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2006 (10) TMI 130 - HC - Income TaxPenalty levied u/s 271(1)(c) by Tribunal - concealment of particulars of its income - unexplained cash credits - satisfaction of the Income-tax Officer - HELD THAT - The Tribunal while dealing with explanation has recorded a finding of fact that the applicant has not been able to substantiate the explanation to the effect that the depositors have received gifts in any of the previous years or had any independent source of income; the applicant has not been able to prove that this explanation was bona fide; there was no documentary evidence in support of the assessee s contention; even the name of the person from whom the alleged gifts were received were not disclosed to the Department; the minor depositors were intimately related to the partners of the assessee-firm; the explanation was baseless and the provisions of section 271(1)(c) of the Act were attracted in the present case. We find that under the provisions of the Act the Income-tax Officer is not required to record his satisfaction in a particular manner or reduce it in writing. It can be gathered from the assessment order itself. In D. M. Manasvi 1972 (9) TMI 5 - SUPREME COURT the apex court has clearly held that the Income-tax Officer should be satisfied during the course of the assessment proceedings that the assessee had concealed his particulars of income or has furnished inaccurate particulars of such income. The satisfaction can be gathered from the assessment order. In the present case we find that the Income-tax Officer had material before him for being satisfied that the applicant has concealed the particulars of his income and therefore penalty proceedings have rightly been initiated. We are therefore with great respect unable to persuade ourselves to follow the view taken by the Delhi High Court in case of Ram Commercial Enterprises Ltd. 1998 (10) TMI 13 - DELHI HIGH COURT and Diwan Enterprises 1998 (11) TMI 27 - DELHI HIGH COURT . Thus we answer the question referred to us in the affirmative i.e. in favour of the Revenue and against the assessee.
Issues Involved:
1. Justification of penalty under section 271(1)(c) of the Income-tax Act, 1961. 2. Recording of satisfaction by the Income-tax Officer before initiating penalty proceedings. Detailed Analysis: 1. Justification of Penalty under Section 271(1)(c): The primary issue was whether the Tribunal was justified in confirming the penalty under section 271(1)(c) read with Explanation 1. The case involved unexplained cash credits amounting to Rs. 1,65,000 in the names of three minors, which were added under section 68 of the Act. The explanation provided by the assessee was found to be false by the assessing authority, the Commissioner of Income-tax (Appeals), and the Tribunal. The Tribunal recorded that the assessee could not substantiate the explanation regarding the deposits being genuine gifts and that there was no documentary evidence to support the claim. The minors were closely related to the partners of the firm, and the explanation was deemed baseless, attracting the provisions of section 271(1)(c) for concealment of income. The court upheld the Tribunal's findings, noting that the explanation given by the assessee had been disbelieved by all authorities on valid and cogent reasons. The court referenced several cases cited by the assessee but found them distinguishable or not applicable to the present facts. For instance, in the case of National Textiles v. CIT [2001] 249 ITR 125 (Guj), the court noted that the explanation provided by the assessee must be false or unsubstantiated, which was the case here. 2. Recording of Satisfaction by the Income-tax Officer: The second issue was whether the Income-tax Officer had recorded his satisfaction before initiating penalty proceedings under section 271(1)(c). The court referred to the Supreme Court decision in D. M. Manasvi v. CIT [1972] 86 ITR 557, which held that the satisfaction of the Income-tax Officer must be recorded during the assessment proceedings, but it is not essential for the notice to be issued during those proceedings. The court found that the assessing authority had mentioned the initiation of penalty proceedings in the assessment order, indicating satisfaction. The court distinguished the present case from CIT v. Dajibhai Kanjibhai [1991] 189 ITR 41 (Bom), where the satisfaction was not recorded during the assessment proceedings. Here, the Income-tax Officer explicitly mentioned the initiation of penalty proceedings, which was sufficient to show satisfaction. The court also addressed the decisions in CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi) and Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi), which emphasized the need for recording satisfaction. However, the court noted that the Act does not prescribe a specific manner for recording satisfaction, and it can be inferred from the assessment order itself. The court found that the Income-tax Officer had sufficient material to be satisfied that the assessee had concealed income, thus justifying the initiation of penalty proceedings. Conclusion: The court answered the question in the affirmative, holding that the Tribunal was justified in confirming the penalty under section 271(1)(c) of the Income-tax Act, 1961. The satisfaction of the Income-tax Officer was adequately recorded, and the penalty proceedings were validly initiated. The judgment was in favor of the Revenue and against the assessee, with no order as to costs.
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