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TMI Blog2017 (11) TMI 1415X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated 3rd August 2015, passed by the learned Commissioner (Appeals)-2, Mumbai, partly confirming penalty imposed under section 271(1)(c) Income-tax Act, 1961 (for short "the Act") for the assessment year 2005-06. 2. Brief facts are, the assessee a company is engaged in the business of manufacture and marketing of chemicals. For the assessment year under dispute, the assessee filed its return of income on 26th October 2005, declaring nil income. In the course of assessment proceedings, the Assessing Officer after examining the books of account and calling for necessary details completed the assessment making additions of the following amount:- Irrecoverable balance written-off in Profit & Loss account ₹ 46,47,611 Consideration received on assignment of trade market declared as long term capital gain was assessed as business income ₹ 3,80,00,000 3. While completing assessment on the basis of additions made, the Assessing Officer also initiated proceedings for imposition of penalty under section 271(1)(c) of the Act. Against the addition made in the assessment order, the assessee preferred appeal before the first appellate authority. 4. During the pende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g penalty proceedings the Assessing Officer has not recorded his satisfaction as he was unsure whether the assessee has furnished inaccurate particulars of income or concealed particulars of income. He submitted, this has resulted in violation of rules of natural justice, hence, penalty order passed is invalid. In support of his contention, the learned Authorised Representative relied upon the following decision:- i) Samson Perinchery v/s CIT, 392 ITR 004; and ii) CIT v/s Dilip N. Shroff, 291 ITR 519. 7. As far as the merit of the issue is concerned, the learned Authorised Representative submitted in the year 1995, assessee had entered into the agreement for purchase of a factory building and an advance of ₹ 30 lakh was paid to the owner of the factory building. However, ultimately the transaction did not materialize and the owner of the property agreed to refund the advance paid and in that regard paid an amount of ₹ 5 lakh to the assessee and for the balance amount of ₹ 25 lakh he issued post dated cheques which were dishonoured by the Bank on presentation due to unavailability of funds. He submitted, though, the assessee filed complaint under section 138 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of ₹ 1.55 crore under section 271(1)(c), addition only to the extent of ₹ 25 lakh survived after the appeal proceedings. Thus, the major part of the addition was deleted. Be that as it may, in the present appeal, we are concerned with the penalty under section 271(1)(c) on the addition of ₹ 25 lakh. On a careful scrutiny of the assessment order passed for the impugned assessment year, it is evident, while initiating proceedings for imposition of penalty under section 271(1)(c) in the body of the assessment order, the Assessing Officer has not recorded any satisfaction to the effect that the addition made by him was on account of either furnishing of inaccurate particulars of income or concealing particulars of income by the assessee. The Assessing Officer has simply mentioned "penalty proceedings under section 271(1)(c) are initiated". Thus, on a reading of the assessment order, satisfaction of the Assessing Officer with regard to the nature of offence committed by the assessee in terms of section 271(1)(c) is not discernible. Further, on a perusal of the show cause notice dated 31st December 2007, issued under section 274 r/w section 271(1)(c), which is in a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al fiction are to be construed more strictly. They have to be interpreted only for the said issue for which it has deemed and the manner in which the deeming has been contemplated to be restricted in the manner sought to be deemed. As the words used in the legal fiction or the deeming provisions of Section 271(1B) is Direction, it is imperative that the assessment order contains a direction. Use of the phrases like (a) penalty proceedings are being initiated separately and (b) penalty proceedings under Section 271(1)(c) are initiated separately, do not comply with the meaning of the word direction as contemplated even in the amended provisions of law. The direction should be clear and without any ambiguity. The word „direction‟ has been interpreted by the decision of the Apex Court in the case of RAJENDRANATH reported in 120 ITR pg.14, where it has been held that 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 coowners 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 lef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(1)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or reassessment cannot be declared as invalid in the penalty proceedings. 13. In case of Dilip N. Shroff v/s JCIT, [2007] 291 ITR 519 (SC), the Hon'ble Supreme Court observed, while issuing the notice under section 274 r/w section 271 of the Act in standard format, the Assessing Officer should delete the inappropriate words or paragraphs, otherwise, it may indicate that the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or had furnished inaccurate particulars of income. This, according to the Hon'ble Supreme Court, deprives the assessee a fair opportunity to explain its stand, thereby, violating the principle of natural justice. As held by the Hon'ble Supreme Court in CIT v/s Reliance Petroproducts Pvt. Ltd., [2010] 322 ITR 158 (SC). The aforesaid principle laid down in case of Dilip N. Shroff (supra) still holds good in spite of the decision of the Hon'ble Supreme Court in Union of India v/s Dharmendra Textile Processors, [2008] 306 ITR 277 (SC). Even in case of CIT v/s Kaushalya & Ors. [1995] 261 ITR 660, on which the Learned Departmental Representative relied upon the Hon'ble J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count the Assessing Officer has made disallowance of the write-off. The aforesaid facts clearly demonstrate that the assessee has furnished full particulars of write-off of 25 lakh. Therefore, it cannot be alleged that the assessee has furnished inaccurate particulars of income for which the Assessing Officer had ultimately imposed penalty under section 271(1)(c). Rather, it is a bonafide claim of deduction made by the assessee considering the fact that it was unable to recover the amount of ₹ 25 lakh. As could be seen from the appeal order passed by the learned Commissioner (Appeals) and the Tribunal, disallowance of ₹ 25 lakh was sustained merely for the reason that it was not relatable to the impugned assessment year. None of the authorities have disputed the primary facts relating to write-off of the amount of ₹ 25 lakh. Therefore, the ratio laid down by the Hon'ble Supreme Court in Reliance Petroproducts Pvt. Ltd. (supra) would squarely apply to the facts of the assessee's case. We have also noted that in case of Nalin P. Shah (HUF) (supra), a case of similar nature, the Hon'ble Jurisdictional High Court deleted the penalty imposed under section 271(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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