VIJOY LAXMI STORES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This is a reference under Section 256(2) of the Income-tax Act, 1961, for the assessment years 1961-62 to 1963-64. The assessee is a registered firm. In the course of the assessment proceedings for the said assessment years, the Income-tax Officer came across a number of cash deposits. The assessee failed to explain the nature and source of the said cash deposits. The Income-tax Officer not only treated the unexplained cash deposits as the assessee's income but also disallowed the claim of interest thereon as a deduction in computing business income. Penalty proceeding under Section 271(1 )(c) of the Income-tax Act, 1961, was initiated and the matter was referred to the Inspecting Assistant Commissioner of Income-tax who held that the assessee has concealed the particulars of income and furnished inaccurate particulars thereof. He, therefore, imposed penalty amounting to Rs. 17,000 for the assessment year 1961-62, Rs. 71,000 for the assessment year 1962-63 and Rs. 40,000 for the assessment year 1963-64. The assessee went on appeal before the Appellate Tribunal. The Tribunal on a consideration of the facts and circumstances of the case, held that the assessee failed to establish the true nature of the credit entries appearing in his books of account. The Tribunal also held that the assessee failed to show that the consideration for hundis was real and that the same was not in the nature of income. For the detailed reasons given in the quantum appeals of the assessee, the Tribunal held that the assessee had concealed particulars of its income and there is evidence to hold that the assessee had income which it had concealed. In the opinion of the Tribunal, both the ingredients of the offence, viz., concealment and existence of income, have been proved and, therefore, the penalty provisions under Section 271(1 )(c) of the Income-tax Act 1961, are attracted. The Tribunal, therefore, confirmed the penalty imposed by the Inspecting Assistant Commissioner and dismissed the appeal preferred by the assessee-

(2.) On the aforesaid facts, the following questions of law have been referred to this court:

(3.) Mr. Sanjoy Bhattacharjee, the learned advocate appearing for the applicant, has contended that there are certain infirmities in the penalty proceedings which would render the orders of penalty illegal and invalid. His first submission is that in this case, notices were issued by the Income-tax Officer whereas the penalty was imposed by the Inspecting Assistant Commissioner. Therefore, the orders are void. In support of his contention, he has relied on a decision in the case of Shop Siddegowda and Family v. CIT [1964] 53 ITR 57 (Mya). In that case, one Income-tax Officer issued a notice under Section 28(3) of the Indian Income-tax Act, 1922, to the assessee calling upon him to appear and show cause why penalty should not be levied and the assessee submitted his explanation in writing, but did not choose to appear or ask for an opportunity to adduce evidence or address arguments. The successor-officer had imposed penalty after considering the written representations of the assessee, without giving a fresh opportunity of being heard. As the assessee did not seek to reopen the proceedings as contemplated by the first proviso to Section 5(7C) of the old Act, the Supreme Court upheld the imposition of penalty. This case has no relevance at all. Here, the Income-tax Officer initiated the penalty proceedings in the course of the assessment proceedings and referred the matter to the Inspecting Assistant Commissioner for the purpose of imposition of penalty. The Inspecting Assistant Commissioner issued notices under Section 274(2) read with Section 271(i)(c) of the Act to the assessee and the assessee in response to the said notices appeared before the Inspecting Assistant Commissioner and addressed arguments. Thereafter, the Inspecting Assistant Commissioner imposed penalty. The question of any successor-officer imposing penalty in this case does not arise.