Chinnappa Reddy, J.:— The Income-tax Appellate Tribunal, Hyderabad Bench has stated a case and referred to us for our decision the following question:

“Whether on the facts and In the circumstances of the case, proceedings for the imposition of penalty have been commenced validly and within the time limits, if any, prescribed by the Income-tax Act, 1961?”

The facts are as follows:— The assessee is a firm dealing in gunnies, twines etc. For the assessment year 1961–62 the firm returned a total income of Rs. 99,672/-. The Income-tax Officer, however, held that the total income of the assessee was Rs. 1,57,434. He found that the firm had camouflaged certain of its transactions as those of a different firm and another individual. The assessment was completed on 5-6-1962 and in the order of assessment the Income-tax Officer observed: “Since the firm has deliberately diverted its profits by creating a bogus firm and carried on business in the name of another person viz., T. Narasimhamurthy, action under Section 28(1)(c) has been taken separately.” On 5-6-1962 itself the Income-tax Officer passed the following order in the order sheet: “Order dictated. Please issue penalty notice.” A penalty notice under Section 28(3) of the Indian Incometax Act of 1922 was prepared under date 5-6-1962, signed by the Income-tax Officer 20-6-1962 and served on the assessee on 13-7-1962.

The Indian Income-tax Act, 1961 came into force on 1-4-1962 and as the assessment was completed after the coming into force of the 1961 Act, the penalty proceedings had to be taken under the Income-tax Act of 1961 only. That is provided by Section 297(2)(g) of the 1961 Act. The Income-tax Officer who had issued the notice under Section 28(3) of the Act of 11922 realised his mistake and wrote to the assessee on 9-4-1964 stating that the notice has been wrongly issued under Section 28(3) and that it was a procedural mistake. The letter was accompanied by a fresh notice dated 9-4-1964 purporting to be under Section 274 read with Section 271 of the Income-tax Act, 1961. The proceedings were subsequently referred to the Inspecting Assistant Commissioner under Section 274(2) of the Income-tax Act of 1961.

It was urged before the inspecting Assistant Commissioner that the notices dated 5-6-1962 and 9-4-1964 were not validly issued and that there was no notice before the completion of the assessment proceedings as required by Section 275 of the Income-tax Act, 1961 and therefore, the penalty proceedings were void. The inspecting Assistant Commissioner rejected the contentions of the assessee and imposed a penalty of Rs. 60,000/-. The Income-tax Appellate Tribunal confirmed the order of the Inspecting Assistant Com missioner imposing the penalty. Thereafter, at the instance of the assessee, the Income-tax Appellate Tribunal stated a case and referred the question mentioned above for our decision.

2. The first submission of the learned counsel for the assessee was that the notice dated 5-6-1962 was issued under Section 28(3) of the Income-tax Act of 1922 and not under the provisions of the Act of 1961 and was, therefore, invalid. It is not disputed by the learned counsel for the Department that the notice should have been properly issued under the provisions of the 1961 Act in view of Section 279(2)(g) of the Act of 1961. He, however, submitted that the mere mention of a wrong provision of law would not invalidate the notice. In support of his contention the learned counsel for the department relied on Hazari Mal Kuthiala v. Income-tax Officer, 41 ITR 12 : (AIR 1961 SC 200). In that case the Commissioner of Income-tax purporting to act under Section 5(5) and (7-A) of the Indian Income-tax Act made an order on 4-11-1953 that the assessment of the assessee firm would be done by the Income-tax Officer, Special Circle, Ambala and not by the Income-tax Officer at Patiala. The provisions of the Patiala Income-tax Act, 2001 were apolicable to the case as it related to assessment year 1946–47 and not the Indian Income-tax Act. A contention was, therefore, raised that the order of the Commissioner was ultra vires as it was not issued under the Patiala Act. Their Lord ships of the Supreme Court rejected the contention holding that the exercise of a power would be referable to a jurisdiction which confers validity upon it and not a jurisdiction under which it would be nugatory and that the order of the Commissioner would not be invalid merely because it quoted the provisions of the Indian Income-tax Act instead of the Patiala Income-tax Act.

3. The learned counsel also relied upon Hukum Chand Mills Ltd. v. State of Madhya Pradesh, 52 ITR 583 : (AIR 1964 SC 1329). In that case also Their Lordships of the Supreme Court observed that it was well settled that a wrong reference to the power under which action was taken by the Government would not per se vitiate that action if it could be justified under some other power Under which the Government could lawfully do that act. In the light of the pronouncements of the Supreme Court we agree with the learned counsel for the Department that the notice dated 5-6-1962 is not invalid merely because it refers to the provisions of the Income-tax Act of 1922 instead of to the ‘provisions of the Act of 1961. The next submission of the learned counsel for the assessee was that Section 275 of the Income-tax Act, 1961 required that penalty proceedings should be commenced before the completion of the assessment proceedings and that in the present case the penalty proceedings were not so commenced and therefore, they could not be validly continued, not having been validly commenced. The learned counsel urged that the finding recorded in the assessment order and the mere instruction to the office to issue penalty notice were not sufficient to hold that there was a commencement of penalty proceedings before completion of the assessment. He even attempted to urge that there was no order dated 5-6-1962 in the order sheet directing the issue of penalty notice.

4. We did not permit him to raise the last question because the Inspecting Assistant Commissioner made an express reference to order in the order sheet. It was not contended by the assessee before the Income-tax Appellate Tribunal either when it heard the appeal or when the assessee made an application for stating a case and referring the question to the High Court that there was no order in the order sheet directing the issue of penalty notice. The Income-tax Appellate Tribunal while dealing with the appeal of the assessee referred to the order in the order sheet directing the issue of penalty notice in the following terms:—

“On the other hand, the Departmental representative points out that, besides a reference to penalty proceedings in the assessment order, the Income-tax Officer had actually directed his office to issue a penalty notice on 5-6-1962 simultaneously with the completion of the assessment and this marked the commencement of the proceedings.”

5. The statement of case by the Tribunal also refers to the order in the order sheet. It looked to us that it was common ground throughout the proceedings that there was an order dated 5-6-1962 in the order sheet directing the issue of a penalty notice. We, therefore did not allow the learned counsel to raise the question whether there was such an order in existence as that would have necessitated our going behind the statement of case into a question of fact which was Undisputed before the Tribunals.

6. The first question for our consideration is whether Section 275 of the Income-tax Act of 1961 requires that penalty proceedings should commence before the completion of assessment proceedings. Section 271(1)(c), Section 274(1) and Section 275 are relevant and they may be usefully extracted here. They are, in so far as they are relevant, 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—

(a) ………………

(b) ………………

(c) has concealed the particulars of Ms income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty………

(i) ……………

(ii) ……………

(iii) ……………”

“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.”

“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 com menced.”

7. According to the learned counsel for the assessee Section 275 raises a twin hurdle, an occasion before which proceed ings for imposition of penalty must be commenced and a time limit within which the proceedings should be completed. He urged that though the bar regarding the commencement is not explicit as the bar regarding the completion of the proceedings, it is a matter of necessary implication from the language of Section 275. He argued that the words ‘proceedings in the course of which the proceedings for the imposition of penalty have been commenced’ can only be interpreted to mean that penalty proceedings must commence before the completion of assessment proceedings.

8. In support of his contention he relied on the observations of a Division Bench of the Gujarat High Court (Bombay High Court) in Shakti Offset Works v. Inspecting Asst. Commr. of Income-tax, (1967) 64 ITR 637 (Bom). At p. 646 the learned Judges observed:

“Under the 1922 Act there was no limit of time for commencement of penally proceedings, but under the new Act the penalty proceedings are required to be commenced before the completion of the proceedings in which the Income-tax Officer or the Appellate Assistant Commissioner are satisfied that the default attracting the penalty has been committed.”

9. Again at p. 655 they observed:

“A perusal of the opening words of Section 271(1) and Section 275 of the Incometax Act of 1961 would show that the proceedings for imposition of penalty have to be commenced before the completion of the assessment.”

10. The question with which we are concerned did not arise before the learned “Judges of the Gujarat High Court. They were considering the vires of Section 297(2)(g) of the Income-tax Act of 1961 and in the course of the discussion they compared some of the provisions of the Act of 1922 with the corresponding provisions of the Act of 1961. We can only regard their observations as mere obiter dicta and not an opinion expressed after full consideration. We express our respectful disagreement with those observations.

11. To our minds, Section 275 is plainly and exclusively intended to prescribe a limit of time within which penalty proceedings must be concluded. It is not intended to prescribe the stage after which penalty proceedings cannot be commenced. It does not do so expressly; nor does the language of Section 275 lead us to such a necessary implication. We would indeed be reading too much into Section 275 if we read any such implication. The words ‘in the course of which the proceedings for the imposition of penalty have been commenced’ are merely descriptive of the proceedings two years after whose completion penalty cannot be imposed. The words are used to identify the particular proceedings before the Income-tax Officer or Assistant Commissioner which are referred to in Cls. (a), (b), (c) of S. 271(1) rather than to prescribe when a penalty proceeding may commence. There is also, as pointed out by the learned counsel for the Income-tax Department, an insuperable difficulty in the way of accepting the contention of the assessee. If the contention of the assessee is accepted, Section 275 would mean that in the case of proceedings in the course of which proceedings for imposition of penalty have commenced, no order imposing a penalty shall be passed after the expiration of two years from the date of completion of such proceedings. Does it mean that Section 275 is attracted only to cases where penalty proceedings are commenced in the course of assessment proceedings? Does it then mean that in cases, where penalty proceedings are not commenced in the course of the assessment proceedings but are started after completion of assessment there is no time limit for completing the penalty proceedings? Such a result would be startling and absurd and would frustrate the very object of Section 275 which is to prescribe a limit of time for completing proceedings for imposition of penalty. We are not prepared to place construction on Sec. 275 which will render it meaningless. The language of Section 275 does not compel us to do so.

12. We are therefore of the view that, Section 275 does not prescribe any requirement regarding the commencement of proceeding for the imposition of penalty. In that view it is unnecessary for us to determine when the penalty proceedings may be said to have commenced and whether the order dated 5-6-1962 in the order-sheet could be said to have set in motion the penalty proceedings.

13. The question referred to us Is answered as above in favour of the Department. The assessee will pay the costs of the reference which are fixed at Rs. 250/-.

14. Reference answered.