Pathak, J.:— At the instance of the Commissioner of Income-tax, the following question has been referred by the Income-tax Appellate Tribunal:
“Whether, on the facts and in the circumstances of the case, the proceedings for imposition of penalty under section 271(1)(c) had been validly commenced within the meaning of section 275 of the Income-tax Act, 1961?”
2. Proceedings for the imposition of penalty were taken against the assessee for concealment of income represented by cash credit entries in the accounts of four creditors during the previous year relevant to the assessment year 1963-64. The Inspecting Assistant Commissioner examined the four creditors and upon the material before him held that the explanation submitted by the assessee in respect of the cash credit entries was false. He imposed a penalty of Rs. 28,070. In appeal before the Income-tax Appellate Tribunal, the assessee contended that the penalty proceedings had not been commenced during the course of the assessment proceedings and were, therefore, invalid. The Tribunal accepted the plea and allowed the appeal.
3. According to the facts found by the Tribunal, the assessment was completed on November 30, 1963. In the order of assessment the Income-tax Officer wrote:
“Question of penalty for concealment of income under sections 271/274 will also be taken.”
4. A notice under section 271 was issued on April 25, 1964, and the penalty order was made thereafter.
5. It is urged before us that the penalty proceeding under section 271(1) must be commenced before the assessment proceeding concludes, that the penalty proceeding commences with the issue of a notice to the assessee to show cause against the imposition of a penalty and that as no proceeding for imposing a penalty was taken under section 271(1) before the assessment order was signed the penalty proceeding was without jurisdiction.
6. The relevant provisions are:
“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 or deliberately furnished inaccurate particulars of such income,
he may direct that such person shall pay by way of penalty,—………..
(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, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished….
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 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.
275. No order imposing a penalty under this chapter shall be passed after the expiration of two years from the date of the completion of the proceedings in the course of which the proceedings for the imposition of penalty have been commenced.”
7. Now, what section 271(1) requires is that the Income-tax Officer should be satisfied in the course of a proceeding under the Act before him that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. Necessarily, there must be a prima facie satisfaction of the Income-tax Officer before he commences any proceedings for imposing a penalty. Where an assessment proceeding is pending before the Income-tax Officer and he is satisfied in the course of that proceeding that the assessee has been guilty of default the satisfaction must be arrived at before the assessment proceeding is concluded. That view was taken by the Supreme Court in Commissioner of Income-tax v. S.V Angidi Chettiar [1962] 44 I.T.R 739, 745; [1962] Supp. 2 S.C.R 640 S.C., on the comparable provisions of section 28(1) of the Indian Income-tax Act, 1922. The Supreme Court observed:
“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 clause (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.”
8. While the statute does not require any formal order recording the satisfaction of the Income-tax Officer that the assessee has committed the default mentioned in section 271(1), it is sufficient for the validity of the penalty proceeding if there is something to show that the Income-tax Officer was satisfied in the course of the assessment proceeding before the penalty proceeding is commenced. That evidence is forthcoming, as in the present case, if the Income-tax Officer records in the assessment order itself that he is satisfied that it is a case in which a penalty proceeding should be taken. As the Supreme Court has pointed out in Angidi Chettiar, that is the only condition requiring compliance during the course of the assessment proceeding. It is open to the Income-tax Officer to actually commence the penalty proceeding after the assessment has been concluded. If he finds during the course of his investigation that the minimum penalty imposable in a case falling under section 271(1)(c) exceeds Rs. 1,000, he must refer the case to the Inspecting Assistant Commissioner. If he finds otherwise, he can dispose of the case himself. The Inspecting Assistant Commissioner, in a case referred to him by the Income-tax Officer, has all the powers conferred under the Chapter for the imposition of penalty. Before the Income-tax Officer or the Inspecting Assistant Commissioner imposes a penalty the assessee must, by reason of section 274(1), be heard in the matter or be given a reasonable opportunity of being heard. No penalty can be validly imposed before such opportunity is afforded.
9. It is contended on behalf of the assessee that if regard be had to section 275 it must be held that the notice under section 274(1) should be issued in the course of the assessment proceeding. Section 275 prescribes the period of limitation for making a penalty order. The period is two years “from the date of completion of the proceedings in the course of which the proceedings for the imposition of penalty have been commenced”. Where there is an assessment proceeding, it is urged by the assessee, the necessary implication is that the penalty proceeding must be commenced before the assessment is concluded. In our opinion, the contention is without force. No such implication can be spelled out from section 275. The section, in its essential content, is a provision prescribing the period of limitation for making a penalty order. It is not a provision prescribing the point of commencement of the penalty proceeding. It is concerned with the order which concludes the penalty proceedings. When it refers to the completion of the proceeding in the course of which the penalty proceeding is commenced, in substance it identifies the former proceeding for the purpose of defining the point of time from which the period of limitation for making the penalty order must be computed.
10. We are of opinion that the Income-tax Officer need only be satisfied in the course of the assessment proceeding that a proceeding for imposition of penalty should be taken, and it is not necessary that the notice under section 274 should also be issued.
11. We are fortified in this view by what has been said in Durga Timber Works v. Commissioner of Income-tax, Navayuga Traders Gunnies Firm v. Commissioner of Income-tax [1971] 79 I.T.R 519 A.P. and Padgilwar Brothers v. Commissioner Of Income-Tax, Poona. [1971] 81 I.T.R 258 Bom.-Nag...
12. Reliance has been placed by the assessee on Shakti Offset Works v. Inspecting Assistant Commissioner of Income-tax [1967] 64 I.T.R 637, 655 Bom.., where the Bombay High Court has observed that the initiation of the penalty proceeding cannot be held over until after the completion of the assessment and that section 271(1) and section 275 indicate that the penalty proceeding has to be commenced before the completion of the assessment proceeding. It seems that the learned judges considered that the satisfaction of the Income-tax Officer in the course of the assessment proceeding itself constituted the commencement of the penalty proceeding. They said:
“Similarly, the opening words of section 271(1) provided for the Income-tax Officer or the Appellate Assistant Commissioner being satisfied in the course of any proceedings under the Act that the assessee has done one or the other of the defaults mentioned in the sub-clauses and on his being satisfied he may direct such person to pay by way of penalty the amounts indicated in the subsequent provision. Thus, the event which gives a cause of action for initiation of proceedings for imposing penalty is not held over until after the completion of assessment proceedings.”
13. If these observations are capable of being understood to mean that the Income-tax Officer must, besides recording his satisfaction, take further action by the issue of a notice to the assessee before completing the assessment, we are unable, with respect, to agree with the proposition so laid down.
14. In D.M Manasvi v. Commissioner of Income-tax [1969] 72 I.T.R 17 Guj.. the Gujarat High Court held that inasmuch as the Income-tax Officer had reached the satisfaction contemplated by section 271(1) and recorded a direction in the assessment order that penal action should be started under section 271(1)(c) against the assessee he must be taken to have commenced the penalty proceeding during the pendency of the assessment proceeding.
15. In our opinion, the penalty proceeding under section 271(1)(c), in the present case, was validly commenced, and inasmuch as section 275 does not deal with the question as to when such, proceeding can be considered to commence, no question arises of applying that provision. The question is answered accordingly.
16. The Commissioner of Income-tax is entitled to his costs, which we assess at Rs. 200. Counsel's fee is assessed in the same figure.