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TMI Blog2006 (10) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... e satisfaction of the Assessing Officer is necessary. In the assessment order no satisfaction is recorded by the Assessing Officer for initiation of penalty proceeding and, therefore, the initiation and consequently the levy of penalty under section 271(1) (c) is not warranted. In support of his contention he has relied upon the following decisions: (1) CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi) (2) Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi) (3) CIT v. Vikas Promoters P. Ltd. [2005] 277 ITR 337 (Delhi); and (4) Kshetra Mohan Roy v. ITO [1983] 139 ITR 441 (Cal). 4 With regard to the merit of the levy of penalty for concealment of income he stated that the assessee has furnished the confirmation of the creditors before the Assessing Officer. The Assessing Officer has asked the assessee to produce the creditors. Since the assessee was unable to produce the creditors, he surrendered the cash credit as income of the assessee. He has referred to the copy of the orders sheet to support his contention that the confirmation of the creditors was produced before the Assessing Officer. He stated that merely because the assessee could not produce the credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support of his contention he has relied upon the three decisions of the hon'ble Delhi High Court and one decision of the hon'ble jurisdictional High Court. We find that in the case of CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi) their Lordships held as under (headnote) "The satisfaction as to the assessee having concealed the particulars of his income or furnished inaccurate particulars of such income is to be arrived at by the Assessing Officer during the course of any proceedings under the Act, which would mean the assessment proceedings, without which, the very jurisdiction to initiate the penalty proceedings is not conferred on the assessing authority by reference to clause (c) of sub-section (1) of section 271 of the Income-tax Act 1961. 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 who has to form his own opinion and record his 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." 9 Similar view was taken by their Lordships in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to record his satisfaction under the Income-tax Act, 1961, it is specifically mentioned, e.g., in section 148(2) of the Act which states that 'the Assessing Officer before issuing any notice under this section will record the reason for doing so'. Section 273 does not have a similar provision requiring the recording of the reason or satisfaction. Hence, it has to be inferred that Parliament never intended that before initiating penalty proceedings and issuing notice under section 273, the Assessing Officer must record his reasons in writing for doing so. Although the Assessing Officer must have satisfaction as required under section 273 of the Act, it is not necessary for him to record that satisfaction in writing before initiating penalty proceedings under section 273." 13 The hon'ble jurisdictional High Court in the case of Becker Gray and Co. (1930) Ltd. v. ITO [1978] 112 ITR 503 (Cal) held as under (headnote) "that it was first contended for the appellant that before issuing a notice, it was incumbent on the Income-tax Officer to record his prima facie satisfaction about the conditions specified in section 271(1)(c). It is true that the Income-tax Officer should be prima f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonable man could not form or that the person concerned was not given due opportunity resulting in prejudice, the said proceedings needed no interference. The imposition of penalty was valid." 15 From the perusal of above decisions, it is clear that the hon'ble Delhi High Court on the one hand and the hon'ble Allahabad and Madras High Courts on the other hand has taken the contrary decisions. It is also interesting to note that the hon'ble Delhi High Court in the case of Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 and the hon'ble Madras High Court in the case of M. Sajjanraj Nahar v. CIT [2006] 283 ITR 230 has considered and relied upon the same decision of the hon'ble apex court in the case of CIT v. S. V. Angidi Chettiar [1962] 44 ITR 739. Therefore, it would be useful to refer to the above decisions of the hon'ble apex court. In that case there was a partnership firm in the name and style of S. V. Veerappan Chettiar and Co. the firm was registered under section 26A of the Income-tax Act 1922. The Assessing Officer levied the penalty for concealment of income for the assessment years 1947-48, 1949-50 and 1950-51 upon the firm. The firm was dissolved as per agreement betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order by the Income-tax Officer that action under section 28 had been taken for concealment of income indicating clearly that the Income-tax Officer was satisfied in the course of the assessment proceeding that the firm had concealed its income." 16 We find that the hon'ble Delhi High Court in the case of Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 has considered the observation of their Lordships of the apex court with regard to the necessity of satisfaction of the Income-tax Officer before the penalty proceedings are initiated and held that the satisfaction of the Assessing Officer is must before initiating the penalty proceedings Therefore, they relied upon the finding of fact arrived at by the Tribunal that no satisfaction was recorded by the Assessing Officer before initiating the penalty proceedings. There fore, their Lordships of the Delhi High Court held that no question of law arises out of the order of the Tribunal. 17 We find that the Madras High Court in the case of M. Sajjanraj Nahar [2006] 283 ITR 230 has not stated that the Assessing Officer is not required to record his satisfaction for initiation of the penalty proceedings but they have stated that the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the firm had concealed the particulars of its income. Their Lordships of the hon'ble apex court accepted the legal contention of the assessee that the power to impose the penalty depends upon the satisfaction of the Income-tax Officer in the course of proceedings under the Act. However, after examining the facts, their Lordships held as under (page 745) "The assessment order dated the November 10, 1951, and there is an endorsement at the foot of the assessment order by the Income- tax Officer that action under section 28 had been taken for concealment of income indicating clearly that the Income-tax Officer was satisfied in the course of the assessment proceeding that the firm had concealed its income." 22 Thus the endorsement at the foot of the assessment order by the Income-tax Officer that the action under section 28 had been taken for the concealment of income was considered to be the sufficient satisfaction by the Income-tax Officer during the course of the assessment proceedings. Though this decision of the hon'ble apex court was delivered while dealing with section 28 of the Income-tax Act, 1922 however, as the language of section 271 is similar to section 28, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured loans. The assessee has furnished loan confirmation of the creditors before the Assessing Officer on November 27, 2002. On November 7, 2003, the assessee again filed details of loan taken. There after, Assessing Officer asked the assessee to produce the loan creditors in person immediately. On November 11, 2003, the assessee appeared before the Assessing Officer and stated that no loan creditor is ready to depose before the Assessing Officer and therefore, he is forced to offer the whole amount for taxation. The above facts are evident from the order sheet entry made by the Assessing Officer, copy of which is placed before us. On December 30, 2003, the Assessing Officer completed the assessment making the addition of Rs. 8,70,000. He has also levied the penalty under section 271(1)(c) in this regard, which is upheld by the Commissioner of Income-tax (Appeals). 28 At the time of hearing before us both the parties have relied upon the various judicial pronouncements. Learned counsel for the assessee has relied upon the decision of the hon'ble apex court in the case of CIT v. Suresh Chandra Mittal [2001] 251 ITR 9. In that case the assessee had initially filed the return showing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bona fide and all facts relating to the same were disclosed the assessee was held to be not liable for the penalty. 32 In the case of K. R. Chinni Krishna Chetty [2000] 246 ITR 121 (Mad), relied upon by learned counsel, the facts were altogether different. In the above case the assessee has constructed a building. The Assessing Officer estimated higher cost of construction on the basis of valuer's report. He added the difference between the cost of construction shown by the assessee and estimated by him and also imposed penalty under section 271 (1) (c) thereon. The Tribunal cancelled the penalty and held that there was no concealment of income at all. On reference their Lordships upheld the order of the Tribunal and held as under (headnote) "The addition to the income of the assessee based on the report of the valuer was rightly regarded by the Tribunal as being insufficient for recording a finding of concealment of income. Concealment implies some deliberate act on the part of the assessee in withholding the true facts from the authorities. The fact that the valuer assessed the building at a figure higher than the one reported by the assessee did not by itself lead to the infe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account in respect of such loans. The assessee also stated that since it was unable to furnish evidence for such loans, it offered the amount of Rs. 93,000 as additional income. The Assessing Officer levied the penalty under section 271(1) (c) applying Explanation 1(B). The Income- tax Appellate Tribunal cancelled the penalty but the hon'ble Kerala High Court on a reference held that the imposition of penalty was valid. On appeal by the assessee to the Supreme Court their Lordships affirmed the decision of High Court and held as under (headnote) "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 he 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, conseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntiate the same; and (ii) he also fails to prove that such explanation is bona fide and that all the facts relating to the same which are material to the computation of the total income have been disclosed by him. 42 Part B of the Explanation would be applicable only if both the above conditions are satisfied i.e. where the assessee is unable to substantiate his explanation and also unable to prove that the explanation is bona fide. If the assessee is able to prove that the explanation is bona fide and all the facts relating to the same has been disclosed, the assessee's case would not fall within Part B of the Explanation even if he is unable to substantiate the explanation. 43 Let us examine the facts of the assessee's case in the light of the Part A and B of the Explanation 1 to section 271(1)(c). There was credit of Rs. 8,70,000 in the assessee's books of account. It was the explanation by the assessee that the credit is the loan taken from various parties. The assessee furnished the details of loan taken. He has also furnished the loan confirmation from the creditors. The Assessing Officer asked the assessee to produce the creditors. Thereafter the assessee offered the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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