Penalty initiation during assessment upheld where concealment satisfaction was recorded in the assessment order and notice followed.

Penalty proceedings are treated as initiated in the course of assessment proceedings where the assessment order itself records the Income-tax Officer's satisfaction about concealment and directs issue of notice under section 274. That satisfaction need not be expressed in any particular form and may be inferred from the assessment order and surrounding circumstances. The use of the word "appears" in the penalty notice does not invalidate prior satisfaction already reached during assessment. On that basis, proceedings for penalty were held to have been validly initiated within the meaning of section 275, and the issue was answered in favour of the Revenue.

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Issues: Whether the proceedings for imposition of penalty could be said to have been initiated in the course of the assessment proceedings within the meaning of section 275 of the Income-tax Act, 1961.

Analysis: The notice for penalty followed an assessment order that contained an endorsement directing issue of notice under section 274 and referring the matter for penalty action. The Court applied the principle that the Income-tax Officer's satisfaction that the assessee had concealed income must arise during the assessment proceedings and may be inferred from the assessment order and the surrounding context. The use of the word "appears" in the notice did not negate the prior satisfaction already recorded in the assessment proceedings.

Conclusion: The penalty proceedings were validly initiated in the course of the assessment proceedings and the question was answered in the affirmative in favour of the Revenue.

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