Pathak, J. - (1.) THE assessee is a Hindu undivided family engaged in the manufacture and sale of katechu. During the assessment proceedings for the assessment year 1963-64 (the relevant previous year being the year commercing July 1, 1961, and ending June 30, 1962), the Income-tax Officer discovered that the assessee had not disclosed its true income and after considering the explanation of the assessee he added Rs. 66,457 to the total income returned by the assessee. THE assessment order was passed on January 21, 1964. At the end of the assessment order the Income-tax Officer recorded that action under Section 271(1)(c) would be taken separately. THE assessee preferred an appeal to the Appellate Assistant Commissioner, but shortly thereafter, it made an application for permission to withdraw the appeal. Permission was denied by the Appellate Assistant Commissioner, and instead he required the assessee to furnish details in respect of the stocks available with it and also with its commission agent. After examining material now available, the Appellate Assistant Commissioner served a notice requiring the assessee to show cause why the income should not be enhanced by Rs. 21,560. THE assessee replied that he had no objection to the addition proposed. Accordingly, on May 19, 1965, the Appellate Assistant Commissioner enhanced the income assessed by the Income-tax Officer by Rs. 21,560, A second appeal filed by the assessee was dismissed by the Income-tax Appellate Tribunal.
(2.) MEANWHILE, the Income-tax Officer initiated proceedings under Section 271(1) of the Income-tax Act, 1961, for imposition of penalty, and issued a notice on January 21, 1964, to the assessee requiring him to show cause why a penalty should not be levied. As the minimum penalty leviable exceeded Rs. 1,000 the Income-tax Officer referred the case on February 18, 1964, to the Inspecting Assistant Commissioner of Income-tax, under Section 274(2) of the Act. The Inspecting Assistant Commissioner made an order dated January 1, 1966, levying penalty of Rs. 60,582. In imposing the penalty, he took into consideration not only the income found by the Income-tax Officer to have been concealed by the assessee but also the amount of income enhanced by the Appellate Assistant Commissioner. The assessee appealed against the order of penalty. The Tribunal allowed the appeal in so far as it reduced the penalty to Rs. 10,000 confining it to the concealed income discovered by the Income-tax Officer. The Tribunal took the view that the Inspecting Assistant Commissioner had no jurisdiction to impose a penalty in respect of the concealed income discovered by the Appellate Assistant Commissioner. The Commissioner of Income-tax as well as the assessee applied for a reference to this court, and accordingly the Tribunal has referred the following three questions, the first two being referred at the instance of the Commissioner of Income-tax and the third at the instance of the assessee : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Inspecting Assistant Commissioner did not have the jurisdiction to impose penalty in so far as it related to the enhancement made by the Appellate Assistant Commissioner ? 2. If the answer to question No. 1 is in the negative, whether, on the facts and in the circumstances of the case, reduction of penalty to Rs. 10,000 was correct in law ? 3. Whether, on the facts and circumstances of the case, the provisions as contemplated under Section 275 of the Income-tax Act, 1961, have been correctly followed specially when at the end of the assessment order at was mentioned that action under Section 271(1)(c) will be taken separately ? " After recording at the foot of the assessment order on January 21, 1964, that action under Section 271(1)(c) would be taken, the Income-tax Officer issued a notice under Section 274(1) to the assessee on the same date reciting: " Whereas, in the course of proceedings before me for the assessment year 1963-64, it appears to me that you have concealed particulars of your income or deliberately furnished inaccurate particulars of such income and whereas the penalty proceedings have to be referred to the Inspecting Assistant Commissioner of Income-tax according to Sub-section (2) of Section 274 of the Income-tax Act, 1961, you are hereby informed that the case for levy of penalty under Clause (c) of Sub-section (1) of Section 271 is being referred by me to the Inspecting Assistant Commissioner of Income-tax, Meerut Range, Meerut. Further proceedings in regard to the levy of a penalty will take place before the said Inspecting Assistant Commissioner of Income-tax as provided in Sub-section (2) of Section 274."
(3.) IT is apparent that the concealment of income was discovered by the Income-tax Officer in the assessment proceeding. When he referred the case for imposing a penalty to the Inspecting Assistant Commissioner on February 18, 1964, it was the penalty case arising with reference to what was discovered in that assessment proceeding. At that time, the Appellate Assistant Commissioner had net yet made any order disposing of the appeal against the assessment order. Consequently, when the Inspecting Assistant Commissioner proceeded to exercise his powers under Section 274(2) he did so on the case referred to him by the Income-tax Officer, that is to say, the penalty case arising with respect to the concealed income discovered at the stage of assessment by the Income-tax Officer. The question then is whether in disposing of this case the Inspecting Assistant Commissioner had jurisdiction to take into account the total income as enhanced by the Appellate Assistant Commissioner subsequently, and to impose a penalty on that basis. A few provisions of the Income-tax Act are relevant. They are : "271. Failure to furnish returns, comply with notices, concealment of income, etc.--(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 twenty per cent, but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income." " 274. Procedure.--(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. (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." ;