9911796707
TMI Blog2001 (12) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... were issued and the assessments were subsequently completed accepting the additional income as declared. A copy of re-assessment order for the assessment year 1985-86 is given on page 8 of the paper book as a specimen. This order clearly shows that after the assessments were made under section, 143(1) the assessee filed revised returns on 20-11-1990 and that as the income disclosed was substantial and was filed after the completion of assessment under section 143(1), the return of income had to be regularised by issue of notice under section 148 and this notice was issued under section 148 on 23-1-1991. At the end of the assessment order, the Assessing Officer observed as under: "It is gathered that the above disclosure is made by the assessee after the detection by the ITO, Investigation, Jalgaon. Hence the same is treated as concealed income. Proceedings under section 271(1)(c) are therefore, initiated". In response to notice under section 271(1)(c) of the Act, the assessee had sent his reply in which it was stated that he had offered for taxation certain deposits and had paid tax in full with the revised returns. The revised returns had been filed in good faith and full and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and the material available on record. (ii) Revised returns filed by the assessee on 20-11-1990 were after completion of the assessment under section 143(1) and also after the undisclosed fixed deposits were detected by the Department." 4. The assessee sent his detailed reply dated 10-8-1992 to the above notice, a copy of which has been placed on pages 23 to 32 of the paper book. In this reply, it was brought out in para 8 that the assessee had brought to the notice of the Assessing Officer that the returns were filed much before the ITO, Investigation, Jalgaon, recorded a statement of the assessee. It was further explained that the said ITO, Investigation, Jalgaon, had not detected any concealment of income. He had only recorded the assessee's statement under section 131 of the Act on 20-12-1990 after the revised returns were filed. It was also clarified that the sources of various investments in FDRs had come out of the assessee's past savings for about 40 to 45 years and since the assessee did not have any documentary evidence thereof, he had decided to file the revised returns to buy mental peace as he was a heart patient. It was submitted in para 11 that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad detected during the course of assessment proceedings by the Assessing Officer, and not otherwise. According to the learned counsel, the CIT failed to bring on record any cogent material to substantiate his claim that the orders passed by the Assessing Officer dropping the penalty proceedings under section 271(1)(c) were erroneous and prejudicial to the interest of Revenue. The learned counsel drew our attention to the two reasons given by the learned CIT in his notice under section 263 and submitted that the same are incompatible and inconsistent with each other. If it was the case of the learned CIT that no proper enquiries were made by the ITO, action under section 263 could be justified, but in that case, question of going to merits of leviability of penalty should not have arisen. If no enquiries had been made, question of detection of concealment could not have arisen. If the learned CIT was of the opinion that the order of the Assessing Officer for dropping penalty was based on wrong reasoning, then it would amount to only substitution of the discretion of the Assessing Officer with that of the C.I.T. The learned counsel drew our attention to para 4 of the order of the C.I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt concerns from whom the assessee had purchased sugar and rice, it was not shown that the assessee was in the knowledge of the contents of an order sheet entries to show that the ITO had revealed his mind either to the assessee's representative or to the assessee. There was also no material to show that these summons were served on the parties before the assessee filed a second return offering additional income. There was nothing on record to say that the banks to whom the ITO had issued letters had in turn relayed the information to the assessee about the enquiries made with them. Whatever might have happened behind his back, the assessee was unaware of them till filing of the second return. It was therefore, held that since there was no clinching evidence to the contrary, the second return was to be treated as a revised return or not, what was material was that the disclosure was full and complete and was made voluntarily i.e. prior to detection by the Department. The learned counsel further made a reference to page 1634 of the commentary on Income-tax by Kanga and Palkhivala wherein it has been commented that if the assessee having filed a false return made a voluntary disclosu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al available on the case file of the assessee, to prove that the assessee had concealed the particulars of his income, that the assessee filed returns after the FDRs were detected by the Department and after the assessee was questioned by the ITO (investigation). Yet, the Assessing Officer chose to drop the penalties. The learned D.R. submitted that the fact that the penalties were dropped without application of mind, is also clear from the fact that the ITO did not put the date while dropping the penalty. In his office note, the Assessing Officer has mentioned that the assessee has filed the written submissions on 9-5-1991, whereas the written submissions are dated 8-5-1991. The learned D.R. submitted that the explanation filed by the assessee is so blind and so devoid of basic facts that no "Prudent Officer" would accept the explanation, particularly when such huge material against the assessee was available on record. He relied upon the judgment of the Supreme Court in the case of Smt. Tara Devi Agarwal v. CIT [1973] (88 ITR 323) where it has been held that if the Assessing Officer completes the assessment without making proper enquiries, action under section 263 can be taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid judgments, it becomes apparent that the Assessing Officer while dropping the penalties neither made reference to the plethora of evidence available on record, nor made further enquiries, which he was duty bound to make before deciding the issue of dropping of the penalties, nor exercised discretion in a proper manner. He therefore, concluded that the orders of the CIT deserve to be upheld. 10. As a rejoinder, Shri Patil, the learned counsel for the assessee submitted that it was clear from the arguments of the learned D.R. that this was not a case of non-enquiry. He was also not justified in stating that there was no office note as the same has been reproduced by the learned CIT in his order. The learned counsel submitted that the learned Sr. D.R. also failed to note that the assessments as well as the orders dropping penalty were passed by the same Officer. Statements to which reference was made were taken after the assessee had already filed returns and in fact such statements revealed that before filing of the returns, the Department had no definite information or had not detected any concealment. Considering that the same ITO who made the assessments has dropped the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in law and consequently it cannot be prejudicial to the interests of the Revenue and hence the action of the CIT in such a case cannot be justified. The following observations of the Hon'ble Madras High Court on pages 156 and 157 of the said judgment are very significant. "In our judgment, the expression 'prejudicial to the interest of the Revenue' is not to be construed in a petty-fogging manner, but must be given a dignified construction. It may be noted that the use of expression 'Revenue' in our opinion, is significant. It denotes some kind of abstraction or symbol in the same sense in which the expression 'crowns' is used to distinguish it from any person enthroned. The interests of the Revenue is not to be equated to rupees and paise, merely. There is a biblical saying that we do not live by bread alone. Varying this saving, it may be said that the Revenue does not live by tax alone. In this sense, therefore, the interests of the Revenue are not tied up merely with realising as much Revenue as possible, willy nilly, merely looking to the productivity aspect of taxation. The jurisdiction of the CIT under section 263 is undoubtedly a supervisory jurisdiction. It is intended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income was disclosed in the said revised returns and the same were filed before the issue of notice under section 148 by the Assessing Officer. It was further pointed out that in the course of assessment, no addition to the income declared was made and therefore, there was no case of concealment of income or furnishing of inaccurate particulars of income as per the revised returns. It was stated that the assessee had co-operated in the assessment proceedings as well as had paid all taxes before filing the revised returns. It was also submitted that since there was no detection of concealment of income, no penalty for concealment of income was leviable and in support of this contention, the assessee relied upon three judgments of the Hon'ble Supreme Court referred to at page 2 supra The Assessing Officer after considering the submissions made by the assessee passed a brief order dropping penalty proceedings initiated under section 271(1)(c) of the Act. But at the same time, he wrote an office note which has been reproduced at page 2 supra. A careful reading of the said office note which is part and parcel of the Assessing Officer's order under section 271(1)(c) clearly indicates t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The meaning of the word 'concealment' as found in Shorter Oxford English Dictionary, 3rd Edition, Vol. I, is as follows: "In law, the international suppression of truth of fact known, to the inquiry of prejudice of another CIT v. J.K.A. Subramania Chettiar (1977) 110 ITR 602, 608 (Mad.)." 16. Considering that the same ITO who made the assessments had dropped the penalty showed that he had made the necessary enquiries and was in full knowledge of the facts and had correctly appreciated them in dropping the penalty. It cannot be said that he has unjudiciously used his discretion in coming to the conclusion that the penalty was required to be dropped. Penalty being a matter of discretion, the learend CIT under section 263 had no jurisdcition to substitute his own discretion in place of that of the Assessing Officer In this behalf, the decision of the Bombay High Court in the case of Gabriel India Ltd. is very relevant. The decision is to be seen also in the context of the fact that under section 271(1)(c) of the Act, the CIT has no power to levy penalty and that discretion to levy or not to levy is given only to the Assessing Officer and not to the CIT. The CIT cannot indirectly do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, it is evident that the Assessing Officer exercised his discretion to drop the penalty proceedings judiciously after taking into consideration the entire material available before him. The facts that the assessments as well as the orders dropping the penalty were passed by the same officer and that the statements which were recorded after filing of the returns indicate that the Department had no definite information and had not detected any concealment. 3. The fact that the same ITO who made the assessments had dropped the penalty showed that he had made necessary enquiries and was in full knowledge of the facts and had correctly appreciated them in dropping the penalty. It cannot be said that he has unjudiciously used his discretion in coming to the conclusion that the penalty was required to be dropped. Penalty being a matter of discretion, the Ld. CIT, under section 263 had no jurisdiction to substitute his own discretion in place of that of the Assessing Officer. 4. In coming to the aforesaid conclusions, he has relied on the decision of jurisdictional High Court in the case of Gabriel India Ltd. and the decisions of Madras High Court in the case of Venkatakrishna Ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department has failed to prove this fact, an adverse inference has been drawn against the Revenue. Hence, no evidentiary value will be given to this alleged letter while coming to any conclusion. 4. On 24th September, 90, the said officer summoned the Bank Manager requesting him to furnish the relevant details with dates and numbers of FDRs. In response to the same, the detailed information was furnished by the Bank as per its letter dated 3-11-1990 as under:-- ------------------------------------------------------------------------------- Name TD.R. No. Date of TD.R. Amount (Rs.) ------------------------------------------------------------------------------- 1.Shri J.T.Mehta & 76921 14-12-1984 1,00,000 Smt. M.J.'Mehta 2.Shri J.T. Mehta & 77656 2-9-1985 1,00,000 Smt. M.J. Metha 3.Shri J.T. Mehta 135466 3-10-1986 1,00,000 Smt. M.J. Metha 4.Smt. M.J. Mchta & 249835 15-5-1987 85,000 Shri J.T. Mehta w.e.f. 9-5-1987 5. Smt. M.J. Mehta & 723636 5-1-1988 80,000 Shri J.T. Mehta w.e.f. 7-9-1987 6.Shri J.T. Mehta & 723759 19-2-1988 3,50,000 Smt. M.J. Mehta ------------------------------------------------------------------------------ 5. Immediately thereafter, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts stated above and the explanation offered by the assessee, the question to be considered is whether the order of the Assessing Officer dropping the penal proceedings under section 271(1)(c) can be said to be erroneous and prejudicial to the interest of Revenue so as to confer urisdiction upon the CIT under section 263. An order can be said to be erroneous when it is not in accordance with law. Whether an order is erroneous and prejudicial to the interest of Revenue has to be seen with reference to the reasonings given by the CIT for assuming jurisdiction under section 263 and the explanation offered by the assessee which persuaded the Assessing Officer to drop the penal proceedings as well as the provisions of section 271(1)(c). The office note reveals that Assessing Officer dropped the penal proceedings solely by accepting the explanation of the assessee that no concealment had been detected by the Assessing Officer during the course of assessment proceedings and the declaration of higher income was made prior to the issue of notice under section 148. The show-cause notice issued by the CIT shows that provisions of Section 263 were invoked for the reasons that the revised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cond aspect of the explanation of the assessee was that full particulars of the Fixed Deposits and interest earned thereon were voluntarily disclosed by the assessee in the revised returns prior to the issue of notice under section 148. In my view, this explanation also had no legs to stand. A valid revised return can be filed under section 139(5) before the expiry of one year from the end of the assessment year or before the completion of the assessment whichever is earlier. This clearly means that revised return cannot be filed after the completion of the assessment proceedings. That is what the Hon'ble Supreme Court also held in the case of Esthuri Aswathiah v. ITO [1961] 41 ITR 539. The relevant portion of the judgment appearing at pages 543 to 544 is being reproduced as under:-- "Under section 22, sub-section (3), an assessee may submit a revised return if after he has furnished the return under sub-section (2) he discovers any omission or wrong statement therein. But such a revised return can only be filed "at any time before the assessment is made" and not thereafter. The return dated February 26, 1957, was submitted after the assessment was made pursuant to the earlier ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee deliberately. Therefore, in my view, the Assessing Officer could not consider this aspect while dropping the penalty particularly when the facts relating to deposits in the Bank and the earning of interest thereon was found by the Assessing Officer in the course of survey by him under section 133. 28. In view of the above discussion, in my opinion, none of the aspects of assessee's explanation was relevant for dropping the penalty proceedings. Consequently, the CIT was legally justified in assuming jurisdiction under section 263 by holding that the impugned order of the Assessing Officer was erroneous and prejudicial to the interest of Revenue inasmuch as the assessee has not disclosed the particulars of his income in the original return and there was no valid disclosure in the so-called revised returns. 29. Before parting with this order, I would like to mention that Mr. Patil, the Ld. counsel for the assessee had submitted that CIT had given certain findings regarding concealment of income and therefore, Assessing Officer was bound to pass an adverse order against the assessee in the penalty proceedings. It is hereby made clear that Assessing Officer would make an indepe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed jurisdiction under section 263. He found the order of Assessing Officer erroneous and prejudicial to the interest of Revenue for the following two reasons: (i) Penalty proceedings under section 271(1)(c) were dropped by the I.T.O. without proper verification of the facts and material available on record. (ii) Revised returns filed by the assessee on 20-11-1990 were after completion of the assessments under section 143(1) and also after the undisclosed fixed deposits were detected by the department. 3. Being aggrieved, the assessee preferred appeal before the Tribunal. 4. The learned Judicial member differed from the learned Accountant Member. In support of the levy of penalty, the learned Judicial Member has given the following two reasons: (i) Concealment of particulars of income has to be seen with reference to the original return filed by the assessee. The legal fiction created by Explanation to section 271(1)(c) can be invoked for holding that particulars of income were concealed by the assessee at the time when original returns were filed. (ii) A valid revised return can be filed under section 139(5) before the expiry of one year from the end of the assessment year or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served as under: "On the receipt of such information from the Bank, the said Officer issued the letter dated 8-9-1990 to the assessee requesting to him to furnish the details of Fixed Deposits owned by him. According to the said Officer, the assessee failed to comply with this letter. This fact has been disputed before us by submitting that no such letter was ever received by the assessee. The Senior D.R. was directed to produce the original record to prove this fact. Subsequently, the senior D.R. informed that the said letter was not available on the record. Even the order sheet was not produced to prove this fact. The CIT has specifically stated in respect of this letter in para 4 of his order. It is difficult to believe that CIT would have referred to such letter without its existence. However, since the assessee has denied categorically about the service of such letter and the department has failed to prove this fact, an adverse inference has been drawn against the Revenue. Hence, no evidentiary value will be given to this alleged letter while coming to any conclusion." It was alleged by Shri Patil that the entire edifice of the department's case was based on this letter. Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) by virtue of the order being erroneous prejudice must have been caused to the interests of the Revenue. An order cannot be termed as erroneous unless it is not in accordance with law. The conclusion of Assessing Officer cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. 11. I have taken into consideration the entire conspectus of the facts. I find that the learned Judicial Member differed only on two aspects. These two aspects are not germane to the main issue. The CIT also did not revise order of the Assessing Officer on these aspects. It is not necessary to go into the controversy that whether return filed by the assessee was a revised return or return in compliance with notice under section 148. Both the parties agreed that the Assessing Officer did not consider the said return as non est return. The assessment was completed on the basis of this return only. It is a fact that the return was filed prior to the issuance of notice under section 148. The assessee made a request to regularise the return by issuance of notice under section 148. Notice in conformity with the request was issued. Return was regularised. The bedroc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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