9911796707
TMI Blog2003 (1) TMI 272X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer and consequently the penalty proceedings were not attracted in case of the assessee." 3. The brief facts of the case are that the assessee derives income from export of garments in the status of Individual. The return of income was filed on 29-10-1997 along with audit report under section 44AB declaring a loss of Rs. 36,80,600 as under:-- Net loss from Kiran Modes Rs. 37,49,739 Income from other sources Rs. 69,138 ------------- Rs. 36,80,601 or & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not applicable to the facts of the assessee's case. It was, therefore, held by the AO that the assessee has furnished inaccurate particulars of his income and concealed the same to the extent of Rs. 36,80,600 as surrendered and, accordingly, imposed minimum penalty at Rs. 14,45,240 vide order dated 30-8-2000. 7. On first appeal before the CIT(A), it was submitted by the assessee that he has filed every precise details as demanded from him and at no stage of assessment proceedings, he denied the information as demanded. The assessee also objected the remark of the AO that the assessee had fradulently claimed the loss, which is not well founded and the same is most casual and deserves no credence. The AO, at no stage of proceedings, has brought on record any material to prove that the assessee, in any manner, furnished inaccurate particulars of his income or had, in any manner, committed fraud. The rejection of assessee's explanation does not result in the levy of penalty. There was no specific enquiry into the correctness, truthfulness or accuracy of the particulars furnished by the assessee and concealment was not proved. It was, therefore, submitted that the penalty levied deserv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocally in the market at lower than normal rates. It is also not acceptable that Assessing Officer has merely rejected the explanation of the appellant so that imposition of penalty is not justified. The assessee has not been able to prove its claim of loss for the reasons given by him in assessment proceedings nor in the appellate proceedings. It is also not an acceptable argument that assessee agreed to surrender merely to purchase peace and therefore imposition of penalty was not justified. In view of the decision of the Hon'ble Supreme Court in the case of Union of India v. Banwarilal Agarwal 238 ITR 461it has been categorically held that there is no provision in the Act sanctioning compromise with the assessee by the I.Tax department that no penal action would be undertaken. Therefore it cannot be held that the assessee having agreed to surrender, no penal action should have been taken. 2.9 The position of law relating to concealment stands changed after insertion of Explanation to section 271(1)(c). Therefore, in view of decision in the case of B.A. Balasubramanian and Bros. v. CIT 236 ITR 977, the earlier decision in the case of Anwar Ali is no longer good law and Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & General Mills Ltd., Shiv Lal Tak v. CIT [2001] 251 ITR 373 (Raj.), Ess Ess Marbles (India) (P.) Ltd. v. Asstt. CIT 24 Tax World 352 (ITAT, Jaipur Bench), Ram Saran Gupta's case [1997] 20 Tax World 196, CIT v. Rhone Poulenc Ltd. [2001] 168 CTR (Bom.)45, Asstt. CIT v. D.N. Ghiya [2000] 23 Tax World 383 (ITAT, Jaipur Bench), Bansiwala Iron & Steel Re-Rolling Mill's, Manjit Singh, Baldev Singh Commission Agents Rajasthan Vanaspati Products (P.) Ltd., Chiranjilal Tak, Ramsaran Gupta v. Asstt. CIT [1997] 20 Tax World 76 (ITAT, Jaipur Bench), Asstt. CIT v. Abril Pharmaceuticals (P.) Ltd. [1999] 70 ITD 206 (Indore), Kejriwal Bros. v. Asstt. CIT [1997] 60 ITD 502 (Pat.), Prabhat Oil Traders v. ITO [1996] 56 ITD 24 (Ahd.), Balaramakrishna Engg. Contractors Corpn. V. Dy, CIT [1996] 56 ITD 411 (Hyd.), Shri Ganesh Sizing Factory v. ITO [2001] 25 Tax World 117 (ITAT, Jaipur Bench), ITO v. Madan Mohan Service Station [2001] 26 Tax World 186 (ITAT, Jaipur Bench), Rani Sati Coal Suppliers v. ITO [2001] 26 Tax World 440 (ITAT, Jaipur Bench), CIT v. Aggarwal Pipe Co. [1999] 240 ITR 880, 882 (Delhi), CIT v. Mecon Builders & Engineers [2001] 117 Taxman 246 (Delhi), CIT v. C.J. Rathnaswamy [1997] 223 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 93,000 as additional income, and applying Explanation 1(B) to section 271 imposed a penalty on the assessee. The Appellate Tribunal cancelled the penalty, inter alia, for the reason that in the notice initiating penalty proceedings the assessee was not intimated about the proposed action under Explanation 1(b) to section 271(1)(c); but the High Court, on a reference, held that the imposition of penalty was valid. On appeal to the Supreme Court: Held, affirming the decision of the High Court, that the penalty was validly levied. The Explanation to section 271(1)(c) is a part of section 271. When the Assessing Officer or the Appellate Assistant Commissioner issues a notice under section 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By virtue of the notice under section 271 the assessee is put to notice that, if lie does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, and, consequently be liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguishable and not applicable to the facts of the present case. 12.6 In the case of Rhone Poulenc Ltd., there was a finding of the Tribunal that when the assessee conceded an ad hoc figure of underassessment under a settlement following a debated claim for depreciation, it was held by the Hon'ble High Court that this being a pure finding of fact, no substantial question of law arises. Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation given in this regard was only general, stock register was not maintained and, therefore, it was not possible to verify the claim of damaged stock and also no material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguishable and not applicable to the facts of the present case. 12.7 In the case of D.N. Ghiya, it was found by the Tribunal that the surrender was made prior to detection of any concealment and to buy peace and also to avoid litigation. Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and not applicable to the facts of the present case. 12.12 In the case of Ramsaran Gupta [1997] 20 Tax World 76 (Jp.), it was held that simply on the basis of assessee's agreeing to addition, penalty cannot be sustained, revenue must prove mens rea Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation given in this regard was only general, stock register was not maintained and, therefore, it was not possible to verify the claim of damaged stock and also no material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguishable and not applicable to the facts of the present case. 12.13 In the case of Abril Pharmaceuticals (P.) Ltd., the declared loss was reduced to nil. It was held that it is not a case of concealment as the assessment proceedings are different than the penalty proceedings. Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation given in this regard was only general, stock register was not maintained and, therefore, it was not possible to verify the claim of damaged stock and also no material was produced to disapprove the findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch as could not be substantiated. Explanation given in this regard was only general, stock register was not maintained and, therefore, it was not possible to verify the claim of damaged stock and also no material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguishable and not applicable to the facts of the present case. 12.18 In the case of Madan Mohan Service Station, the penalty was deleted as finally assessed loss was Rs. 7,031 after the voluntary surrender of cash credit of Rs. 61,000. Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation given in this regard was only general, stock register was not maintained and, therefore, it was not possible to verify the claim of damaged stock and also no material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguishable and not applicable to the facts of the present case. 12.19 In the case of Rani Sati Coal Suppliers, the penalty was deleted on the addition of cash credit. Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation given in this reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation given in this regard was only general, stock register was not maintained and, therefore, it was not possible to verify the claim of damaged stock and also no material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguishable and not applicable to the facts of the present case and it was held in the case of K.P. Madhusudhanan [2001] 251 ITR 99 that the law laid down in the case of Sir Shadilal Sugar & General Mills Ltd. is not a good law after addition of the Explanation to section 271. 12.23 In the case of S. Sankaran, the penalty was deleted on the ground that mere addition to the income at the instance of assessee would not warrant a finding of concealment or the levy of penalty under section 271(1)(c) and the decision in C.J. Rathnaswamy's case was followed. Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation given in this regard was only general, stock register was not maintained and, therefore, it was not possible to verify the claim of damaged stock and also no material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Hon'ble Supreme Court in the case of Prithipal Singh & Co. [2001] 249 ITR 670. Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation given in this regard was only general, stock register was not maintained and, therefore, it was not possible to verify the claim of damaged stock and also no material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguishable and not applicable to the facts of the present case. Further, in the case of P.R. Basavappa & Sons, it was held that the decision in Prithipal Singh & Co.'s case [1990] 183 ITR 69 is in respect of assessment year 1970-71, i.e. before insertion of the Explanation. Therefore, this case is also not applicable to the facts of the assessee's case. 12.28 In the case of Saran Khandsar Sugar Works, the finding that the assessee had agreed to a higher assessment on the condition that no penalty would be imposed, was a finding of fact. Similarly, the finding that no actual concealment was established was also a finding of fact and, therefore, the assessee would be held to have discharged the onus under the Explanation to section 271(1)(c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be substantiated the amount added in computing the total income of such person shall be deemed to represent the income in respect of which particulars have been concealed. In this case, the AO found that the assessee has not substantiated his claim of loss and proceeded to impose the penalty which was upheld by the CIT(A). Since the assessee was unable to furnish any evidence in support of his claim of loss and without filing any revised return of income, he offered to be assessed at nil income, therefore, keeping in view that the loss claimed was such as could not be substantiated and in the absence of any contrary material against the finding of the CIT(A) and also respectfully following the decision of Apex Court in K.P. Madhusudhanan's case [2001] 251 ITR 99 no error is found in the order of the CIT(A) confirming the levy of penalty under section 271(1)(c) and, accordingly, the order of the CIT(A) is upheld. 14. In the result, the appeal filed by the assessee is dismissed. Per Shri B.R. Jain.--Unable to concur with the finding and conclusion arrived at by my ld. brother I record my dissent and proceed to pass a separate order as under:-- 2. The assessee is an exporter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r:-- 1. "It is one of the crucial facts that the garment industry began to face hard time due to global slump. Due to the slump in the overseas markets, exporters' profit margin rapidly declined. There was 6 per cent fall in export of garments in the first 8 months of the same year. 2. In the same year, the national governments of some countries banned on using azo-dyes which were used earlier in processing of fabrics. We had good business in Germany and was expecting better export value in 1996-97, but due to ban on azo-dyes, we could not retain our business in Germany. 3. There is a universal practice that once the deal (order/contract) get finalised, one cannot gear back himself for any reason. In the same year, after making final commitment to the buyer, the cost of raw materials increased, which lowered the profit margin and ultimately caused loss. 4. Meanwhile the other cost affecting factors such as salary, labour, printing, bank interest etc. also jumped and reduced the profit. To increase the production capacity, company began to use the imported machinery. Therefore, the company had to employ some additional staff. It resulted the adverse effect on profit. Salary exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the part of the Assessing Officer in saying in the penalty order that the assessee surrendered the loss only when deep investigation was started and he had no explanation to offer for the loss. The Assessing Officer has also erred in stating that there was no loss in the business and the assessee had fraudulently claimed it. There is no material before the Assessing Officer for giving such a finding. Allegation of fraud is without any basis or material on record. Even after making the assessment at nil income, loss from business stands accepted at Rs. 69,138. This has gone to equalise the income of Rs. 69,138 from other sources and brought the assessment to no income. The assessee is no where found to have accepted or admitted that he is not in a position to substantiate the claim for any of the expenses. He even did not express his inability to give such an explanation. The accounts have also not been rejected. The Assessing Officer didn't say that he is not satisfied about the correctness or completeness of the accounts maintained by the assessee nor did he show his inability of deduce the profits from business. No defects were pointed out nor any deviation found in the method of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income and concealed his income to the extent of Rs. 36,80,600 as surrendered. In fact she appears to have come to a conclusion that inaccurate particulars were filed merely because there was a surrender of loss and not otherwise. The offer to surrender was for loss to the extent to assess it at nil income. It didn't say that the income was concealed or that the particulars of income so furnished are not accurate. The assessee did not express his inability to substantiate the loss which in fact was supported by reasons and stood duly substantiated and supported by the genuine vouchers. The affidavit filed by the assessee before the authorities below also reveals that the assessee attended before the Assessing Officer on 14-2-2000 in the penalty proceedings in response to a telephonic call from the office of Assessing Officer and it is after discussion with the then Assessing Officer he felt persuaded to accept the assessment at nil income as it would result in no financial implications at all. It was also deposed by the assessee in the affidavit that he had foregone the loss to avoid protracted proceedings and to purchase peace, particularly when no financial burden was to come. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before, no penalty could have been imposed on the assessee. My view also finds support from the decision of Apex Court in the case of Suresh Chandra Mittal [2001] 251 ITR 9 (SC). In view in the fact and findings and in law there was no justification in the order of the ld. Commissioner of Income-tax (Appeals) to confirm the penalty. I, therefore, hold that the Id. Commissioner of Income-tax (Appeals) has erred in confirming the penalty of Rs. 14,45,240. The same is, therefore, directed to be deleted. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 As there is a difference of opinion between the Members, the same is required to be resolved by one or more Members of the Tribunal as nominated by the Hon'ble President, ITAT in terms of section 255(4) of the I.T. Act. Accordingly, the following question of difference is referred:-- "Whether on the facts, findings and in law there was any justification in confirming the penalty of Rs. 14,45,240 imposed under section 271(1)(c) of the I.T. Act, 1961?" 2. We direct the registry to place the matter before the Hon'ble President, ITAT. The following further question of difference may also be referred to the Hon'ble President, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see at any stage of hearing either before the AO, CIT(A) or before the Tribunal and to avoid deep scrutiny/investigation, he offered to surrender the loss in the assessment proceedings." 2. I have heard both the parties on above questions. There was no difference of opinion that question No. 1 is a comprehensive question and covers the aspect emphasized in the separate question suggested by the learned Judicial Member. In fact, the proposed question, is part of the finding of the learned Judicial Member which is supported by the Revenue. Therefore, arguments are required to be considered for disposing the matter referred to me. 3. The facts of the case are that the assessee for the assessment year 199798 submitted the return of income on 29-10-1997 declaring a loss of Rs. 36,80,600. The assessee derived income from export of garments and was entitled to deduction under section 80HHC of the Income-tax Act. But the above deduction was not claimed as it was a case of loss. The detail of income disclosed by the assessee is as under:-- Loss from business Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied upon certain case law. The Assessing Officer held that the case law relied upon by the assessee was not applicable to the facts of the case before her and, therefore, arguments of assessee were not acceptable. It is further observed in the penalty order that the assessee surrendered the loss only when deep investigation was started and he has no explanation to offer for the loss. It is stated that the assessee had fraudulently claimed the loss which he ultimately surrendered. The assessee could not even explain manufacturing defect as claimed. Accordingly, penalty of Rs. 14,45,240 which represented 100 per cent of tax sought to be evaded was imposed under section 271(1)(c) of the Income-tax Act with the approval of Dy. Commissioner of Income-tax, Circle-2, Jaipur. The penalty order bears dated 30-8-2000. 5. The assessee impugned the above levy in appeal before the Commissioner of Income-tax (Appeals) but remained unsuccessful. Accordingly, the levy was further agitated in appeal before the Appellate Tribunal. After hearing the appeal, the learned Judicial Member agreed with the finding of learned Commissioner of Income-tax (Appeals) and upheld the levy. The learned Accountant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders cancelled or that such damaged stock was sold locally in the market at lower than normal rates. It is also not acceptable that Assessing Officer has merely rejected the explanation of the appellant so that imposition of penalty is not justified. The assessee has not been able to prove its claim of loss for the reasons given by him in assessment proceedings nor in the appellate proceedings. It is also not an acceptable argument that assessee agreed to surrender merely to purchase peace and therefore, imposition of penalty was not justified. In view of the decision of the Hon'ble Supreme Court in the case of Union of India v. Banwarilal Agarwal 238 ITR 461, it has been categorically held that there is no provision in the Act sanctioning compromise with the assessee by the Income-tax Department that no penal action would be undertaken. Therefore, it cannot be held that the assessee having agreed to surrender, no penal action should have been taken. 2.9 The position of law relating to concealment stands changed after insertion of Explanation to section 271(1)(c). Therefore, in view of decision in the case of B.A. Balasubramanian and Bros. v. CIT 236 ITR 977, the earlier decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) Smt. Geet Devi's case Gurcharan Singh & Co.'s case Aditya Chemicals Ltd.'s case Saran Khandsari Sugar Work's case Southern Gas Fittings (P.) Ltd.'s case 9. All the above cases were distinguished on the ground that in the present case, the assessee did not substantiate the loss claimed by producing supporting material. The matter was taken as covered against the assessee as per explanation to section 271(1)(c) of the Income-tax Act. The onus on the assessee was not discharged. 10. The learned Judicial Member concluded as under:-- "With this, we find that there is no dispute that during the course of assessment proceedings, the assessee has offered to surrender the loss claimed at Rs. 36,80,600 and agreed to be assessed at nil income and the Assessing Officer according to the offer made by the assessee has completed the assessment at nil income. We also find that the assessee at no stage of assessment proceedings or penalty proceedings has neither proved that the loss suffered by him is true, fair and genuine nor has submitted any explanation that the claim of loss is verifiable from the books of account and vouchers including the stock register. The assessee has only cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer. In fact, in the assessment order, it was noted that the required details were filed. The learned Accountant Member further noted that in his letter dated 20-9-1999, the assessee gave reasons for having suffered losses. Those are reproduced by the learned Accountant Member as under:-- 1. "It is one of the crucial facts that the garment industry began to face hard time due to global slump. Due to the slump in the overseas markets, exporters' profit margin rapidly declined. There was 6 per cent fall in export of garments in the first 8 months of the same year. 2. In the same year, the national governments of some countries banned on using azo-dyes which were used earlier in processing of fabrics. We had good business in Germany and was expecting better export value in 1996-97, but due to ban on azo-dyes, we could not retain our business in Germany. 3. There is a universal practice that once the deal (order/contract) get finalised, one cannot gear back himself for any reason. In the same year, after making final commitment to the buyer, the cost of raw materials increased, which lowered the profit margin and ultimately caused loss. 4. Meanwhile the other cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able on record, nor shown to be confronted to the assessee. The learned Accountant Member, accordingly, observed that it was wrong on the part of the Assessing Officer to say in the penalty order that the assessee surrendered the loss only when deep investigations were started and he had no explanation to offer for the loss. There was no material before the Assessing Officer to record the finding in the penalty order that the loss in business was fraudulently claimed. The learned Accountant Member further held that the loss to the extent of Rs. 69,138 has been allowed when the income was taken at nil. It is further observed that the assessee nowhere admitted or expressed his inability to explain the loss. The books of account have not been rejected. No finding that books of account maintained were incorrect or incomplete, was recorded in the assessment order. No sale or purchase is shown to be doubted. Complete quantitative tally was available on record. No enquiry was made either in assessment proceedings or in penalty proceedings for holding that the claim of the assessee was fraudulent. The finding of fraudulent claim in the penalty order was contrary to record. The learned Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ender made by the assessee in good faith. Under such warranting circumstances and the findings as recorded herein before, no penalty could have imposed on the assessee. My view also finds support from the decision of Apex Court in the case of CIT v. Suresh Chandra Mittal 251 ITR 9 (SC). In view of the fact and findings and in law there was no justification in the order of the learned Commissioner of Income-tax (Appeals) to confirm the penalty. I, therefore, hold that the learned Commissioner of Income-tax (Appeals) has erred in con firming the penalty of Rs. 14,45,240. The same is, therefore, directed to be deleted." 13. In the above background, the Hon'ble Members disagreed and accordingly the matter has been referred to me. 14. I have heard both the parties. The learned counsel appearing for the assessee supported the proposed order of the learned Accountant Member. It has been contended that case-law cited on behalf of the assessee was fully applicable to the facts of the case and was not distinguishable. It was emphasized that the Assessing Officer in the assessment order did not whisper that the loss claimed was fraudulent. In fact, no independent enquiry was made, nor the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 1997-98. It is further pointed out that the Hon'ble Punjab & Haryana High Court though concerned with assessment year 1970-71 when Explanations 3 & 4 to section 271(1)(c) were not there, yet implication of above explanations was duly considered by the Court and this decision was approved by the Hon'ble Supreme Court. Therefore, the Revenue could not get any assistance from the decision of Hon'ble Karnataka High Court. The assessee further placed strong reliance on the affidavit of the assessee filed before the Commissioner of Income-tax (Appeals) explaining the circumstances under which the assessee agreed to get assessed at nil income. 17. The learned counsel for the assessee tried to distinguish the decision of Hon'ble Supreme Court in the case of K.P. Madhusudhanan [2001] 251 ITR 99 by pointing out that in the said case, the assessee was unable to furnish and evidence in support of his claim and had surrendered the amount treated as concealed income after he was caught by the Revenue authorities. The facts in the present case are very different. The assessee relied upon the decision of Hon'ble Supreme Court in the case of Suresh Chandra Mittal [2001] 251 ITR 9 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Member (A.M.) has also observed that the Assessing Officer has not recorded his satisfaction for furnishing the inaccurate particulars of income and concealed the income. Since the assessee himself surrendered, nothing remained for the Assessing Officer to get satisfied more than that." Sh. Chopra further contended that both the learned Members in their respective orders, relied upon the decision of Hon'ble Supreme Court in the case of Suresh Chandra Mittal [2001] 251 ITR 9. However, he submitted that the above decision was not applicable to the facts of the case. In the said case, the assessee filed revised return after search and seizure and offered higher income and returns were regularized under section 148. In the present case, no revised return was filed and verification done in the return of income for claiming loss has been found to be false and untrue. Therefore, the decision of Hon'ble Supreme Court is not applicable. Sh. Chopra further compared the two cases of Supreme Court Suresh Chandra Mittal [2001] 251 ITR 9 and K.P. Madhusudhanan [2001] 251 ITR 99 to emphasize that the decision in the case of K.P. Madhusudhnan was of later date and fully applicable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of law from the order of the Tribunal. The law is clear and explicit. Merely because this court while hearing this application may be inclined to form an opinion that the material available on record could have enabled the initiation of penalty proceedings that cannot be a substitute for the requisite finding which should have been recorded by the assessing authority in the order of assessment but has not been so recorded. A bare reading of the provisions of section 271 and the law laid down by the Supreme Court makes it clear that it is the assessing authority which has to form its own opinion and record its satisfaction before initiating the penalty proceedings. Merely because the penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at in the absence of the same being spelt out by the order of the assessing authority. Even at the risk of repetition, we would like to state that the assessment order does not record the satisfaction as warranted by section 271 for initiating the penalty proceedings." 22. I have already reproduced the assessment order at para 3 above. It is evident from the above order that no satisfaction has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year in question, the assessee had concealed its income." 24. On further appeal, their Lordship of the Supreme Court affirmed the order of the Punjab & Haryana High Court as under:-- "Order We have heard learned counsel and find that, on the facts of this case, no interference is called for. The civil appeal is dismissed. No order as to costs." It is no doubt true that the above case pertains to assessment year 1970-71 and Explanation 3 to section 271(1)(c) was added later but as is evident from extract of the judgment, the decision of their Lordships of the Punjab & Haryana High Court was given after considering Explanation 3. in fact, the decision was based on consideration of language used in main section 271(1)(c) read with clause (iii) which provided that penalty imposed was to be paid in addition to the tax payable. Their Lordships observed that "if there is no taxable income or tax assessed for payment during a particular year, the question of evasion and consequently penalty do not arise. Therefore, their Lordships emphasized that penalty has to be in addition to tax payable and if no tax is payable, the question of imposing and recovering additional amount in sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2002 provided as under in respect of above referred to amendment:-- "The existing provisions contained in clause (iii) of the aforesaid sub-section (1) provides for a penalty, in addition to any tax payable, of a sum which shall not be less than, but which shall not exceed three times the amount of tax sought to be evaded, for concealing particulars of income, or furnishing inaccurate particulars in respect thereof, Sub-section (c) of this clause proposes to amend the said clause (iii) so as to clarify that the penalty referred to therein can be levied even if no tax is payable on the total income assessed." 26. It is evident from above that the statutory provision has been amended to supersede the decision of the Hon'ble Supreme Court. The words "addition to any tax is payable" have been omitted by substituting with such expression in sub-clause (c) to sub-section (1) of section 271 to make clear that penalty can be levied even if no tax is payable on total income assessed. If the view or argument that decision in the case of Prithipal Singh & Co. is applicable only to assessment year 1970-71 or earlier year, then there was no need to introduce the above amendment. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the loss. It is observed that the assessee had fraudulently claimed the loss which he ultimately surrendered. The assessee could not even explain the manufacturing defect as claimed. It is further observed in the order that the assessee had not filed the true particulars of his income. The Assessing Officer accordingly, held that "the assessee furnished particulars of income and concealed his income to the extent of Rs. 36,80,600 as surrendered". In earlier portion of the order, the Assessing Officer has observed "since the assessee had furnished inaccurate particular of his income, penalty proceedings under section 271(1)(c) were initiated. 30. With reference to the above observations, the learned Judicial Member has agreed with the Assessing Officer, whereas the learned Accountant Member has observed that findings recorded in the penalty order are not based on any material also pointed out technical and legal error in the order that the Assessing Officer initiated penalty proceedings for furnishing inaccurate particulars of income but levied penalty for concealment of income. Thus, the Assessing Officer failed to keep in mind the distinction which exists between furnishing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is offered or an explanation is offered which is not substantiated, the amount added in computing the total income of such person shall be deemed to represent the income in respect of which particulars have been concealed. The assessee also did not file any revised return and accordingly, levy of penalty in terms of decision of Apex Court K.P. Madhusudhanan's case [2001] 251 ITR 99 was justified. 33. The learned Accountant Member took a contrary view. In order to appreciate whether Explanation 1 referred to above is applicable or not, it is pertinent to see what happened before the Assessing Officer as reflected in the order-sheet entries, photocopies of which have now been placed before me. The relevant entries are discussed hereinbelow:-- (i) The return in the present case was filed by the assessee on 2-10 1997 declaring a loss of Rs. 36,80,600. The order-sheet does not record receipt of above return. However, first entry in the order sheet relating to notice issued under section 143(2) on 21-9-1998. (ii) There is no entry relating to what happened in the next IO months. (iii) The next entry is dated 19-7-1999 recording that notice under section 143(2) has been issued to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; March, 12 57600 (5) Details proceedings regarding claims to be made from the shipping Co. (6) Reasons for increase in salary from 2 lakhs to 5.12 lakhs while the sales and production over last year are not in similar proportion. (7) Details of increase in freight expenditure. (8) Points 6 & 7 of your reasons for losses of letter dated 20-9-1999, it is not clear as to what was the reason for loss and what was done of the rejected printed cloth. To bring books of account. To bring Shri Subhash Gupta, proprietor on next hearing/The case is adjourned to 28-12-1999. It is clear from the above that the Assessing Officer had made detailed scrutiny of books of account and had found that some stock was got damaged. She wanted to know what happened to the rejected stock in printed cloth purchase account. She found that certain payments were made in cash. Some proceedings were found to have been taken by the assessee against shipping companies. She wanted to know the details of those proceedings. Reasons for increase in salary as compared to last year were also asked to be explained. The assessee was also asked to furnish details of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... last entry recorded "case discussed" is erroneous and not based on facts. It is contradictory to the entry dated 14-2-2000 where it is specifically recorded that the assessee surrendered the loss claimed and hence, assessment is being completed on nil income. In the light of entries dated 14-2-2000, assessment being completed on nil income, there was nothing to be discussed on 15-2-2000. The assessee or his representative was not present for discussion and there was no question of case discussed. I have referred to several other omissions in the order-sheet entries in the earlier portion of this order. Most pertinent omission to record is as to what happened on 20-9-1999 when the assessee explained the reasons for losses by filing written submission dated 20-9-1999. It is not noted in the order-sheet. Again, the assessee Sh. Subhash Gupta was summoned for 28-12-1999 and books of account were also directed to be produced on the above date. It is not mentioned that Sh. Gupta did not comply with the above direction or not produced books of account. On the contrary, it is noted even in the assessment order that books of account were produced and test checked. Sh. Gupta was again prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt under section 80HHC of the Income-tax Act. The loss claimed in the return even if allowed to be brought forward, could not be of much help to the assessee in the year under consideration. The brought forward loss could be adjusted in subsequent assessment years against taxable income if any. There was no immediate gain in loss assessed. This claim of the assessee has not been refuted either through material or any argument of Revenue authorities or in the proposed order of the learned Judicial Member. (ii) That return of the assessee was accompanied by audited accounts. The auditor did not point out any defect in the accounts and there is no finding that all transactions of sales and purchases and of expenses were not vouched or recorded. (iii) The assessee did claim loss in foreign trade. How the loss is suffered by a businessman, obviously when cost of goods sold and expenditure exceed the sale realizations. So there are broadly three components of loss, sale, purchases and expenditure. All the three components here in this case were supported by the entries in the regular books of account which were audited and further supported by the vouchers and other relevant mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll details and producing books of account is not made clear on record. If the assessee entertained the belief that the Assessing Officer under no circumstances is going to accept the loss claimed and that he would have to attend and be present in Income-tax department from day-to-day and, therefore, thought it better to put end to the litigation, buy peace by surrendering the loss, such belief is possible. Here, it may be noted that in the month of January, 2000, after 21 12-1999, the assessee attended/was required to attend the proceedings before the Assessing Officer on the following dates:-- 28-12-1999 11-1-2000 (over-written as 12-1-2000) 21-1-2000 27-1-2000 31-1-2000 It is not very pleasant to go and sit outside the Income-tax Department on day-to-day basis. The above circumstances have to be taken into account while deciding the issue along with the circumstances that the assessee was not to gain much if loss claimed was allowed to be carried forward as the assessee's income from business was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of his total income were disclosed by the assessee. Only on satisfaction of above conditions or some of them attracted to the facts of the case, the addition or disallowance can be treated as deemed concealment for purpose of clause (c) above. In the case of K.P. Madhusudanan [2000] 246 ITR 218, the decision relied upon by the Revenue and affirmed by the Supreme Court, their Lordships of Kerala High Court observed about this explanation as under:-- "Explanation 1, which primarily concerns the case at hand, automatically comes into operation when, in respect of any facts material to the computation of total income of any person, there is failure to offer an explanation or an explanation is offered which is found to be false by the Assessing Officer or the first appellate authority or an explanation is offered which is not substantiated. In such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which particulars have been concealed. As per the provisions of Explanation 1, the onus to establish that the explanation offered was bona fide and all facts relating to the same and material to the computation of his in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be recorded in assessment proceedings cannot be recorded for the first time by appellate authority in the penalty order. 39. Further it is not possible to agree with the Assessing Officer or Commissioner of income-tax (Appeals) that the assessee was not able to substantiate his explanation. The assessee had claimed loss and complete details of sales, purchases and expenditure were available in the audited books of account maintained by the assessee in the regular course of business. He also gave reasons and background in which loss had occurred. The details asked for, were also supplied from time to time. The details of freight expenses were also furnished. Evidence of proceedings taken against Shipping Co. was also given. The assessee's proprietor also appeared when summoned by the Assessing Officer from time to time. There is no finding by the Assessing Officer that the claim relating to damaged and defective goods could not be verified from the evidence produced by the assessee. In fact, from the entries in the order-sheet, it is clear that she had found instances of sale cheaper and damaged goods recorded in the accounts maintained by the assessee and produced before her. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accurate particulars of income did not arise. The ratio of the other case i.e. of K.P. Madhusudanan [2001] 251 ITR 99 is not applicable to the facts of the case as in the said case the assessee was found to have invested Rs. 93,000 from undisclosed sources. The assessee did not disclosed the sources of above investment in the course of assessment proceedings or during the course of penalty proceedings. The matter was taken as fully covered against the assessee under Explanation 1(B) to section 271(1)(c) of the Income-tax Act. No such finding can be recorded in this case. It is further pertinent to note that the Assessing Officer while computing income at nil allowed loss to the extent of Rs. 69,138 and disallowed the balance loss. No penalty under section 271(1)(c) can be imposed in respect of above amount of Rs. 69,138. Now what is the material difference in facts relating to loss of Rs. 69,13 8 and the rest of the loss? How loss to the extent of Rs. 69,138 is treated as substantiated and not the rest. The Revenue has no answer. In the light of above discussion, I agree with the view taken by the learned Accountant Member that the case of concealment of income or furnishing of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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