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2008 (11) TMI 54 - HC - Income TaxTribunal deleted the additions and penalty holding that the authority initiating the penalty proceedings had not recorded its satisfaction regarding concealment of income or furnishing of inaccurate particulars thereof by the assessee - mere absence of the words I am satisfied may not be fatal but such a satisfaction must be spelt out from the order of the Assessing Authority as to the concealment of income or deliberately furnishing inaccurate particulars order of tribunal was justified
Issues Involved:
- Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961. - Requirement of recording satisfaction by the authority initiating penalty proceedings. - Application of Finance Act, 2008, sub-Section 1B of Section 271. Detailed Analysis: Validity of Penalty Proceedings: In these cases, the Income Tax Appellate Tribunal either deleted or affirmed the deletion of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961. The Tribunal relied on the decision in CIT v. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568 (Delhi), holding that the authority initiating the penalty proceedings had not recorded its satisfaction regarding the concealment of income or furnishing of inaccurate particulars by the assessee. The Revenue contested this, arguing that the penalty proceedings should be valid as long as the satisfaction of the authority is discernible from the order, even if not explicitly stated. Requirement of Recording Satisfaction: The core issue was whether the satisfaction of the officer initiating the proceedings under Section 271 of the Income Tax Act could be considered recorded if not explicitly stated but discernible from the order. The Division Bench referred this question to a Full Bench for authoritative determination. The Full Bench upheld the requirement that satisfaction must be explicitly recorded by the assessing officer during the course of assessment proceedings. The absence of explicit words such as "I am satisfied" is not fatal, but the satisfaction must be clearly discernible from the order. Application of Finance Act, 2008, Sub-Section 1B of Section 271: Pending the reference, sub-Section 1B was inserted in Section 271 by the Finance Act, 2008, effective retrospectively from 1st April, 1989. This provision creates a fiction that the satisfaction of the assessing officer is deemed recorded when an addition or disallowance is made, and a direction for initiation of penalty proceedings is issued. The Full Bench clarified that this reference pertains only to cases where assessment orders were made before 1st April, 1989. Arguments by Revenue and Assessees: The Revenue argued that the Tribunal should consider all relevant facts available on record to determine whether the assessing officer applied his mind to the question of concealment or furnishing inaccurate particulars. Conversely, the assessees contended that the satisfaction must be recorded during the assessment proceedings, without which the jurisdiction to initiate penalty proceedings is not conferred. Legal Precedents: The Full Bench referred to the Supreme Court decisions in D.M. Manasvi v. Commissioner of Income Tax, Gujarat, II Ahmedabad (1972) 86 ITR 557 (SC) and Commissioner of Income-tax, Madras, and Anr. v. S.V. Angidi Chettiar (1962) 44 ITR 739 (SC). These cases established that the power to impose penalty depends on the satisfaction of the Income Tax Officer during the proceedings under the Act. The Full Bench affirmed that the law laid down in Ram Commercial Enterprises Ltd. (supra) was correct, requiring explicit recording of satisfaction by the assessing authority. Conclusion: The Full Bench concluded that the initiation of penalty proceedings without a clear finding of concealment of income or deliberately furnishing inaccurate particulars is without jurisdiction. The reference was answered accordingly, affirming the necessity for explicit recording of satisfaction by the assessing officer. The individual cases were directed to be listed before the appropriate Bench for hearing and disposal on 4th December, 2008.
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