INDER SEN ISRANI, J. - (1.) THIS is an income -tax reference under S. 256(1) of the INCOME TAX ACT, 1961 (hereinafter referred to as " the Act "), by which certain questions of law have been referred to this Court.
(2.) BRIEFLY stated, the assessee is an unregistered firm. In the previous year relevant to the asst. yr. 1970 -71, the assessee derived income from the manufacture and sale of cement pipes and other cement products. In the year of account, the assessee had shown a gross profit of Rs. 69,434 by applying gross profit rate of 30 per cent on its total sales shown at Rs. 2,31,448. After adjusting the profit and depreciation, the assessee showed its annual income. The Commercial Taxes Department of Rajasthan had seized the books of the assessee for the period January to June, 1969. The seized records included a rough cash book and the regular cash book of the assessee - firm. The assessee had taken inspection of his books of account from the Department and it prepared certain registers on the basis of the vouchers for the sub -sequent period of the relevant assessment year. The ITO, during the course of assessment proceedings, found that sales to the extent of Rs. 37,976 which were recorded in the rough cash book of the assessee did not find a place in the regular cash book for the period up to May/June, 1969. Therefore, he came to the conclusion that the assessee had suppressed these sales in respect of the amount mentioned above. He was also of the view that the assessee had not recorded full sales in his register for the subsequent period also of the relevant assessment year. Therefore, the ITO estimated the sales of the assessee at Rs. 3,50,000. The gross profit was estimated by applying a rate of 50 per cent to the estimated sale. Thus, the ITO made an addition of Rs. 1,05,566 to the gross profit shown by the assessee. Learned AAC, in appeal, on estimated sales of Rs. 3,10,000 applied a gross profit rate of 40 per cent. Thus, a relief of Rs. 51,000, was given. On second appeal, the Tribunal applied a gross profit rate of 36 per cent to the estimated sales of Rs. 3,00,000. Thus, the Tribunal sustained an addition of Rs. 38,566 to the gross profit of the assessee. The ITO, at the time of completing the assessment, was of the view that there was concealment of income by the assessee. He was also of the view that the minimum penalty imposable exceeded Rs. 25,000, and, therefore, he referred the matter to the concerned IAC. Before the learned IAC, in penalty proceedings, it was submitted on behalf of the assessee that the books of account of the assessee for the first six months' period out of the accounting period were impounded by the commercial taxes authority and as such the assessee was unable to complete the books of account which resulted in variation in the sales as shown by the assessee and ultimately determined by the taxing authority. It was submitted that there was no deliberate furnishing of inaccurate particulars. It was also pointed out that there was no mens rea on the part of the assessee in not furnishing accurate particulars. Learned IAC was of the view that the assessee had failed to explain that there was any fraud or gross or wilful neglect on the part of the assessee in not returning the assessed income and imposed a penalty of Rs. 52,000.
(3.) BEFORE the Tribunal, it was submitted by the assessee that penalty proceedings were initiated by the ITO on March 26, 1972. According to S. 274(2) of the Act as it stood amended w.e.f. April 1, 1971, the ITO was required to refer the penalty proceedings to the IAC only if he was satisfied that the amount of income in respect of which the particulars had been concealed or inaccurate particulars had been furnished, exceeded the sum of Rs. 25,000. Therefore, according to learned counsel, it was the duty of the ITO to have quantified the income in respect of which he was satisfied that the assessee had concealed the particulars of the same. The ITO had only said that the minimum penalty leviable exceeded a sum of Rs. 25,000. It was further stated that from the penalty order of the IAC, it would appear that even the IAC did not work out the quantum of income allegedly concealed by the assessee. It was, therefore, contended that the reference of the penalty proceedings by the ITO to the IAC was illegal. The representative of the Department submitted that the total income returned by the assessee was admittedly less than 80 per cent of the total income as assessed by the ITO and the Expln. to S. 271(1)(c) of the Act applies to the case of the assessee. It was submitted that unless the ITO indicated to the contrary in the order initiating the action, it shall be deemed that the ITO was prima facie satisfied that the entire difference in the income assessed and the income returned by the assessee to be the concealed income of the assessee and it was not obligatory on the part of the ITO to quantity in the order initiating penalty action the amount of income which he felt the assessee had concealed. It was submitted that it was enough for the ITO to state that the penalty imposable exceeded Rs.25,000 and it was not necessary for the ITO to specifically state the amount of income considered as concealed.;