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TMI Blog2001 (12) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... order. As all these appeals involve common questions, these were heard together and being disposed of by this composite order. 2. It will be in the fitness of things to give out the brief facts under which the CIT invoked the jurisdiction under section 263 of the Act. The assessee-company was engaged in manufacturing of edible vanaspati ghee during the assessment years under consideration as in the past and also started manufacturing of soap, utilising its own soap stock which was a bye-product. A survey under section 133A of the Act was conducted at the business premises of the assessee on 4-10-1988 in which two diaries/ledgers and some loose papers were found and impounded under section 131. Statement of Dr. Rohit Jindal one of the directors of the assessee-company was recorded during the survey proceedings and he allegedly admitted that entries in the seized ledgers were not recorded in the books of account of the company in the relevant period. When the assessment proceedings were in progress, the assessee moved a letter dated 4-11-1988 surrendering the additional income of Rs. 23.5 lakhs for the assessment year 1986-87, Rs. 7.5 lakhs for the assessment year 1987-88 and Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reasons on which those orders were going to be cancelled. It was pointed out that disclosure made by the assessee was neither full and true nor voluntary but was made by the assessee when assessee was cornered with the various ledgers and other loose papers found at the time of survey. The assessee submitted detailed reply to the above notice in which it was pleaded that notice issued by the CIT was without jurisdiction and without complying the mandatory conditions of section 263. The orders passed by the Assessing Officer were correct in law and proceedings were dropped after considering the full facts and the circumstances of the case and following the decision of the Hon'ble Supreme Court in the case of Sir Shadilal Sugar General Mills Ltd. v. CIT [1987] 168 ITR 705(1). On facts, it was submitted that at no stage the assessee admitted the surrendered amount as its concealed income. Even though that addition vide letter dated 4-11-1988 was conditional one and made to purchase peace with the Department and for expeditious settlement of the cases. The assessee specifically mentioned in that application that no penal action and levy of interest was chargeable. Even assessments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le unless it is proved that estimate submitted by the assessee was untrue at the time of filing of estimate. In the case in hand, it was contended by the assessee that nothing is proved that estimate filed by the assessee was untrue when it was filed. About the waiver of the interest, the plea was that the Assessing Officer has rightly waived off the same in the facts and the circumstances of the case. Further reliance was also placed on certain case laws reproduced in para 11 of the order of the CIT. 6. After considering the pleas of the assessee, CIT found no merit in the same. According to him, the documents seized at the time of survey were written in the handwriting of Dr. Rohit Jindal, one of the Directors, who owned the same and admitted that transactions entered in those ledgers were not recorded in the books of account of the company. For these, the CIT reproduced relevant questions and answers relating to deposition of said Dr. Rohit Jindal. It was further noted that the contention of the assessee offer was made merely to purchase peace with the Department and for expeditious settlement of the case was also wrong as offer was made when the assessee found cornered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of advance made during the year under consideration and the assessee had already made offer of Rs. 23.5 lakhs as an addition. The contention is on the basis of this note, which is reproduced by the CIT(A) in his order dated 5-9-1994 in the assessee's appeal against imposition of penalty under section 271(1)(c) of the Act for the assessment year 1986-87, which has been filed by the assessee. The plea of the learned A.R. remains that assessee made the offer with all sincerity and the amount is even more than what could have detected by the Department and on this bona fide approach of the assessee, no penalty was leviable. 8. Apart from it, the learned counsel has taken up the legal plea in respect of consequence of such offer or surrender made by the assessee. He started placing reliance on the decision of Apex Court in the case of Sir Shadilal Sugar General Mills Ltd. in which it has been held that there may be 101 reasons for making surrender by the assessee but it is always not sufficient to attract penalty as the Revenue cannot be allowed to absolve from proving the factum of concealment with other material evidence on record. The other case of Krishan Lal Shiv Chand Rai v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Engineers Contractors and the case of T. Narayana Pai in which the scope of jurisdiction to be exercised under section 263 by the CIT, was discussed in detail and these decisions were even cited before the learned CIT. 10. The other plea of the learned counsel for the assessee was that levy or not to levy the penalty is quasi judicial proceedings and based on objective satisfaction of the Assessing Officer. It has been held in the case of ITO v. Eastern Scales (P.) Ltd. [1978] 115 ITR 323(Cal.) that interference by superior authority in judicial or quasi judicial functions of the Officers is not called for. Following the same view, the ITAT Calcutta Bench in the case of Asstt. CIT v. Kesoram Industries Ltd. [1993] 44 ITD 158 concluded that any direction given by the higher authorities to the Assessing Officer as to manner in which a rectification order is to be passed amounts interference with his judicial or quasi-judicial functions and thus the CIT was not justified in giving such direction. On the basis of these case laws, the learned A.R. contended that the impugned order recorded by the CIT is nothing but a direction and such direction cannot be allowed to operate as it a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the concerned assessment years and submitted that orders, in question, required to be cancelled. 14. As against it, the learned D.R. placed reliance on the order of the CIT(C), Ludhiana, which was said to be containing all the facts as well as reasoning. Starting from the very beginning, the learned D.R. pointed out that it was not bona fide disclosure of substantial amount made by the assessee nor it was made in order to purchase peace or not to seek expeditious disposal of assessment proceedings as averred by the assessee and argued by the learned A.R. but facts are quite otherwise. The actual facts have specifically been mentioned by the CIT that during the statement of Dr. Rohit Jindal, one of the Directors specifically admitted that entries in the ledgers seized at the time of survey were not recorded in the account books of the company and those entries were is his own handwriting and transactions relate to the business of the assessee. After these admissions made by Dr. Jindal, the Department has detected the concealed income of the assessee and when cornered, the assessee came with offer of surrender vide application dated 4-11-1988 and prayer was also made to the eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable to the facts of the case as there is concealment of income as per specific admission of Dr. Rohit Jindal but admitted that transactions entered in the ledger found at the time of seizure were not recorded in the account books of the assessee and that fact coupled with the surrender of substantial amount by the assessee. There was no other inference except treating the said amount as of concealed income. 15A. About the scope of section 263 of the Act, the learned D.R. placed reliance on the decision of the Hon'ble Gujarat High Court in the case of Addl. CIT v. Mukur Corpn. [1978] 111 ITR 312 in which the Assessing Officer failed to carry out the necessary enquiries in regard to the deduction and exercise of jurisdiction in section 263 was held justified and even in such cases the Commissioner was not expected to arrive at the firm conclusion about the allowability or otherwise of such claim of the assessee. On the basis of this ratio, the learned D.R. pointed out that the Assessing Officer did not make any enquiry as he has simply dropped the proceedings. Referring to the evidence which was available with the Assessing Officer, the learned D.R., pointed out that the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the CIT can be passed by the Tribunal. 16A. In rejoinder, the learned counsel for the assessee, pointed out that all the proceedings of penalties under sections 271(1)(c), 273(2)(aa) and waiver of interest under section 215 reached finality as no audit objection in these cases have been raised and thus final orders should have not been disturbed unless prima facie they are held to be illegal. Reiterating the earlier arguments, the learned CIT pointed out that orders have rightly been passed by the Assessing Officer after exercise of powers vested in him. The other plea of the counsel was that conditional offer made by the assessee has not been rejected and once accepted then it should be treated as accepted in toto including acceptance of plea of the assessee for not levying the penalties and interest. About addition of Rs. 1 lakh each in three assessment years, the plea of the learned A.R. was that it was on ad hoc addition and assessee in order to purchase peace did not try to appeal against it but that fact will not make that amount of Rs. 1 lakh, apart from the amount of surrender, as concealed income of the assessee. Reliance was also placed on the decisions of the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of the assessee-company. Further much reliance has been placed on the offer made by the assessee of more sum for assessment vide letter dated 4-11-1988 for all the three assessment years and further observations were that seized documents were not verified by the Department and names of the parties as well as amount involved therein could not be ascertained. He further appreciated the co-operative conduct of the assessee as assessee made immediate payment of tax on the surrendered amounts and even did not challenge the additions in appeal. These facts as well as the reasoning in the case of Mahavir Transport Co., Sohinder Singh Bros. and other cases decided by different Benches of the I.T.A.T. relied by the assessee were taken as basis for dropping the proceedings of penalty. 18. These facts as noted by the Assessing Officer and appreciated on the basis of averments of the assessee are prima facie, not correct. A perusal of order of the learned CIT recorded under section 263 of the Act shall show that during the survey proceedings statement of Dr. Rohit Jindal, Director of the Company, was recorded and the seized ledgers as well as different entries were put up to him. Fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmittedly the Assessing Officer has not done. We are fully alive to the fact that the Assessing Officer was to find out whether prima facie case of concealment under section 271(1)(c) is made out or not but a close scrutiny of the facts existing on record made by the CIT was sufficient only to show that prima facie case of concealment was there subject to further scrutiny by the Assessing Officer as the Assessing Officer in the case while dropping penalty proceedings did not make necessary enquiries nor given out his finding on the relevant point as noted above. On these facts, the only conclusion will be that order of Assessing Officer cannot be called as made in accordance with law. The case law referred to by the parties is very much specific on the points that in case order of Assessing Officer is not in accordance with law then the same shall be erroneous as well as prejudicial to the interests of the revenue. The above discussion shall show that order in question recorded by the Assessing Officer dropping proceedings was definitely not sustainable being erroneous and prejudicial to the interest of revenue and CIT rightly invoked the jurisdiction. 20. So far as the legal ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 23. On the basis of the above, we conclude that order of CIT was justified in the facts and the circumstances of the case and all the pleas of the learned A.R. are not going to help the case of the assessee except that Assessing Officer shall not be bound by observation of CIT in second inning. 24. So far as the penalty under section 273(2)(aa) of the Act are concerned, these are related to the factum of concealment and in case penalties under section 271(1)(c) are going to be decided against the assessee then plea of the assessee about the bona fide belief about the estimate of income shall go away. Accordingly, these penalty proceedings are to be treated as wrongly dropped by the Assessing Officer and we are not going to help the assessee but directing the Assessing Officer to decide these penalty proceedings afresh according to law, without feeling bound by the directions of the learned CIT. 25. About the orders under rule 40(5) of the Income-tax Rules for the assessment years 1986-87 and 1987-88, we are in agreement with the arguments of the learned D.R. and conclude that the CIT rightly set-aside the orders of waiver of interest and the Assessing Officer shall be decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only mentioned these facts. On the next date of hearing i.e. 4-11-1988, the assessee filed a letter which reads as under:- "In order to get expeditious completion of the assessment and to avoid long drawn assessment proceedings and to purchase peace with the department by offering full cooperation for expeditious completion of assessment, we offer to be assessed as under on the following income instead of the declared income: Income already declared before 92,53,342 deduction under section 80HH Add: Income now offered 23,50,000 ------------- 1,16,03,342 Less: Deduction: Under section 32A 3,57,708 Under section 80J 19,26,217 Under section 80HH 23,20,644 46,04,569 ------------ -------------- Net income offered for asstt. 69,98,773 -------------- We hope that the offer will be accepted and the assessment will be made expediti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount, however, is covered by vide assessee's offer of Rs. 23.5 lakhs. 2. The other diary contains entries of advances to various parties. At some places these entries are legible but at most places they are not legible as the same have been cut and mutilated. The entries, however, relate to A.Ys. 1986-87 and 1987-88. They relate to assessee company and are in the handwriting of Dr. Rohit Jindal one of the Directors. The facts are admitted. The quantities of advances, however, are difficult to make out. The assessee voluntarily offered an amount of Rs. 23.5 lakhs to be assessed for assessment year under consideration. Looking to the fact that these entries are difficult to decipher and even on rough estimate, the advances are about Rs. 20 lakhs only during the period under consideration, the offer at Rs. 23.5 lakhs appears to be correct in context. It was vehemently argued by the assessee that income was generated from business and, therefore, all allowances admissible for business should be granted. After a careful consideration this fact is admitted and income is assessed as income from 'business or profession'." 6. Penalty proceedings, for A.Y. 1986-87 however, were initiate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unjab Haryana High Court Krishna Lal Shivchand's case 9. Punjab Haryana High Court Gumani Ram Siri Ram v. CIT [1972] 85 ITR 67 10. Allahabad High Court Mansa Ram Son's case 11. Supreme Court of India Sir Shadi Lal Sugar General Mills Ltd.'s case 12. Allahabad High Court Addl. CIT v. Solar Chemicals (P.) Ltd. [1984] 150 ITR 410." "It may be pointed out here that the assessee only offered some amount to be assessed in addition to the returned income only to buy peace of mind and even on merits of the case on the basis of seized documents, a particular amount cannot be quantified which can be said to have been concealed. The assessee did not revise the return to admit that it has any concealed income nor did the Deptt. verify the entries contained in two diaries. These entries are all struck off and the amount and parties cannot be ascertained. Keeping in view all these facts as well as the case laws cited coupled with the facts that assessee has been cooperative and on surrender of this amount it immediately paid the taxes on the same and did not go in appeal in this point. I am left with no alternative but to drop the penalty proceedings." Similarly the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a quasi judicial process based on the objective satisfaction of the Assessing Officer and the CIT in his revisional jurisdiction cannot interfere in the exercise of quasi judicial function of the Assessing Officer. The submissions of the learned DR who supported the order of the CIT have been recorded by my learned brother at pages 14 to 18 of the proposed order and his own findings are given in paras 17 to 25 of the proposed order wherein he has upheld the action of the CIT in setting aside the orders passed by the Assessing Officer dropping the penalty proceedings under sections 271(1)(c) and 273(2)(aa) for the three years under consideration as well as the order passed by the Assessing Officer under Rule 40(5) for waiving of interest for the assessment years 1986-87 and 1987-88 with the modification in para 23 that the Assessing Officer shall not be bound by the observations of the CIT in second inning. From the findings recorded by my learned brother in paras 23 and 24 it appears that he is of the opinion that the penalties have been dropped by the Assessing Officer and interest has been waived without properly scrutinizing the seized material impounded under section 131 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse, the CIT can waive or reduce the penalties levied by the Assessing Officer under sections 271(4A) and 273A but he has no jurisdiction to levy any penalty or to give direction to the Assessing Officer to levy penalties. 12. As already mentioned, out of the above eight orders, six orders relate to the dropping of penalty proceedings by the Assessing Officer who is the Deputy CIT, Spl. Range and who has dropped the penalties by duly applying his mind to the facts of the case and after considering the material available on record as well as the submissions made on behalf of the assessee. Section 263 of the Income-tax Act, 1961 under which the CIT has cancelled these orders read as under: "263. The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the (Assessing) Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lways alter the law. It can give to the CIT more discretionary powers and make him the trustee and guardian of the tax administration in the moral and legal sense of the term. However, as the language of section 263 stands, the penalty is not in the CIT's province and power, whatever else may be. Revisional power of the CIT is not administrative but quasi-judicial. A revisional authority cannot ask the initial authority to do something which the former is not empowered to do under the law. The power conferred upon the CIT is hedged with restrictions. It is not an unfettered power. It is cabined, caged and confined by the limitations of the fiscal process. The CIT himself cannot impose penalty. It is left to the Assessing Officer by the Legislature. It is the Assessing Officer who has to be satisfied in the course of assessment that penalty proceedings should be initiated. If, ultimately, the Assessing Officer finds no case either for initiation or for imposition, there is precious little that the CIT can do. He can only cancel the assessment and direct a fresh assessment but he cannot impose penalty. The uncontrollable width of the language of section 263 adds little to his powers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be held that the CIT has no jurisdiction to cancel the orders passed by the Assessing Officer dropping the penalty proceedings. Even assuming that the CIT has jurisdiction to cancel the order dropping the penalty proceedings, jurisdiction under section 263(1) being in the nature of supervisory jurisdiction can be exercised only if the circumstances specified therein exist. The power can be exercised only if (i) the order is erroneous; and (ii) by virtue of the order being erroneous prejudice must have been caused to the interests of the revenue. An order cannot be called as erroneous unless it is not in accordance with law. If an Assessing Officer acting in accordance with law drops the penalty proceedings the same cannot be branded as erroneous by the CIT simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the CIT for that of the Assessing Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Assessing Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As such the revisional jurisdiction cannot be allowed to be exercised by the CIT for substitution of his own opinion for that of the Assessing Officer. Accordingly I will allow all the eight appeals filed by the assessee and cancel the order passed by the CIT under section 263. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 As there is a difference of opinion between the Members of the Bench who heard these appeals, the following point of difference is referred to the Hon'ble President, Income-tax Appellate Tribunal, for the opinion of the Third Member:- "Whether, on the facts and in the circumstances of the case, the view of the Judicial Member that the order of the CIT under section 263 cancelling the orders passed by the Assessing Officer dropping the penalty proceedings under sections 271(1)(c) and 273(2)(aa) for the assessment years 1986-87, 1987-88 and 1988-89 and waiving of interest under Rule 40(5) for assessment years 1986-87 and 1987-88 is correct OR the view of the Accountant Member that the CIT has no jurisdiction to cancel the aforesaid orders passed by the Assessing Officer, is justified." THIRD MEMBER ORDER Per Shri R.M. Mehta, Vice-President - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee filed a letter wherein it offered additional income of Rs. 23.50 lakhs to purchase peace with the Department to avoid long drawn assessment proceedings, but with the request that no penalty or penal interest be levied. The Assessing Officer completed the assessment for assessment year 1986-87 on 30-12-1988 and vis-a-vis the additional amount surrendered/offered for tax, he observed as under:- "Surrendered income by the assessee: During the course of survey under section 133A on 10-10-1988 certain papers showing unaccounted transactions were found. These were admitted to be belonging to the assessee-company by one of the Directors Dr. Rohit Jindal. Consequently, vide letter dated 4-11-1988 the assessee offered an additional income of Rs. 23.5 lakhs. These incriminating documents and subsequent offer of the assessee clearly shows that the accounts of the assessee are not reliable and deserves to be rejected. Rejecting the same, the additional income earned or investments and advances made by the assessee outside the account books is estimated at Rs. 24.5 lakhs. This includes Rs. 23.5 lakhs offered by the assessee. This is being done under section 145(2) of the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial found; (iii) The decisions relied upon by the assessee were held to be distinguishable; and (iv) The plea of the assessee that estimate of advance tax was filed under bona fide belief was not correct as the assessee was fully aware that it was concealing its income. 8. Being aggrieved the assessee filed appeals to the Tribunal, at which stage, the following main submissions were made:- (i) The assessee in order to purchase peace and to seek expeditious disposal of its assessments made an offer vide communication dated 4-11-1988 by which substantial amounts were offered for tax to the Department with the condition that no penalty or interest should be levied and that the Department on the basis of the offer in question completed the assessments without making any addition/disallowance to the returned income plus the additional income offered; (ii) The Department had no evidence with it which could otherwise justify the addition and even the offer of the various amounts was more than the Department could have visualized even on appreciation of the seized material; (iii) The assessee made the offer with all sincerity and the amount so offered was more than what could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surrendered by the assessee after the survey. That it was not the Revenue's case that the assessee had full knowledge about its income and filed a false estimate of advance tax. Reliance was placed on the following judgments:- (i) Birla Cotton Spg. Wvg. Mills Ltd.'s case; (ii) S.B. Electric Mart (P.) Ltd.'s case; (iii) Ramnagar Cane Sugar Co. Ltd.'s case; (x) That the waiver of interest under section 215 had been rightly made since the exclusion of the amount surrendered would not lead to a situation where the tax paid would be short of the required percentage. 9. On the basis of the aforesaid submissions the assessee's counsel justified the dropping of the penalties under the relevant sections and also contended that the interest had been rightly waived under Rule 40(c). The plea, in other words, was that the consolidated order of the Commissioner of Income-tax under section 263 for the various assessment years was required to be cancelled. 10. As against this the main arguments advanced on behalf of the Revenue were as follows:- (1) The order of the Commissioner of Income-tax under section 263 was valid and justified since it was not a bona fide disclosure of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the statement of Dr. Rohit Jindal in which he had specifically stated that the transactions in the ledgers/documents found at the time of survey were not reflected in the regular books of account. Reliance was placed on the following decisions:- (i) Mukur Corpn.'s case; (ii) S.M. Oil Extraction (P.) Ltd.'s case; (iii) L.K. Shaik Mohd. Bros.'s case; (10) As regards the penalty under section 273(2)(aa) the assessee himself had surrendered the amounts in question and the only inference which could be drawn was that the assessee was fully aware about the concealed income and the estimate filed in respect of advance tax could not be taken as true. A similar submission was made in respect of the waiver of interest under section 215. 11. In view of the aforesaid detailed submissions as also the decisions cited the learned Departmental Representative appearing on behalf of the Revenue supported the order of the Commissioner of Income-tax under section 263 whereby the orders of the Assessing Officer dropping the penalties as also waiving interest under section 215 had been cancelled with a direction to the Assessing Officer to re-frame the same, according to law. 12. In rejo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing challenged in appeal. According to the learned Judicial Member the aforesaid observations by the Assessing Officer in the office note were prima facie not correct since the order of the CIT under section 263 showed that during the survey operations statement of Dr. Rohit Jindal, the Director of the company was recorded and it was accepted by him that the transactions noted in the seized ledgers were of the assessee-company, but these had not been recorded in the books of account. There was also admission on his part that different sums of money given to different parties/firms did not feature in the regular books. From the aforesaid the learned Judicial Member observed that the assertion of the assessee about the seized ledgers or the transactions noted therein were prima facie incorrect. He also held as incorrect the observations/finding that the entries in the ledgers were not decipherable/legible and further relevant facts were available with the Department prior to the surrender application dated 4-11-1988. According to the learned Judicial Member it was a well-settled proposition of law that penalty proceedings and assessment proceedings were distinct and separate and even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 16. The learned Accountant Member, however, did not concur with the view taken by the learned Judicial Member and he while recording a separate dissenting order referred at length to the facts of the case, but since these have already been adverted to in the earlier part of the order, I do not repeat the same. I would only proceed to highlight those facts, to which he referred at length and which resulted in the conclusion that there was nothing erroneous. These are:- (i) Letter of surrender dated 4-11-1988 reproduced at pages 28 and 29 of the order wherein the assessee made a request for expeditious completion of the assessment with a view to avoid long drawn assessment proceedings and to purchase peace with the Department and for which purpose additional income was offered for tax with the further request that no penalty or penal interest be imposed. The assessee in the said communication offered full co-operation; (ii) The Assessing Officer while passing the assessment order categorically referred to the survey on 10-10-1988, the impounding of various documents, ledgers etc. during the said survey and the recording of the statement of Dr. Rohit Jindal; and lastly, the of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... go ahead with the penalty proceedings; (v) A reference was made to assessment years 1987-88 and 1988-89 where the additional income offered was Rs. 7.5 lakhs and Rs. 4 lakhs respectively and which was accepted along with making further additions of Rs. 1,00,000 each. Identical penalties were initiated as also interest under section 215 directed to be charged for assessment year 1987-88. That penalty proceedings were directed to be dropped as in assessment year 1986-87 and there was also a reference to the orders of the Assessing Officer under Rule 40(5) reducing/waiving interest under section 215 for the assessment years 1986-87 and 1987-88. 17. The learned Accountant Member although referring to the arguments on behalf of the assessee and which had been recorded in the order of the Judicial Member proceeded to highlight another argument raised on behalf of the assessee and that being to the effect that to levy or not to levy the penalty was a quasi judicial process based on the objective satisfaction of the Assessing Officer and the Commissioner of Income-tax in his revisional jurisdiction could not interfere in the exercise of quasi judicial functions of the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the Assessing Officer/Dy. Commissioner of Income-tax(Appeals) and Commissioner of Income-tax(Appeals) as per the scheme of the Act and the Commissioner of Income-tax was not empowered to levy penalties. 18. The learned Accountant Member at this stage referred to the provisions of section 263 observing that the Commissioner of Income-tax could cancel an order only if the order was erroneous and prejudicial to the interests of Revenue and that penalty was not a source of Revenue to the State and penalties were incorporated in the statute so as to act as a deterrent for the taxpayer to comply with the provisions which enjoin on the assessee to pay the legitimate tax dues to the State. According to him the dropping of penalty proceedings after due application of mind could not be considered as prejudicial to the interests of Revenue because penalty was not a source of Revenue. The learned Accountant Member also referred to the word used in sections 271(1)(c) and 273(2)(aa) i.e., "may" which according to him merited a discretion whereas the word "shall" an obligation. It was the further observation that the Legislature in its wisdom had left to the discretion of the Income-tax Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Accountant Member was to the effect that when the Assessing Officer acting in accordance with the law dropped the penalty proceedings the order could not be branded as erroneous by the CIT simply because according to him the order should have been written more elaborately. Section 263, according to the learned Accountant Member did not visualize a case of substitution of the judgment of the CIT for that of the Assessing Officer, who passed the order unless the decision was held to be erroneous. In conclusion the learned Accountant Member relying on the judgment of the Hon'ble Bombay High Court in the case of Gabriel India Ltd.'s case held that since the orders of the Assessing Officer dropping the penalty proceedings under sections 271(1)c) and 273(2)(aa) were after due application of mind as also the order of waiver of interest under Rule 40(5) once again after due application of mind these could not be termed as erroneous simply because the CIT did not feel satisfied with the conclusion. The learned Accountant Member at the end of his order referred to the subsequent proceedings pursuant to set aside by the CIT noting that penalties levied by the Assessing Officer were deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... medical background and not much experienced in the assessee's line of business or dealing with the Income-tax Department; (xi) The order dropping the penalties was passed by an officer different to the one who had initiated the same; (xii) Order for waiver of interest was passed on merits; (xiii) When the Assessing Officer acting as a quasi-judicial authority passed an order, then the CIT could not act under section 263; (xiv) That the term used in the penalty provision is "may" and not "shall" and the Assessing Officer had applied his mind and acted as a quasi-judicial authority while cancelling the penalties; (xv) In a given case when two views were possible and the Assessing Officer had adopted one and acted in a particular manner, then the CIT could not act under section 263; (xvi) The one line orders dropping the penalties are backed by detailed office notes of the Assessing Officer; (xvii) Whether the statement of Dr. Rohit Jindal and the diary found conclusively proved that income had been concealed. That these could be used no doubt for assessment purposes, but it must be appreciated that it was a case of survey and not search; (xviii) No difference was foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. CWT [1970] 77 ITR 6(SC) (xviii) 1969 AIR 49(Sic) (xix) CIT v. Garg Enterprises [1998] 67 ITD 13(Chd.)(TM) (xx) Fattechand Rajmal Jain v. IAC [1997] 60 ITD 47(Pune) (xxi) Balwant Singh v. ITO [1995] 55 ITD 363(Jp) (xxii) Bharat Dairy Farm v. Dy. CIT [1997] 60 ITD 321(Pune) (xxiii) Island Sea Foods (P.) Ltd.'s case (xxiv) Transactional Analytic Centre for Education, Research Trng's case (xxv) Narendra Associates, Engineers Contractor's case (xxvi) Modi Xerox Ltd. v. Dy. CIT [1998] 67 ITD 252(Delhi) (xxvii) N.S. Ichhopani v. Asstt. CIT [1995] 55 ITD 88 (Chd.) (xxviii) Fattechand Rajmal Jain's case (xxix) 1969 AIR 49(Sic). 22. The learned Departmental Representative, on the other hand, strongly supported the view expressed by the learned Judicial Member. According to her (1) The surrender was not made at the time of survey, but during the course of assessment proceedings; (2) Further that the CIT could act under section 263 on any order and his powers were not restricted to an assessment order only; (3) Even the CIT had reached a conclusion on the basis of the office note; (4) Shri Rohit Jindal in his statement had admitted that the transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders passed by the learned Members of the division bench. At the outset, I would like to mention that both the learned Members have dealt with various facets of the controversy, but in my opinion, the controversy can be resolved on one or two important issues to which I would like to advert straight away. However, before I do so, I would like to mention that a number of authorities have been cited by the assessee's counsel, no doubt, with reference to various facets of the controversy and to deal with one of these a number of decisions pertained to the non-initiation of penalty proceedings by the Assessing Officer and the subsequent jurisdiction which is to be exercised by the Commissioner under section 263. It is an accepted fact that there are decisions both in favour and against the view point propounded by the learned counsel that a Commissioner cannot cancel an assessment under section 263 just because the Assessing Officer had not initiated penalty proceedings. On the facts of the present case, these arguments are of no avail and neither are the authorities cited since the penalty proceedings have been initiated but dropped and interest has been charged, but order for waive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgument has been raised before me by the learned counsel that under the Act a Commissioner is not empowered to initiate and levy penalties and by passing the order under section 263 in the present case he has assumed himself with such powers. The plea of the learned counsel is that satisfaction has to be recorded by the Assessing Officer or by the CIT(Appeals) and not by the Commissioner. In my opinion, these arguments are found to be without any merits since the powers of the Commissioner under section 263 cannot be curtailed since the reference is to "any proceedings" under the Income-tax Act. In my opinion, a Commissioner can act under section 263 in case he finds any order passed by an Income-tax authority below him to be erroneous in so far as it is prejudicial to the interests of the Revenue. In the present case the Commissioner has so acted, but on the premises that a single line order dropping the penalty proceedings does not show application of mind and the learned Judicial Member has approved of the view expressed by the Commissioner of Income-tax. 29. The initial impression which would normally be gathered would be the same as expressed by the Commissioner and the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice note to the amount being offered in addition to the returned income only to buy peace of mind and vis-a-vis the merits of the case on the basis of documents, but the Assessing Officer noted as a fact that relevant amounts could not be quantified and that the Department did not verify the entries contained in the two diaries as these had already been struck off and the amounts and the parties could not be ascertained. 31. In my opinion, the order of the learned Accountant Member can be approved on the aforesaid solitary ground by reading the single line orders dropping the penalties along with the detailed office note which no doubt reveals that there is application of mind on the part of the Assessing Officer and once he has taken a quasi judicial view to drop penalties even after recording satisfaction no fault can be found in his orders dropping the penalties or for that matter in the order of waiver pertaining to the levy of interest. It must be emphasised that when satisfaction for penalty proceedings is recorded it is only a prima facie view on the part of the Assessing Officer. Subsequently, during the course of the penalty proceedings there may be circumstances, which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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