Law:

Section:

Section 274, read with section 271, of the Income-tax Act, 1961 – Penalty – Procedure for imposition of – Assessment year 1966-67 – Whether when case is referred to IAC for purpose of imposing penalty on assessee, IAC is to be satisfied on concealment of income, as ITO tax Officer is to be under sub-section (1) of section 271 – Held, no FACTS In the course of examination of the accounts of the assessee for the assessment year 1966-67, the ITO found that the assessee had concealed his income and furnished inaccurate particulars of such income. He, therefore, directed initiation of proceedings under section 271(1)(c), read with section 274 and issued notice to the assessee. Thereafter, he referred the matter to the IAC. The IAC after hearing the assessee, imposed a- penalty. On appeal, the assessee submitted that the penalty proceedings were not properly initiated as the IAC was not satisfied on the concealment of income by the assessee during the course of the assessment proceedings. The Tribunal held that the satisfaction was a condition precedent to the exercise of the power under section 271, which must be arrived at before the penalty proceedings were commenced and, therefore, it set aside the order of penalty passed by the IAC. On reference : HELD On perusal of sections 271(1) and 274, it appears that the condition precedent for initiation of proceedings is ingrained under sub-section (1) of section 271. The condition precedent is the satisfaction of the ITO that "any person is concealing the particulars of his income". Under the said sub-section the satisfaction is of the ITO or of the AAC, as the case may be. If and when he is so satisfied, he can initiate proceedings and exercise all powers vested in him under the section, including levy of penalty on the person. But, if the penalty exceeds a sum of Rs. 1,000, sub-section (2) of section 274 takes away his power to levy the penalty. In such a case, the ITO is to make a reference to the IAC "for the purpose", which, means the power to levy the penalty. Sub-section (2) of section 274 does not lay down that in order to exercise all the powers conferred on him, the IAC is to be satisfied on the concealment of…

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