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TMI Blog2019 (1) TMI 1356X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) of the Act. This ground of appeal of assessee is allowed. - I.T.A. No. 696/Kol/2018 - - - Dated:- 23-1-2019 - Shri P.M. Jagtap, Vice President Shri A. T. Varkey, JM For the Applicant : Shri A. K. Tibrewala, FCA Shri Amit Agarwal, Advocate For the Respondent : Shri Sankar Halder, JCIT, Sr. DR ORDER PER SHRI A.T.VARKEY, JM This appeal has been filed by the assessee against the order of Ld. CIT(A)-11, Kolkata dated 25.01.2018 for AY 1997-98. 2. Ground no. 1 is general in nature and does not require any adjudication, hence the same is dismissed. 3. The main grievance of the assessee is against the action of Ld. CIT(A) in confirming the penalty of ₹ 8,50,367 levied by the AO u/s. 271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as the Act ). 3. Briefly stated facts are that the during the assessment proceedings the AO made various additions and disallowances to the income of the assessee as according to AO there was no explanation forthcoming from the assessee. According to AO, the disallowance/additions are reasonable and he felt that it is a fit case of initiation of penalty u/s. 271(1)(c) of the Act and, thereafter, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss of ₹ 44,44,84,483-00. The loss comprised of the provisions for diminution in the value of investment of ₹ 4,40,00,000-00. The case was taken up for scrutiny under Section 143(3) of the Income Tax Act, 1961. After noticing the provisions for value of investment on 02.09.2003 a letter was addressed to the assessee seeking explanation for the reasons for providing for diminution in the value of investment in the profit and loss account. On 31.10.2003 a reply was sent relying on the Accounting Standard 13. However in the end the assessee made it clear that although the provision for diminution in the value of investment is under the provisions of the Income Tax Act , the said decline is not allowable. On receipt of the said explanation, the department wrote another letter on 04.11.2003 calling upon the assessee to categorically state whether he is withdrawing the said claim. By letter dated 07.11.2003 a reply was sent stating that claims regarding both the expenditure may be kindly be treated as withdrawn. Thereafter the Assessing Authority proceeded to pass assessment order disallowing the said claim ofRs.4,40,00,000-00. Thereafter it was observed in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. The learned Counsel for the Revenue assailing the impugned order contended that though the assessee knew that the diminution in the value of the investment is not allowable under the Income Tax Act , still the claim was made. It is only during Section 143(3) proceedings, when explanation was sought for, the said claim was withdrawn. Therefore it is a case of furnishing incorrect particulars and if scrutiny proceedings had not been initiated, the assessee would have got the benefit of the diminution in value. Therefore he submits that a case for imposition of penalty was made out. Even after disallowing the said diminution in value, the assessee is not liable to pay tax as the assessee was under loss and that is no reason for not claiming penalty as held by the Apex Court. Lastly it was contended that even in the absence of a direction in the assessment order, to initiate penalty proceedings the deeming provision is applicable and proceedings initiated is in accordance with law. 8. Per contra, the learned Senior Counsel appearing for the assessee contended that even though the deeming provision is attracted, satisfaction of the concealment is not to be found in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew was also approved by the full Bench of the Delhi High Court in the case of RAMPUR ENGINEERING reported in 309 ITR 143. The said view has been approved by the Apex Court in the case of DILIP SHROFF reported in 291 ITR 591. That is the view the courts have consistently taken. After taking note of the judicial pronouncements in this regard, the Legislature thought it fit to insert Section 271(1)(B) , which reads as under: 271(1)(B) Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under clause (c) of sub-Section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the said clause (c). 49. By the aforesaid deeming provision a legal fiction is created. When the assessment order contains a direction for initiation of penalty proceedings such order shall deem to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under sub-clause (c) of Section 271 of the Act. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceedings, if a direction as aforesaid is mentioned, it constitutes satisfaction of the Assessing Officer. DIRECTION 50. A reading of Section clearly indicates that the assessment order should contain a direction for initiation of penalty proceedings. The meaning of the word direction is of importance. Merely saying that penalty proceedings are being initiated will not satisfy the requirement. The direction to initiate proceedings should be clear and not be ambiguous. It is well settled law that fiscal statutes are to be construed strictly and more so the deeming provisions by way of legal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. A reading of the aforesaid order makes it clear that Assessing Authority was not satisfied that there is any concealment of the intent. Further there is no direction for initiation of penalty proceedings could be gathered from the said order also. It is held in the aforesaid judgment that (a) phrases like penalty proceedings are being initiated separately (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 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 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. 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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