Income Tax Appellate Tribunal - Delhi
Deputy Commissioner Of Income Tax vs Ascom India (P) Ltd. on 1 December, 2005
Equivalent citations: (2006)99TTJ(DELHI)728
ORDER
H.L. Karwa, J.M.
1. The appeal by the Revenue and the cross-objection by the assessee are directed against the order of CIT(A)-V, New Delhi, dt. 29th Nov., 2004, in deleting the penalty of Rs. 6,80,000 levied by the AO under Section 271(1)(c) of the IT Act.
2. In ITA No. 798/Del/2005, the Revenue has raised the following ground :
On the facts and in the circumstances of the case as well as in law, learned CIT(A) has erred in deleting the penalty under Section 271(1)(c) amounting to Rs. 6,80,000 in respect of furnishing of inaccurate particulars of income in respect of claims/deduction.
3. In C.O. No. 192/Del/2005, the assessee has taken the following grounds :
1. On the facts and in the circumstances of the case, the Departmental appeal filed by the Dy. CIT, Ward-2(1), New Delhi, is incompetent and not maintainable in law as the original assessment was made by the ITO and penalty was also levied by the ITO only illegally and hence, the Dy. CIT had no jurisdiction or authority to file the appeal on behalf of the Revenue.
2. The order of CIT(A) quashing the penalty was passed on 29th Nov., 2004 and the appeal of the Revenue appears to have been filed belatedly in 2005 and hence the appeal of the Revenue is also barred by limitation and liable to be dismissed.
3. On the facts and in the circumstances of the case, in the original order of assessment made by the ITO, there was no satisfaction reached by him about any liability to penalty being attracted by the assessee as mandatorily required by ss. 274 and 275 and the mere mention by hand of the words 'penalty proceedings are initiated separately' cannot be regarded as valid fulfilment of mandatory requirements of the statute and hence, the levy of penalty on the appellant including notice and orders cannot be sustained both on facts and in law.
4. The assessee having acted bona fide and there being no mens rea, no liability to penalty is attracted at all.
5. The order of assessment is under challenge in appeal before the appellate authorities and penalty erroneously levied based or illegal addition cannot be sustained.
6. The disallowance mechanically made by the ITO is totally unsustainable and could not have been resorted to under the limited scrutiny order under Section 143(3)(i) of the IT Act and, therefore, both the addition illegally made and the penalty illegally made by the ITO perversely on the assessee cannot be sustained.
7. The assessee had not been given reasonable and adequate opportunity of being heard after effective and purposeful show-cause notice indicating the action proposed and reasons for doing so and hence, the impugned orders are violative of natural justice and hence unauthorized by law.
8. The orders passed are also barred by limitation and violative of natural justice besides being indicative of non-application of mind, fairly and objectively, to the facts of the case and the law applicable and, therefore, the orders of the ITO ought to have been vacated/annulled. Since the CIT(A) has vacated the same, although on different ground, the assessee is entitled to agitate against the orders of the ITO through the present cross-objections even on other grounds, both factually and legally and hence the present cross-objection is being filed to be heard along with the Departmental appeal.
4. We have heard the learned representatives of both the parties at length. Shri R. Santhanam, the learned counsel for the assessee, submitted that the penalty order is bad in law as the penalty proceedings under Section 271(1)(c) had been initiated by the AO without recording his satisfaction in the assessment order in respect of the alleged concealment. In the instant case, the AO completed the assessment under Section 143(3) of the Act. At the end of the assessment order, it was mentioned that penalty proceedings under Section 271(1)(c) of the Act have been initiated separately. Apart from these observations, the AO had not whispered anything about the satisfaction in terms of Section 271(1)(c) of the Act.
5. We find that similar issue came up for consideration before the Tribunal 'G' Bench, New Delhi, in the case of Saroop Lal Adlakha v. Dy. CIT (2005) 99 TTJ (Del) 724 : (2005) 97 ITD 6 (Del). In similar set of facts, the Tribunal vide order dt. 24th June, 2005, deleted the penalty under Section 271(1)(c) of the Act. In the case of Saroop Lal Adlakha (supra), the Tribunal has considered the following questions :
(i) Whether the penalty proceedings were not validly initiated as per the ratio laid down by the Hon'ble jurisdictional High Court in the case of CIT v. Ram Commercial Enterprises Ltd. (2000) 246 1TR 568 (Del); and
(ii) whether the judgment of the jurisdictional High Court is per incuriam.
6. As regards the first question, the Tribunal observed as under:
3. This aspect of the issue was the subject-matter of consideration before the Hon'ble jurisdictional High Court in the case of CIT v. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568 (Del). The Hon'ble High Court, following the judgment of Supreme Court in the case of CIT v. S.V. Angidi Chettiar (1962) 44 ITR 739 (SC), held that mere observation of the AO that penalty proceedings are being issued separately does not amount to satisfaction in terms of the provisions of Section 271(1)(c). The relevant observations of Their Lordships are quoted below :
'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 which has to form its own opinion and record its 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 in the absence of the same being spelt out by the order of the assessing authority. Even at the risk of repetition we would like to state that the assessment order does not record the satisfaction as warranted by Section 271 for initiating the penalty proceedings.'
4. In view of the above observations, the Court held that penalty proceedings were not validly initiated and consequently the penalty levied by the tax authorities was invalid. This judgment has been repeatedly followed by the jurisdictional High Court in the case of Diwan Enterprises v. CIT & Ors. (2000) 246 ITR 571 (Del), CIT v. B.R. Sharma (2005) 275ITR 303 (Del), and in the recent case reported as CIT v. Vikas Promoters (P) Ltd. In view of these decisions, it has to be held that in all the cases before us, penalties were not validly initiated inasmuch as no satisfaction in terms of Section 271(1)(c) was recorded by the AO.
7. As regards question No. 2, the Tribunal observed as under :
We are also of the considered view that there is no conflict between the Supreme Court judgment and the judgment of Delhi High Court. We have gone through the judgment of the apex Court. It is seen that the Hon'ble Court has not quoted the actual endorsement at the foot of assessment order, but from the observations made by their Lordships at p. 745 of the report, it is clear that endorsement was to the effect that action under Section 28 had been taken for concealment of income. However, in the case before the Hon'ble High Court, there was no such endorsement. Nowhere the AO observed that penalty proceedings were being initiated either for concealment of the particulars of income or for furnishing of inaccurate particulars of income in terms of Section 271(1)(c). In the absence of such observations, their Lordships held that recording of the satisfaction was condition precedent for initiating the penalty proceedings and mere observations that penalty proceedings are being initiated separately was not suffice to initiate valid penalty proceedings. In a recent judgment in the case of CIT v. Vikas Promoters (P) Ltd. (supra), the Hon'ble jurisdictional High Court again observed that the apex Court in the case of Angidi Chettiar (supra), had emphasized that satisfaction is not to be in the mind of AO, but must be reflected from the order itself. This shows that judgment of Supreme Court was duly considered and applied in various judgments. Consequently, neither the judgment of jurisdictional High Court can be said to be per incuriam nor in conflict with judgment of apex Court.
In our view, the order of the Tribunal in the case of Saroop Lal Adlakha (supra) is squarely applicable to the facts of the present case. From the facts of the present case, it would be clear that in the instant case, penalty proceedings were not validly initiated and consequently, the penalty levied by the AO was invalid. In that view of the matter, we dismiss the appeal of the Revenue and allow the cross-objection of the assessee.
8. No other point was raised or argued before us.
9. In the result, the appeal of the Revenue is dismissed while cross-objection of the assessee is allowed.