Delhi High Court
Cit vs Rampur Engg. Co. Ltd. & Ors. on 2 July, 2006
Equivalent citations: (2006)204CTR(DEL)149
Author: T.S. Thakur
Bench: T.S. Thakur
JUDGMENT T.S. Thakur, J.
Tribunal has, in all these cases, either deleted or affirmed the deletion of penalty levied upon the assessed under section 271(1)(c) of the Income Tax Act, 1961. The Tribunal has, while doing so, relied upon a decision of Division Bench of this court in CIT v. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568 (Del) and held that the authority initiating the penalty had not recorded its satisfaction regarding concealment of income or furnishing of inaccurate particulars thereof by the assessed. The revenue has assailed the correctness of the said orders in these appeals.
2. Learned counsel for the revenue advanced a two-fold submission in support of these appeals. Firstly it was contended that the issue of a notice proposing to initiate penalty proceedings against the assessed was in itself indicative of the satisfaction of the authority initiating the proceedings regarding concealment of income or furnishing of inaccurate particulars thereof. Alternatively, it was submitted that in the absence of any specific format for recording satisfaction in the Act or the Rules framed there under, penalty proceedings initiated by the competent authority should be deemed to be valid so long as the satisfaction of the said authority was discernible from the order made by it. Merely because the authority had not used the words 'I am satisfied that the assessed has concealed his income or furnished inaccurate particulars thereof, would be of no consequence according to the learned counsel. The true test is whether a reading of the order demonstrates application of mind by the authority to the question of concealment and whether satisfaction about such concealment or furnishing of inaccurate particulars is discernible from the same.
3. We have given our anxious considerations to the submissions made at the Bar and perused the orders under appeal. We have also been taken through the pronouncement of this court in Ram Commercial's case (supra) and Diwan Enterprises v. CIT (2000) 246 ITR 571 (Del). These two decisions have been followed by a number of later pronouncements of this court including those in CIT v. Khoday Eswarsa & Sons (1972) 83 ITR 369 (SC), Anantharam Veerasinghaiah & Co. v. CIT (1980) 123 ITR 457 (SC) (These two citations seem to be wrong as these cannot be said to have followed the decision in Ram Commercial's case-Ed) and CIT v. JK Synthetics Ltd. (1996) 219 ITR 267 (Del). From a conspectus of these decisions, it is evident that the following propositions of law relevant to levy of penalty under section 271(1)(c) of the Income Tax Act are fairly well settled :
(i) That the officer initiating the penalty proceedings must record his satisfaction that the assessed has concealed his income or furnished inaccurate particulars of such income.
(ii) Such satisfaction must be recorded in the course of any proceedings under the Act.
(iii) The issue of a notice initiating penalty proceedings is not by itself indicative of the authority's satisfaction that the assessed had concealed his income or furnished inaccurate particulars of such income. In other words, satisfaction referred in section 271 must precede issue of the notice.
(iv) Recording of satisfaction by the authority concerned is a jurisdictional fact. If no satisfaction is recorded, the initiation of penalty proceedings is itself incompetent.
4. The contention urged on behalf of the revenue, that the issue of a notice initiating penalty proceedings should in itself constitute satisfaction of the authority initiating the proceedings, must fail. The decision of this court and those of the apex court in D.M Manasvi v. CIT (1972) 86 ITR 557 (SC) and CIT v. S.V. Angidi Chettiar (1962) 44 ITR 739 (SC) do not support that proposition. As a Bench of co-ordinate jurisdiction, we are bound by the view taken by this court in Ram Commercial's case (supra) followed by a long line of decisions rendered thereafter. The alternative submission urged by the revenue cannot however be brushed aside lightly. That is because neither in Ram Commercial (supra) nor in any other subsequent decision rendered by this Court, has this court examined whether the requirements of recording of satisfaction can be deemed to have been satisfied in cases where the authority initiating the proceedings has in the course of the order made by it recorded findings which would in themselves constitute not only proper application of mind but satisfaction of the authority that the assessed has either concealed his income or furnished inaccurate particulars of such income. Recording of satisfaction before initiating proceedings is in our opinion a requirement that ensures that penalty proceedings are not initiated as a matter of course and in a mechanical fashion. The scheme of the Act and the provisions authorising levy of penalty sufficiently show that levy of penalty is not a matter of course. The use of the word 'may' in section 271 by itself suggests that the authorities mentioned therein may or may not initiate proceedings for levy of penalty and even if the proceedings are initiated, they may or may not levy the same. At the same time, whenever the proceedings are initiated, the same ought to be preceded by a proper application of mind by the authority doing so. Application of mind is thus the very essence of the requirement of recording satisfaction. The statute does ,not, however, prescribe any format in which satisfaction may be recorded or application of mind demonstrated. It would, therefore, depend upon the facts and circumstances of each case whether or not the authority has applied its mind to the question of concealment of income or furnishing of inaccurate particulars of any such income. It follows that the question whether the authority was or was not satisfied about any such concealment or furnishing of inaccurate particulars will also depend upon the facts of each case and the order which the authority has made. It would not be enough to mechanically use the word 'I am satisfied' without discussing how that satisfaction has been arrived at. So also the non-use of the words 'I am satisfied that the assessed has concealed his income and/or furnished inaccurate particulars of such income' should not make any difference, if the satisfaction is otherwise discernible from the order. It follows that the order may have to be seen as a whole arid so long as a proper reading of the order demonstrates application of mind by the authority and so long as satisfaction is discernible from the findings recorded by the authority initiating the proceedings, the same should suffice. In the light of the above, we admit these appeals for determination of the following substantial question of law :
"Whether satisfaction of the officer initiating the proceedings under section 271 of the Income Tax Act can be said to have been recorded even in cases where satisfaction is not recorded in specific terms but is otherwise discernible from the order passed by the authority ?"
5. Keeping in view the pronouncements of this court in Ram Commercial (supra) and other cases on the subject, we are of the view that it would be more appropriate if the question is authoritatively determined by a Full Bench of this Court.
6. We accordingly refer these appeals to a Full Bench for determination of the above question and for final disposal of the appeals as nothing would survive for consideration once the question is answered one way or the other.