JUDGMENT

Pathak, J. - At the instance of the Commissioner of Income Tax, the following question has been referred by the Income Tax Appellate Tribunal:

"Whether, on the facts and in the circumstances of the case, the proceedings for imposition of penalty u/s 271(1)(c) had been validly commenced within the meaning of Section 275 of the Income Tax Act, 1961 ?"

2. Proceedings for the imposition of penalty were taken against the assessee for concealment of income represented by cash credit entries in the accounts of four creditors during the previous year relevant to the assessment year 1963-64. The Inspecting Assistant Commissioner examined the four creditors and upon the material before him held that the explanation submitted by the assessee in respect of the cash credit entries was false. He imposed a penalty of Rs. 28,070. In appeal before the Income Tax Appellate Tribunal, the assessee contended that the penalty proceedings had not been commenced during the course of the assessment proceedings and were, therefore, invalid. The Tribunal accepted the plea and allowed the appeal.

3. According to the facts found by the Tribunal, the assessment was completed on November 30, 1963. In the order of assessment the Income Tax Officer wrote:

"Question of penalty for concealment of income under sections 271/274 will also be taken."

4. A notice u/s 271 was issued on April 25, 1964, and the penalty order was made thereafter.

5. It is urged before us that the penalty proceeding u/s 271(1) must be commenced before the assessment proceeding concludes, that the penalty proceeding commences with the issue of a notice to the assessee to show cause against the imposition of a penalty and that as no proceeding for imposing a penalty was taken u/s 271(1) before the assessment order was signed the penalty proceeding was without jurisdiction.

6. The relevant provisions are :

"271. (1) If the Income Tax Officer or the Appellate Assistant Commissioner, 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 may direct that such person shall pay by way of penalty,--. . . .

(iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished, . . .

274, (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard.

(2) Notwithstanding anything contained in Clause (iii) of Sub-section (1) of Section 271, if in a case falling under Clause (c) of that Sub-section, the minimum penalty imposable exceeds a sum of rupees one thousand, the Income Tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose, have all the powers conferred under this Chapter for the imposition of penalty.

275. No order imposing a penalty under this chapter shall be passed after the expiration of two years from the date of the completion of the proceedings in the course of which the proceedings for the imposition of penalty have been commenced. "

7. Now, what Section 271(1) requires is that the Income Tax Officer should be satisfied in the course of a proceeding under the Act before him that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. Necessarily, there must be a prima facie satisfaction of the Income Tax Officer before he commences any proceedings for imposing a penalty. Where an assessment proceeding is pending before the Income Tax Officer and he is satisfied in the course of that proceeding that the assessee has been guilty of default the satisfaction must be arrived at before the assessment proceeding is concluded. That view was taken by the Suprem