1. The assessee is a registered firm carrying on business in cloth. During the course of the assessment proceedings for the assessment year 1970-71, the ITO found that there were a number of under totaling of both cash and credit sales to the extent of Rs. 19,467 in all. The assessee had filed its return on the basis that the totallings were correct. When the ITO noticed that there were such under totaling in the course of the assessment proceedings, he initiated proceedings under s. 271(1)(c) of the I.T. Act, 1961 (hereinafter referred to as 'the Act), and on realising that the minimum penalty imposable exceeded one thousand rupees, he referred the case to the IAC of Income-tax by his letter dated February 27, 1971. The letter reads as follows:
office of the Third Income-tax Officer, Mysore Circle, Mysore. Dated 27-2-1971.
The Inspecting Asst. Commissioner of Income-tax, Range-III, Bangalore.
Sub: Proceedings u/s. 271(1)(c) Umashankar Hall-322226 Asst. Year 1970-71.
In the course of the assessment proceedings for the assessment year 1970-71 the assessee produced a day book and a ledger maintained for his business in cloth for the period 1-7-68 to 30-6-69. A scrutiny of the sales folios in the ledger disclosed that the totals were under cash to the extent of Rs. 19,467.06. The sales as per the assessee's books after correcting the totals amount to Rs. 1,82,906.58 as against Rs. 1,63,439.52 disclosed by the assessee in the trading accounts filed before me. I have reason to believe that the assessee has concealed the particulars of his income. Since the provisions of section 271(1)(c) are attracted in this case and the minimum penalty leviable exceeds Rs. 1,000, I have referred the facts for the consideration of the Inspecting Assistant Commissioner. The records are submitted for perusal.
(Sd.) B. R. Nagaraja Rao, Third Income-tax Officer, Mysore'.
2. Prior to this reference, the ITO had issued a notice to the assessee on February 24, 1971, under s. 142(1) of the Act calling upon the assessee to produce certain documents and accounts on March 9, 1971. After the accounts were produced, the ITO completed the assessment proceedings on March 31, 1971, including Rs. 19,467.06 to the income disclosed and completed the assessment. The IAC thereafter issued notice to the assessee and after taking into consideration the explanation given by the assessee imposed a penalty under s. 271(1)(c) in a sum of Rs. 20,000. In appeal, the order of the IAC was confirmed by the Tribunal after rejecting the contention of the assessee that the initiation of the proceedings under s. 271(1)(c) of the Act before the assessee produced the books of account pursuant to the notice dated February 24, 1971, issued under s. 142(1) of the Act was without jurisdiction and also that the imposition of penalty was not warranted in the circumstances of the case. At the instance of the assessee, the Tribunal has referred under s. 256(1) of the Act, the following question of law:
'Whether, on the facts and in the circumstances of the case, by reason of the issue of notice under section 142(1) of February 24, 1971, calling upon the assessee to produce certain documents and accounts on March 9, 1971, the initiation of the penalty proceedings was bad in law ?'
3. The contention of S. P. Bhat, learned counsel for the assessee, before us is that the proceedings under s. 271(1)(c) of the Act could have been initiated by the ITO only after being satisfied that there was concealment of income in the return filed by it and such satisfaction in the circumstances could not have been there before looking into the books of account which the ITO asked the assessee to produce on March 9, 1971. Hence, the proceedings to impose penalty initiated by the ITO, without being satisfied that there was concealment on February 27, 1971, was without jurisdiction. We are of the view that there is no substance in this contention. The letter of the ITO referring the case to the IAC which has been extracted above shows that the ITO had material before him on which he could reasonably feel satisfied that proceedings under s. 271(1)(c) of the Act were warranted. The letter shows that the ITO had the day book and ledger on the basis of which he could reasonably come to the conclusion that the total sales were of the order of Rs. 1,82,906.58 as against the figure Rs. 1,63,439.52 furnished by the assessee in its trading account as its sale proceeds. The ITO issued the notice under s. 142(1) of the Act only for the purpose of completing the order of assessment. The issue of such a notice on February 24, 1971, asking the assessee to produce the documents mentioned therein on March 9, 1971, would not in any way make the proceedings initiated on February 27, 1971, on the basis of the day book and ledger of the assessee already produced before him, invalid. The action taken by the ITO under s. 271(1)(c) of the Act on February 27, 1971, cannot, therefore, be considered as bad in law. The question referred to us is answered accordingly.