DURGA TIMBER WORKS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following two questions have been referred by the Tribunal (Delhi Bench B) to this Court under s. 256 (1) of the INCOME TAX ACT, 1961, which will hereafter be referred to as the Act :

(2.) THE assessee is a registered firm dealing in timber. For the asst. year 1960 -61, it filed a return declaring an income of Rs. 12,225. In the course of assessment proceedings the ITO noticed cash credit entries totalling upto a figure of Rs. 17,500 in certain accounts and that they were shown to have been squared up. He also noticed an account in the name of karkhana at ledger folio 22 showing a debit of Rs. 36,900. This was stated to be an account of a factory supposedly set up by the assessee. The account showed adjustments to the extent of Rs. 22,800 only. The assessee was asked to adduce evidence to prove the cash credit of Rs. 17,500 and also to explain the investment of the unadjusted balance of Rs. 14,100 in the karkhana account. It failed to do so and surrendered the two amounts which made up a total of Rs. 31,600 for inclusion in its income. As a result, an assessment was made on a total income of Rs. 56,322 which amount included a sum of Rs. 31,600 as the assessee's income from undisclosed sources.

(3.) AGAINST the order imposing penalty the assessee filed an appeal before the Tribunal, where it was contended that the penalty proceedings were not commenced during the assessment proceedings as the actual notice requiring the assessee to appear before him was issued by the ITO after he had already passed the order of assessment. The authority of the ITO to issue such a notice was also challenged and it was urged that he should have referred the assessee's case to the IAC even before the conclusion of the assessment. The IAC's notice was admittedly issued long after the assessment order was made. The penalty proceedings, therefore, could not be said to have been commenced during the course of assessment proceedings.