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TMI Blog2007 (9) TMI 452X X X X Extracts X X X X X X X X Extracts X X X X ..... er amended proviso to section 275 with effect from 1-6-2003, the penalty has already time-barred. 3. That on law and on facts and in the circumstances of the case, the learned CIT(A) has erred in confirming the penalty levied under section 271(1)( c ) amounting to Rs. 1,34,200 by the Assessing Officer by mis-stating the facts that the assessee appellant has come up with explanation of partial partition of immovable assets of the HUF only after issue of notice under section 148. Therefore, the interpretation of the law by the assessee was not bona fide. 4. That on law and on facts and in the circumstances of the case, the learned CIT(A) has erred in upholding the levy of penalty whereas as per explanation filed and other material placed on records no penalty in this case is called for." 3. During the course of hearing of the appeal, the assessee sought to raise the following additional ground common for all the assessment years : "1. That the order of the Assessing Officer levying penalty under section 271(1)( c ) of the Income-tax Act, 1961, is bad in law as there is no proper recording of satisfaction by the Assessing Officer at the time of initiating the penalty as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferred in the names of the respective members. The sale proceeds of land were divided among the members of the HUF and, therefore, interest income was income of the members of the HUF liable to tax in their individual capacity. However, the Assessing Officer rejected the claim of the assessee for the reasons that the so-called partition deed was not written on judicial stamp paper but on a plain paper; that the said deed was not registered with the competent authority as required under section 17( b ) of the Registration Act; that no effect for partial partition was given in the revenue record in respect of immovable properties; and that all the seven deeds vide which the lands were sold on 18-6-1996 for Rs. 35,03,499 were signed by Sh. Tarlochan Singh and not on behalf of any other co-parceners. Further, the Assessing Officer observed that as per certificate issued by the Bank of Punjab, Patiala, FDRs were in the names of Tarlochan Singh Sons, HUF. Thus, he rejected the, claim of the assessee for partial partition and held that the so-called partial partition deed dated 30-4-1978 made on a plain paper was an afterthought, fictitious and camouflage to dodge the Income-tax Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er referred to the judgment of Hon ble Supreme Court in the case of Addl. CIT v. Jeevan Lal Sah [1994] 205 ITR 244, whereby referring to Explanation 1 to section 271(1)( c ), the Apex Court had observed that the presumption of concealment arises against the assessee unless the assessee discharges the burden of proof that the failure to return correct income did not arise from fraud or gross or wilful neglect; The Assessing Officer observed that in the present case, the assessee failed to discharge the onus to prove that the failure to file correct return did not arise from any fraud or gross or wilful neglect on its part. Thus, the Assessing Officer held that the assessee had concealed the particulars of its income and thereby furnished inaccurate particulars of income. He, therefore, imposed a penalty at of the rate 200 per cent of the tax sought to be evaded as against minimum leviable at of the rate 100 per cent of the tax sought to be evaded. In this manner, the Assessing Officer imposed penalty of Rs. 2.70 lacs, Rs. 3 lacs, Rs. 3.30 lacs and Rs. 4.20 lacs for the assessment year 1997-98, 1998-99, 1999-2000 and 2000-01 respectively. 9. Aggrieved with the orders of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -limitation has to be calculated as per the provisions of section 275(1)( a ) and in a case where the additions are confirmed by the CIT(A) order imposing penalty shall be passed by the Assessing Officer within the time-limitations given in the proviso to section 275(1)( a ). In the proviso an order imposing penalty has to be passed within the time-limitation given there. In a case where the additions are not confirmed by the CIT(A) and no order imposing penalty has to be passed, the time-limitation would be as per section 275(1)( a ) in case the Tribunal uphold the additions which were deleted by the CIT(A). In the present case the addition made by the Assessing Officer was deleted by my predecessor but the same has been restored by the Hon ble Tribunal by setting aside the order of my predecessor. The time-limitation in this case therefore would be six months from the end of the month in which the order of the Tribunal is received by the CIT, Bhatinda. Thus, the penalty order has been passed by the Assessing Officer within the time-limitation. The additional ground taken up by the appellant is dismissed." 10. As regards the merits of the case, the assessee had reiterated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment order. The Hon ble Tribunal in their order have held that the conditions laid down in determination of partition have not been satisfied. The Assessing Officer, therefore, rightly held it to be an afterthought and fictitious and camouflage to dodge the Income-tax Department. The Tribunal, therefore, held that there was no partial partition on 30-4-1978 and also held that provisions of section 171(9) are applicable. Hence, the concept of partial partition would not be applicable under the IT Act after 31-12-1978. From the observations of the Hon ble Tribunal it is very clear that after the Assessing Officer issued notice under section 148 for not disclosing the interest income earned from the FDRs, the appellant came up with the explanation that partial partition of the immovable assets of HUF had taken place on 30-4-1978. This stand of the appellant was an after-thought and was fraudulent in nature to dodge the Income-tax Department. Thus, it cannot be said that the appellant was having a bona fide belief that the income was not taxable and it was due to interpretation of law. It is, therefore, held that the explanation filed by the appellant for not declaring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the penalty were passed on 30-10-2005. Thus, he submitted that the same were time-barred and the CIT(A) was not justified for upholding such orders. 11.1 As regards the merits of the additional ground, the learned counsel drew our attention to the foot in the assessment orders, where the Assessing Officer had merely mentioned that "penalty notice under section 271(1)( c ) of the Income-tax Act, 1961 for concealment/furnishing inaccurate particulars of income has been issued separately." He submitted that it is mandatory for the Assessing Officer to record his satisfaction in the assessment order before initiating the penalty proceedings under section 271(1)( c ). He submitted that there are two limbs of section 271(1)( c ) i.e., the assessee had either concealed the particulars of income or has furnished inaccurate particulars of such income. He submitted that the assessment order must show the application of mind and formation of belief of the Assessing Officer as to whether the assessee had concealed the particulars of income or furnished inaccurate particulars of income. He submitted that failure to do so is a jurisdictional defect, which vitiates the orders for imposing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 3 to section 271(1)( c ), which refers to a case of deemed concealment because of assessee s failure to furnish returns of income under section 139 of the Act and the assessment is completed under section 148. Relying on the judgment of Hon ble Supreme Court in the case of K.P. Madhusudhanan v. CIT [2001] 251 ITR 99, the learned Departmental Representative submitted that once a notice under section 271(1)( c ) is issued, the assessee has been put to notice, that the provisions thereof are to be used against him. These provisions also include the Explanation. He submitted that penalty under section 271(1)( c ) in the present cases was leviable in terms of Explanation 3 to section 271(1)( c ) of the Act. 13. The learned counsel for the assessee submitted, by way of rejoinder, that the question of invoking the Explanation 3 would arise only if the Assessing Officer had correctly assumed jurisdiction at the time of initiating the penalty proceedings. He submitted that in the present case, the Assessing Officer failed to record this satisfaction at the time of initiating the proceedings. Therefore, the orders for imposing penalty cannot be sustained. 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the relevant assessment is subject-matter of appeal before the CIT(A), and the appeal is decided by the CIT(A) by his order passed after 1-6-2003, the order for imposing penalty should be passed within one year from the end of the financial year in which the order of the CIT(A) was received by the Chief CIT/CIT, whichever is later. This would apply only to orders of the CIT(A) passed after 1-6-2003. In this case, the date on which the CIT(A) decided the quantum appeals was 27-6-2003. When the case was remanded by the CIT(A), the Assessing Officer referred to the date of receipt of the order of the Tribunal by the CIT(A), Bhatinda on 16-6-2005. However, there is no date for receipt of order of CIT(A) by the CIT, Bhatinda. Though the learned Authorised Representative has taken this ground before the Bench and effectively argued the same, yet the actual date of receipt of the order was not mentioned. Be that as it may, a copy of the order of the CIT(A) in quantum appeals was placed before the Bench against which the revenue had filed appeals before the Tribunal. The date of service of the order of CIT(A) in the quantum appeals on the CIT has been mentioned in the memorandum of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roper and valid satisfaction in the assessment order. In the case of CIT v. Munish Iron Store [2003] 263 ITR 484 (Punj. Har.), the Hon ble Punjab and Haryana High Court has held that the jurisdiction to impose penalty flows from recording of the satisfaction of the Assessing Officer regarding concealment of income. In case there is a defect in assumption of jurisdiction, the same cannot be cured. While taking such view, the Hon ble High Court relied on the judgments of Hon ble Apex Court in the cases of Jain Bros. v. Union of India [1970] 77 ITR 107 and D.M. Manasvi v. CIT [1972] 86 ITR 557 (SC). Besides, reliance was also placed on the two judgments of Hon ble Delhi High Court in the cases of CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi) and Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi). 15.1 In the case of CIT v. B.R. Sharma [2005] 275 ITR 303 (Delhi), the Hon ble Delhi High Court has held that the Assessing Officer is under an obligation to record satisfaction prior to the initiation of the penalty proceedings in terms of section 271(1)( c ) of the Act. The order of the Assessing Officer should apparently show that there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6-2-2003, shows that there is no application of mind and no opinion has been formed and no satisfaction has been recorded by the Assessing Officer before or at the time of initiating penalty proceedings. In fact, in the impugned order it is recorded that penalty proceedings under section 271(1)( c ) for furnishing inaccurate particulars of the income had been initiated separately. This itself shows that without even mentioning the essential ingredients which the Assessing Officer is obliged to record for initiation of penalty proceedings, the impugned order was passed to pass an order initiating penalty proceedings while passing the assessment order in a routine manner would be an apparent violation of the relevant provisions. In our opinion, the impugned order clearly suffers from the infirmity of non-application of mind. The Assessing Officer had failed to record requisite satisfaction in consonance with the settled principles of law." The facts of the present care are identical to the facts of the case before Delhi High Court. Therefore, this judgment is squarely applicable to the facts of the present case. 15.4 Similar view was taken by the Hon ble Delhi High Court in the ..... 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