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TMI Blog2008 (8) TMI 607X X X X Extracts X X X X X X X X Extracts X X X X ..... rs passed by the CIT (Appeals) cancelling the penalties of Rs. 3,20,290 and Rs. 1,66,650 respectively imposed by the Assessing Officer under section 271(1)( c ). The facts giving rise to the appeals are discussed below : Smt. Prabhavathi Dharam Singh 3. The assessee is an individual deriving share income and income from property. In respect of the assessment year 2004-05, she filed a return of income on 6-1-2005 declaring a total income of Rs. 40,01,470 in addition to agricultural income of Rs. 3,39,885. While completing the assessment under section 143(3), the Assessing Officer noticed that the assessee along with her two sons, Dr. Ajay Dharam Singh, Shri Vijay Dharam Singh and daughter Mrs. Priyadarshini Chandra Singh had entered into an agreement with M/s. S.B. Constructions of Bidar for joint development to construct a commercial complex in the premises bearing No. 40/12, Kumara Krupa Road, Bangalore. The property was owned by the assessee and her three children. As per the agreement, M/s. S.B. Constructions was to construct commercial complex and hand over the same to the owners as per the terms and conditions reduced into writing in the joint development agreement da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onse or explanation from the assessee. The Assessing Officer therefore added the amount as unexplained investment under section 69 of the Act. 6. The Assessing Officer also noticed that a release deed dated 9-2-2004 had been entered into between S.B. Constructions and the owners of the property at Kumara Park under which it was stated that the assessees made available to the developer reusable material extracted from the existing building which was demolished, to the extent of Rs. 3,70,000 which would be adjusted at the time of final settlement of accounts. It was further stated in the release deed that the final settlement amount was Rs. 25 lakhs payable to the developer from which the amount of Rs. 3,70,000 would be deducted. The security deposit of Rs. 4 lakhs was also to be deducted. The Assessing Officer took the view that ultimately some amount was received by the assessee and the other co-owners of the property under the release deed, out of which Rs. 55,000 was received by the assessee for her share. It is seen from the assessment order that in order to extract the materials worth Rs. 3,70,000, the assessee had to incur expenditure of Rs. 1,50,000 in demolishing the old ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing additions : (1)Deposit forfeited by M/s. S.B. Constructions (assessee s share) : Rs. 1 lakh (2)Capital introduced Rs. 10,95,904. (3)Assessee s share of the amount received (net) on sale of old materials - Rs. 55,000. It may be stated that the aforesaid additions were made for substantially the same reasons given in respect of the additions made in the case of Smt. Prabhavathi Dharam Singh, the assessee s mother. However, so far as the addition of Rs. 10,95,904 is concerned, it may be clarified that this addition was made on the basis of the statement of affairs as on 31-3-2004 filed by the assessee in the course of the assessment proceedings and the Assessing Officer is not right in saying that the statement of income was filed along with the return of income. In fact, the ld. Sr. DR fairly stated that the statement of affairs was filed in the course of the assessment proceedings and not along with the return of income 12. Penalty proceedings for concealment of income were taken up. The assessee s reply to the penalty notice was the same as in the case of his mother, Smt. Prabhavathi Dharam Singh, which we have extracted earlier. As in the case of Smt. Prabhavath ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004-05, the assessee submitted an explanation which was identical with that submitted by his mother, Smt. Prabhavathi Dharam Singh. The Assessing Officer was not convinced by the explanation and for the reasons given by him in the penalty order in the case of Smt. Prabhavathi Dharam Singh, he proceeded to levy the minimum penalty of Rs. 1,66,650 on the ground that the assessee has concealed his income in the return. 18. As regards the assessment year 2003-04, the assessee explained in the course of the penalty proceedings that the omission to include salary income in the return was due to inadvertence and was not intentional and it was pointed out that the tax on the salary was already deducted by the company. The Assessing Officer did not accept the explanation on the ground that the assessee could have filed a revised return of income by including the salary. He observed that it was only when he pointed out the omission in the course of the assessment proceedings, the assessee agreed to include the same in the total income and thus but for the scrutiny of the return, the salary income would have gone untaxed. The Assessing Officer therefore held that it was a fit case for pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (Appeals) passed a separate order containing his reasons for cancelling the penalty. In addition to holding that the Assessing Officer has not properly recorded the requisite satisfaction in the assessment order that the assessee concealed his income or furnished inaccurate particulars thereof, he also held that the assessee cannot be said to have concealed his income by way of salary because the employer-company had deducted tax from the salary and deposited the same with the Government and further that the bona fide of the assessee in submitting his explanation for the omission to include the salary in the return has not been questioned by the Assessing Officer. He accordingly cancelled the penalty. 20. Thus, all the penalties imposed by the Assessing Officer in all the cases of the assessees were cancelled by the CIT (Appeals). 21. It is against the aforesaid orders of the CIT (Appeals) cancelling the penalties that the revenue has filed the present appeals. Mr. K.P. Rao, ld. Addl. CIT (DR) strongly relied on section 271(1B) of the Act introduced by the Finance Act, 2008 with retrospective effect from 1-4-1989, which says that if there is a direction in the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which continue to apply to the present cases because of the fact that the assessment orders do not contain any direction for initiating penalty proceedings. Our attention was also drawn to the judgments of the Supreme Court in Guljag Industries v. CTO [2007] 293 ITR 584 and Union of India v. Dharamendra Textile Processors [2007] 295 ITR 244. 22. On a careful consideration of the question as to whether the words "Penalty under section 271(1)( c ) are initiated separately" appearing at the end of the assessment orders can be construed as a direction to initiate proceedings under the section, it seems to us that it would be too hyper-technical a view to hold that these words cannot be so construed. The Chambers English Dictionary defines the word "direction" as under : "aim at a certain point: the line or course in which anything moves or on which any point lies: guidance: command: the body of persons who guide or manage a matter: the address, or written name and residence of a person." According to the Black s Law Dictionary , 7th Edn., a direction has been defined inter alia as : "an order, an instruction on how to proceed (the Judge s direction to the jury)". It h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 271(1)( c ) read with section 274 is also dated 31-1-2006. These are facts borne out from the assessment record. The chronology of events shows that it is only pursuant to the assessment framed and the words "penalty under section 271(1)( c ) are initiated separately" that the penalty proceedings were initiated. Therefore, not-withstanding that the quoted words read in isolation and without having regard to the issue of penalty notices, the order sheet entries, etc., cannot be strictly construed as a direction, still it seems to us that the better view on the facts would be to go by the substance of the matter without attaching undue importance to the grammar and hold that the quoted words have to be understood only as a direction for initiation of penalty proceedings under section 271(1)( c ) of the Act. We accordingly accept the contention of the ld. Addl. CIT(DR) that section 271(1B) introduced retrospectively with effect from 1-4-1989 would govern the present cases. We accordingly hold that the CIT (Appeals) was not right in holding that the assessment order did not contain the requisite satisfaction. 24. The ld. representative for the assessee had strongly re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght of these judgments, it is the duty of the Assessing Officer to record a clear finding in the penalty order that the assessee was guilty of concealment of income or furnishing inaccurate particulars of income. We have already seen that the penalty orders in the present cases are identically worded, except in the case of Vijay Dharam Singh for the assessment year 2003-04. So far as the forfeiture of the deposit made by the developer is concerned, it was the view of the Assessing Officer in the penalty order that the assessee should have offered the same as income. So also, as regards the other two additions, viz., the capital introduced during the year and the net sale proceeds of old materials, all that the Assessing Officer has stated in the penalty orders is that these amounts ought to have been offered as income. The assessees explanation that the deposit amount was under long dispute and was not still settled with the developer and that the additions were accepted by them merely to avoid protracted litigation has not been specifically addressed by the Assessing Officer. Since the requirement in law is that deliberateness should be proved in order to establish the charge o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it is open to the ITO in penalty proceedings to consider his earlier finding that a particular receipt constituted income for a particular assessment year, but he is not bound by that finding and if any other evidence is produced in penalty proceedings, it is open to the ITO to come to a different conclusion. In this case, an addition was made for the assessment year 1950-51 even though in law it ought to have been made in the assessment year 1949-50. When this point was urged before the High Court by the assessee, contesting the penalty levied for the assessment year 1950-51, the Bombay High Court, referring to its earlier decision in CIT v. Gokuldas Harivallabhdas [1958] 34 ITR 98 and the judgment of the Supreme Court in CIT v. Anwar Ali [1970] 76 ITR 696 held that it was open to the assessee to question the very addition itself in an appeal filed against the levy of penalty since before penalty could be imposed, the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income for the year under consideration and that the assessee had consciously concealed the income or deliberately furnished inaccurate particulars. In v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed inaccurate particulars thereof. In Cement Marketing Co. of India Ltd. v. Asstt. CST [1980] 124 ITR 15 1 , the Supreme Court held, while construing the penalty provisions for filing a false return under the M.P.General Sales Tax Act, 1958 that where the assessee does not include a particular item in the taxable turnover under a bona fide belief that he is not liable to do so it would not be right to condemn the return as a "false" return inviting imposition of penalty. It was further held that if the view canvassed by the revenue were accepted, the result would be that even if the assessee raises a bona fide plea that a particular item is not includible in the return he would have to show it as forming part of the return and pay tax thereon on pain on being hauled up for penalty in case his contention is ultimately found by the court to be not acceptable which, according to the court, "surely could never have been intended by the Legislature". This judgment supports the assessees case, albeit indirectly. 27. So far as the net sale proceeds of the old materials obtained on demolishing the property is concerned, the same reasoning would hold good and it must be held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it did not follow from the inclusion of the income under section 69A that the amount represented income of the year under consideration for purposes of levy of penalty. This decision applies to the present cases. In addition, even during penalty proceedings, there has been no attempt by the Assessing Officer to reappraise the facts and the material on record to demonstrate that the capital introduced represented the income of the assessees and that too for the year under consideration. He has merely invoked section 69A without anything more. In this situation, it is not possible to hold that the assessees concealed their income or furnished inaccurate particulars thereof. 29. Thus, even on merits, the penalties must be held to have been rightly cancelled by the CIT (Appeals). 30. Turning to the case of Vijay Dharam Singh for the assessment year 2003-04, where penalty was imposed for non-disclosure of the salary income, we have already narrated the facts leading to the addition in the earlier part of our order. It is not in dispute that the employer-company has deducted the tax from the salary paid to the assessee. The copy of the Form No. 16, being the certificate issued ..... X X X X Extracts X X X X X X X X Extracts X X X X
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