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TMI Blog2013 (12) TMI 1214X X X X Extracts X X X X X X X X Extracts X X X X ..... ately, do not comply with the meaning of the word direction as contemplated even in the amended provisions of law - The word 'direction' has been interpreted by the Apex Court - In any event whatever else it may amount to, on its very terms the observation that the ITO is free to take action, to assess the excess in the hand of the co-owners cannot be described as a direction - A direction by a statutory authority is in the nature of an order requiring positive compliance - When it is left to the option and discretion of the ITO whether or not take action, it cannot be described as a direction. In the case of assessee - Assessing Authority was not satisfied that there is any concealment of the intent - There was no direction for initiation of penalty proceedings - In the absence of such a direction, the deeming provision is not attracted - The conditions prescribed under Section 271(1)(c) of the Act, is not attracted – Decided in favour of assessee. - ITA No. 332 of 2007 - - - Dated:- 26-11-2013 - N Kumar And Rathnakala, JJ. For the Appellant : Sri K V Aravind Sri B Pramod, Adv For the Respondent : Sri D L N Rao, Senior Counsel for Smt. Anuradha, Adv JUDGEMENT:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income Tax (Appeals), which came to be dismissed. 5. It is against the said order, the assessee preferred an appeal to the Tribunal. The Tribunal on reconsideration of the entire material on record held that the assessee had filed the return of income declaring loss. Thereafter the claim for write down of investment loss was withdrawn during the course of assessment. Ultimately the assessment resulted in positive income of Rs.1,28,740-00. There was a further change in the total income computed as a result of rectification under Section 154, thereby final position is that the loss returned is assessed at 'nil'. The claim of Rs.4,40,00,000-00 was also withdrawn by the assessee even before any meaningful query or investigation was carried out by the department. Being a company, it was mandatory that the account of the assessee is prepared in line with the Accounting Standard as, otherwise, the results declared by the assessee would not reflect true and fair view. The withdrawal was only to buy peace from the department and to avoid litigation. After referring to the statutory provisions and the judgment of the Apex Court in the case of K.C. BUILDERS ANOTHER Vs. ACIT (265 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject matter of interpretation by this Court in the case of Commissioner Of Income Tax Vs. Manjunatha Cotton Ginning Factory reported in (2013) 35 TAXMANN.COM 250 (KARNATAKA). Interpreting the deeming provisions it has been held as under: "48. As the opening words of Explanation 1 makes it clear where in respect of any facts material to the computation of the total income of any person under this Act such person fails to offer an explanation or offers an explanation which is found to be false or offers an explanation which is not able to substantiate and fails to prove that such explanation is bonafide, then the amount added or disallowed in computing the total income of such person as a result thereof shall for the purposes of clause (c) of this subsection be deemed to represent the income in respect of which particulars have been concealed. Therefore, it is clear that aforesaid instances by itself do not constitute concealment. The Assessing Officers were just writing at the end of the assessment order that penalty proceedings are initiated or something to the effect. The Delhi High Court in the case of Ram Commercials has held that such a note alone in the assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 1, if a mere direction to initiate penalty proceedings under clause (c) of subsection (1) is found in the said order, by legal fiction, it shall be deemed to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under said clause (c). The said provision came up for interpretation by the Delhi High Court in the case of Madhushree Gupta reported in 317 ITR 107, wherein the Delhi High Court held that the satisfaction should be discernable in the assessment order. Position post amendment is not in much variance with preamendment. They held that provisions will fall foul of Article 14 of the Constitution if the same is not read in the manner it has read and in fact has read down the provisions to hold it Constitutional. Therefore according to Delhi High Court, in post amendment and pre amendment there is not much difference and the satisfaction is required to arrived in the course of assessment proceedings and should be discernable in the assessment order. Therefore, this provision makes it abundantly clear that satisfaction of the Assessing Officer before initiation of penalty proceedings is a must. The satisfaction should be that he has concealed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id regarding diminution in the value of investment is as under: "1. Provisions for diminution in the value of investment: The assessee has claimed an amount of Rs.4,40,00,000/- under this head. This has been claimed as a revenue expenditure and included in the loss of Rs.4,44,84,483/- shown under the head business or profession. On enquiry it is intimated by the company that there is a diminution in the value of investment on account of the Asian Age South Ltd., It was further stated in the letter dated 2-9-2003, that according to the company it forms a part of the loss of the company. The assessee was requested to furnish factual and legal justification of the claim. In reply vide ltr. dt. 31-10-03, the procedure of valuation as per accounting standard No.13 was explained, however in the last para it was stated that the company is of the view that under the provisions of the I.T. Act, the said claim is not allowable. The company was again requested to intimate whether the claim is being withdrawn. Vide letter dt. 10-11-03, it is stated that the claim is being withdrawn. In view of this the claim of Rs.4,40,00,000/- is not considered for computation and claim disallowed." 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