us, Mr. Naik sought to rely on a decision of a single judge of the Calcutta High Court in Ram Chandra Sarda v. ITO : 78ITR325(Cal) , where the view has been taken that the function or duty to form the satisfaction and the power to impose penalty are so closely interwoven and interlined that they should be held to be part of an integrated process. The formation of satisfaction and the imposition of penalty cannot be bifurcated so that the satisfaction can be that of the ITO, whereas the imposition of the penalty would be by the IAC. Therefore, in a case which is referred to the IAC under s. 274(2) of the said Act, this duality of function and power must necessarily also vest in the same person, that is, the IAC. The ITO in a case where the penalty imposable exceeds Rs. 1,000 has to defer the passing of the final order of assessment until the case has been referred to the IAC under s. 274(2) of the said Act and his tentative satisfaction as to whether the penalty proceedings should be commenced or not is arrived at. This decision is of no assistance to the assessee before us because we are bound by the aforesaid decision of the Division Bench of this court to which we have referred earlier.
7. In the result, the question referred to us is answered in the negative and against the assessee. The assessee to pay to the Commissioner the costs of the reference.