1984 (3) TMI 148 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Explanation to Section 271(1)(c) of the Income-tax Act, 1961.
2. Validity of the penalty imposed under Section 271(1)(c).
3. Consideration of the assessee's replies to the show-cause notices.
4. Remanding the case back to the Commissioner (Appeals) for fresh findings.

Issue-wise Detailed Analysis:

1. Applicability of Explanation to Section 271(1)(c):

The primary issue was whether the Explanation to Section 271(1)(c), which was substituted with effect from 1-4-1976, applied to the penalty proceedings initiated on 28-9-1978. The revenue argued that the provision existing on the date of filing of the return should apply, as held by the Supreme Court in Brij Mohan v. CIT [1979] 120 ITR 1. The Tribunal, however, noted that the Commissioner (Appeals) correctly relied on the decision in CIT v. Raman Industries [1980] 121 ITR 405, which stated that procedural provisions are retrospective. Therefore, the Explanation applicable at the time of initiating penalty proceedings was not in force, making the reliance on the old Explanation misplaced.

2. Validity of the Penalty Imposed:

The ITO imposed a penalty of Rs. 18,460, alleging that the assessee concealed income from two trucks. The Commissioner (Appeals) quashed the penalty, stating that the ITO did not consider the assessee's replies and erroneously relied on a non-existent Explanation. The Tribunal upheld this decision, emphasizing that the satisfaction of the ITO during the proceedings is crucial and cannot be substituted by the Commissioner (Appeals). The Tribunal noted that the ITO failed to prove that the assessee's explanation was false or not made in good faith, thus failing to establish concealment.

3. Consideration of the Assessee's Replies:

The Commissioner (Appeals) found that the ITO had not considered the assessee's replies to the show-cause notices. The Tribunal agreed, stating that the ITO's failure to consider these replies violated principles of natural justice and statutory requirements. The Tribunal emphasized that the opportunity given to the assessee must be real and meaningful, and the ITO's neglect in this regard invalidated the penalty proceedings.

4. Remanding the Case:

The Tribunal debated whether to remand the case back to the Commissioner (Appeals) for fresh findings. The Judicial Member opposed remanding, arguing that the satisfaction of the ITO is paramount and cannot be substituted. The Accountant Member suggested remanding for a clear finding on rebuttal of the presumption of concealment. The Third Member concluded that the penalty should be canceled due to the ITO's failure to consider the assessee's replies, rendering the subsequent issues moot. The Third Member did not address the applicability of the Explanation as it became academic.

Conclusion:

The Tribunal dismissed the revenue's appeal, upholding the Commissioner (Appeals)'s decision to cancel the penalty. The Tribunal emphasized the importance of the ITO's satisfaction during proceedings and the necessity of considering the assessee's replies to show-cause notices. The failure to do so invalidated the penalty proceedings, and the Tribunal declined to remand the case back to the Commissioner (Appeals).