GENTLE,J. - (1.) THE short point raised in his reference is whether under S. 28 of the IT Act a notice is required to be given for purposes of an assessee showing cause why a penalty should not be imposed before the close of the assessment.
(2.) THE relevant facts are shortly as follows. On 23rd Jan., 1941, an assessment was made upon the assessee and at the same time the ITO discovered that the assessee had not returned income and had deliberately failed to disclose it. On 25th January notice was served upon the assessee to show cause why a penalty should not be inflicted as provided in S. 28. The notice was returnable for the 10th Feb., 1941. It does not appeal on what date the assessee showed cause, but undoubtedly he did so and on 2nd May, 1941, the maximum penalty was imposed being 1 1/2 times the amount of the tax which the non-disclosure, had it succeeded, would have avoided. The material provisions of S. 28 are as follows : Sub-s. (1) : "If the ITO, the AAC, or the Tribunal, 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 or it may direct that such person shall pay by way of penalty, in addition to any tax payable by him, a sum not exceeding 1-1/2 times the amount of income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income." Sub-s. (3) : "No order shall be made under sub-s. (1) or sub- S. (2) unless the assessee or partner, as the case may be, has been heard, or has been given a reasonable opportunity of being heard." The question raised in the present reference is as follows : "Whether on the facts and in the circumstances of the case the penalty was lawfully imposed." It was contended on behalf of the assessee that the notice under sub-s. (3) of S. 28, which was given on 25th Jan., 1941, should have been given before the close of the assessment when the income-tax was assessed on 23rd Jan., 1941, and failure to given notice before the calculation of the assessment is fatal to any proceedings for imposition of a penalty. In the course of argument two decision of the Lahore High Court were cited. The first in Banarsi Das vs. CIT (1936) 4 ITR 217 (Lah). The decision in that case was that no penalty can be imposed under S. 28 unless a notice is served on the assessee to show cause against the imposition of such a penalty. It would appear that the CIT, when the matter reached him, sought to impose a penalty but had not served any notice prior to doing so. The second case from the Lahore High Court is Vir Bhan Bansi Lal vs. CIT (1938) 6 ITR 616 (Lah), in which it was decided that an ITO is empowered to make an order imposing a penalty under S. 28 after the assessment order had been finally made and the tax had been paid. In my view neither of those cases support the contention. A further authority was quoted by learned counsel for the assessee, CIT vs. Sheik Abdul Kadir (1928) AIR 1928 M. 257 In that case the proceedings with regard to the assessment were under s. 34 and they were held to be irregular. Consequently there could have been no discovery during the course of the proceedings which would enable a penalty to be imposed, and for that reason it was held by the Madras High Court that no penalty could be inflicted. In the course of the judgment it was observed at p. 261 : "If on the materials with reference to any original assessment itself, it should on revision appeal to the CIT that there has been any concealment within the meaning of s. 28, then S. 33 would undoubtedly empower him to rely a penalty." If anything the last mentioned authority is against the contention raised by the assessee.
(3.) ALL that S. 28 requires is that there should be a discovery and the person discovering it is satisfied that as an assessee has concealed particulars of his income or deliberately furnished inaccurate particulars, in the course of any proceedings under the IT Act. There is nothing in S. 28 from which it can be said that the notices under sub-s. (3) must be given before the conclusion of the assessment, and attention had not been drawn to any other section in the Act by which such requirement in necessary. In my view the matter is concluded by the wording of sub-s. (1) of the section. It states, "If the ITO, the AAC, or the Tribunal in the course of any proceedings under this Act is satisfied that any person had concealed income." There is no difference between the procedure which either the ITO, the AAC or the Tribunal should adopt. Matters in connection with an assessment would not (sic) before either the AAC or the Tribunal before an assessment has been concluded, and consequently any notice under sub-s. (3) which either the AAC or the Tribunal might see fit to give must be given after the conclusion of the assessment.;