Calcutta High Court
Dr. Syamal Baran Mondal vs The Commissioner Of Income Tax-Xx on 18 February, 2011
Author: Kalyan Jyoti Sengupta
Bench: Kalyan Jyoti Sengupta
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In the High Court at Calcutta
Special Jurisdiction (Income Tax)
Original Side
Present:
The Hon'ble Mr. Justice Kalyan Jyoti Sengupta
And
The Hon'ble Mr. Justice Kanchan Chakraborty
Income Tax Appeal No.698 of 2007
Dr. Syamal Baran Mondal ...Appellant
- Versus -
The Commissioner of Income Tax-XX, Kol ...Respondents
Judgment on: 18.2.2011.
Kalyan Jyoti Sengupta, J.
By an order of this Court dated 10th January, 2007 read with order dated 20th January, 2008 the above appeal under Section 260A of Income Tax Act, 1961 (hereinafter as the said Act) was admitted on the following substantial questions of law:-
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(I) Whether the Assessing Officer had any jurisdiction to impose penalty under Section 271(1)(c) of the Income Tax Act, 1961 and the Tribunal were justified in law in holding that the Assessing Officer had arrived at the requisite satisfaction in course of assessment proceeding in initiating penalty proceeding and his purported findings in that behalf are arbitrary, unreasonable and perverse?
(II) Whether in any event the Tribunal was justified in law in rejecting affidavit of the appellant without subjecting him to cross-
examination and its purported findings that the appellant's case filed under Clause (b) of the - Explanation (1) to Section 271(1)(c) and upholding imposition of penalty are arbitrary, unreasonable and perverse.
The facts leading to preferring this appeal for upsetting the judgement of the learned Tribunal are shortly put hereunder:-
The appellant is the Surgeon (Gynecology) by profession and as such running a Nursing Home in the District of Hooghly. He returned his income for the Assessment Year 2001-2002, of Rs.2,18,390/-. The A.O. however did not accept the returned income to be his annual income of the previous year. The appellant/assessee submitted daily case register in Form 3(c) furnishing the cases handled by him during the relevant previous year in course of assessment proceeding. The Assessing Officer in order to verify 3 correctness of the receipt shown by the assessee in the said Form 3(c) issued notice under Sections 133 (c) and 131 to the Nursing Home concerned. On information and materials having been collected from two Nursing Homes the Assessing Officer found that a large number of cases handled by the assessee were not shown in Form 3(c) and in some cases payment receipts submitted by the appellant/assessee show amount lesser than actual amounts paid by the respective patients.
On examining all the materials having been collected the Assessing Officer came to the fact finding that appellant had understated his professional receipts to the extent of Rs.9,47,750/- and thus he completed the assessment under Section 143(3) on total income of Rs.13,43,890/-. The assessee filed appeal before the CIT(A) against such computation of the income which was allowed partly. The assessee thereafter taken this matter to the learned Tribunal on appeal. The learned Tribunal by order dated 9th November, 2005 directed to allow expenses @35% out of the Nursing Home receipt as against 25% allowed by the CIT(A). Thus the revised total income of the assessee for the year under consideration after giving effect to the order of the Tribunal, stood at Rs.9,86,070/-
After having assessed taxable income the Assessing Officer simultaneously initiated penalty proceeding under Section 271(1)(c) on account of under-statement of professional income of Rs.9,47,750/- issuing a show cause notice.4
The said penalty proceeding was contested by the assessee taking preliminary objection that the Assessing Officer without having recorded his satisfaction as required under the said Section has initiated the proceeding. As such, this proceeding is bad on account of lack of jurisdiction. It was contended that there has been no malafide on the part of assessee as he actually had to depend upon the Accountant who is new- comer in the profession and under his guidance and advice he filed returns and accordingly the said income was not mentioned in the returns originally filed. The Accountant concerned has also sworn in an affidavit before the Notary Public taking upon himself the burden of failure and lapses. The said affidavit was filed before the Assessing Officer.
The Assessing Officer overruling the question of jurisdiction further discarding the affidavit filed by the said Accountant imposed minimum penalty @10% on the calculated amount of Rs.22,884/-. The appellant preferred appeal against the aforesaid order of penalty imposed by Assessing Officer to the Commissioner of Income Tax (Appeal) who dismissed the same and upheld the order of penalty. Subsequently, the appeal before the Tribunal also visited the same fate.
Mr. J.P. Khaitan, learned Senior counsel for the appellant submits that before initiating penalty proceeding under the aforesaid Section satisfaction of the Assessing Officer ought to have been recorded and recording satisfaction is a pre-condition to initiate such proceeding. Neither in the order of assessment nor 5 any order before issuance of notice to show cause nor even in such notice itself the Assessing Officer recorded his satisfaction. Hence the impugned order of penalty is bad in law as the AO had no jurisdiction to pass such order without recording his satisfaction. In support of his aforesaid legal submission he drawn our attention to the decision of the Delhi High Court in case of Dewan Enterprises v. CIT reported in 246 ITR 571, CIT v. RR commissioner Ltd. 2456, ITR 568 SS v. DC T (85ITD) 167(JPTM) and JC IT v. A.M. Ltd. 147 tax 96.
Next he contends on merit that even assuming the AO has jurisdiction but on the fact and circumstances of this case the AO ought to have accepted the explanation put forward by the assessee that it was not his lapse nor fault rather his Accountant upon whom he absolutely relied, has wrongly advised and it was his fault by not mentioning the other income in the Register in Form 3(c). Such lapse was accepted by the Accountant, being a new comer by affirming affidavit. He contends that without having contrary material evidence merely on surmise and conjecture all the three authorities have discarded affidavit without asking the said Accountant to be subjected to cross-examination. According to him, when affidavit is filed if no cross-examination is done contents thereof should have been accepted. Alternatively, he has argued without asking the deponent to be subjected to cross-examination affidavit should not have been discarded. In support of his contention, he has relied on a number of decisions which are as follows:-
30 ITR 181 (SC) 6 90 ITR 1 (Bomb) 40 ITR 544 (Bomb) 19 ITR 19 (Gau) 277 ITR 25 (Cal) 261 ITR 87 (All) Learned Counsel for the Revenue while supporting the judgment and order of the learned Tribunal submits that this Court shall not interfere with the concurrent fact findings of all the authorities below. On fact it has been found by all the authorities below that admittedly there has been a concealment of income which was not returned. When the affidavit of Accountant to support the case of the Assessee was not accepted and further disbelieved this Court will not substitute its own assessment of belief or disbelief.
He submits that the recording of satisfaction for drawing up the proceedings under Section 27(1C) is not required to be recorded formally. If in substance satisfaction is to be found obviously the mechanical formality under the said section is not required. It is possible for the Assessing Officer to draw up the proceedings simultaneously with the order of assessment.
He submits further that the Tribunal has passed the impugned order after having considered the large number of High Court's decisions in the subject, this Court should not interfere with the same. In support of his submission he has relied on the Allahabad High Court judgment in case of Sova Works Pvt. Ltd. v. CIT reported in 259 ITR 625 and also the Madras High Court judgment in case of Sajjan Raj Nahar v. CIT reported in 283 ITR 230, the decision rendered in the 7 Delhi High Court has not been followed by the Allahabad High Court and Madras High Court.
When the learned Tribunal has chosen to follow two High Court judgments in preference to other this Court cannot hold that the decision on the point of law is without any authority. Accordingly, he submits that this appeal should be dismissed.
After consideration of the submission of the respective parties and having gone through the records it appears to us that in this case the points for decision of this appeal fallen for consideration, are as follows:-
(i) Whether omission and/or failure to record the satisfaction by the Assessing Officer that the assessee had concealed the particulars of his income or furnished inaccurate income of such income under Section 271(1)(c) of the said Act entails the penalty proceeding invalid and illegal, in other words smacks of statutory defect?
(ii) Whether all the learned fora below are justified in law to reject the affidavit filed by the Accountant on the plea of afterthought?
While addressing first point we feel it necessary to set out Section 271(1)(c) of the Income Tax Act.
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"Failure to furnish returns, comply with notices, concealment of income, etc. 271(1)(a)..............
(b)..............
(c) has concealed the particulars of his income or furnished inaccurate particulars of........."
It appears on interpretation of the said Section that satisfaction of the Assessing Officer is no doubt a pre-condition before initiating penalty proceeding. However, if the satisfaction is not recorded before initiation what would be legal impact had fallen for consideration before various courts.
In the case of CIT v. Ram Commercial Ltd. reported in 246 ITR 586 the Delhi High Court has taken the view that the assessing authority has to form his own opinion and record his satisfaction before initiating the penalty proceeding. Mere initiation of penalty proceeding ipse dixit is not good enough to conclude that the Assessing Officer has arrived at his satisfaction.
The same High Court took same view in case of Dewan Enterprises v. CIT reported in 246 ITR 571. In this case the High Court has held that failure to record satisfaction in so many words that the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income is 9 non-curable jurisdictional defect, initiation of penalty proceeding without satisfaction being recorded had to be declared illegal and it must fail.
However, the Allahabad High Court in case of Sova Works Pvt. Ltd. V. CIT reported in 259 ITR 625 had not accepted the view expressed by the Delhi High Court and it has ruled as follows:-
"Whether the Assessing Officer had to record his satisfaction under the Income Tax Act, 1961 it is specifically mentioned, in Section 148(2) of the Act which provides that the Assessing Officer before issuing any notice under this Section will record the reason for doing so. Section 271 does not have similar provision requiring the record of reason for satisfaction. Hence it is to be inferred that Parliament never intended that before initiating penalty proceeding and issuing notice under Section 271, the Assessing Officer must record his reason in writing for doing so. Although the Assessing Officer must have satisfaction as required under Section 273 of the Act, it is not answer for him to record that satisfaction in writing before intimating penalty proceeding under Section 271. The Madras High Court in case of Sajjan Raj Nahar v. CIT reported in 283 ITR 230 has chosen to follow the ratio decided by the Allahabad High Court and not to accept the views expressed by the Delhi High Court in the case of CIT v. Bikash Promoters Pvt. Ltd. reported in ITR 337.10
We think that the aforesaid vexed issue had indeed been by necessary implication settled long time back by the Supreme Court in the case of CIT v. Chetias reported in 44 ITR 739. In that case the Supreme Court factually accepted the penalty proceedings to be valid without having recording of satisfaction under Section 28 of the previous Income Tax Act which was corresponding to Section 271 of the present Act, although going by the language of the said section recording of satisfaction in expressed words was required. In the said judgment it has not been specifically stated whether satisfaction has to be recorded in so many words before initiation of the proceeding under said Section by the Assessing Officer. After reading all the judgments of the Courts viz. Allahabad High Court, Madras High Court, and the Supreme Court as above, we think that the decision of the Delhi High Court is substantially conflicting with the earlier decision of the Supreme Court with regard to the question of jurisdiction in relation to initiation of penalty proceedings. In our opinion, the Assessing Officer must form opinion and further must have satisfaction about act of concealment of the income as required in the said Section, though not worded in the record. We think it is not mandatorily necessary to record in so many words like provision of Section 148 of the Income Tax Act. It has been observed by the Allahabad High Court that the said Section 271 no where mandates the recording of satisfaction is a must in specific terms and words. In absence of such specific provision if penalty proceeding is initiated without specifically recording his satisfaction cannot be said to be invalid or illegal, or improper exercise of jurisdiction. On reading of entire records if it appears that satisfaction 11 of the Assessing Officer is reflected in substance for initiation of penalty proceeding then and in that case the proceedings cannot be said to be invalid and without jurisdiction. However, without having any materials or any overt action leading to drawing inference of satisfaction of the Assessing Officer such proceedings under Section 271 would obviously be bad. We are of the opinion satisfaction of the Assessing Officer must reflect from the order either with the expressed words recorded by the Assessing Officer himself or by his overt act and action.
In this case as rightly contended by the learned counsel for the respondents that while passing assessment order the Assessing Officer has recorded that there has been concealment of income and penalty proceeding should follow. Ultimately, when the Tribunal affirmed the order substantially about the concealment of income and while implementing the order of the Tribunal the Assessing Officer made it clear that the penalty proceeding is required to be initiated. The learned Tribunal has relied on the observation and reasoning of the Assessing Officer. We do not want to repeat the same as it is essentially question of fact. We have checked up from the records that the recording of the Tribunal of the observation of the Assessing Officer is accurately done.12
Therefore, we hold that in this case satisfaction of the Assessing Officer as required under Section 271 has been reached as it appears from the observation of the Assessing Officer and also from his follow up action.
We therefore hold that initiation of penalty proceeding was not illegal in any sense.
While examining the second point formulated by us, we find from the said Section that the penalty cannot be imposed as a matter of course. It can be imposed if there is no explanation. Clauses (a) and (b) of the said Section under Explanation (1) make the position clear.
We are of the view that if explanation offered by the assessee is satisfactory penalty may not be imposed. In this case the assessee explained that he completely relied on Accountant/Advisor who is the new comer in this profession. The Accountant in discharge of his duty did not record and register receipt of income in the Register maintained under Form (c). The said Accountant had filed an affidavit and accepted his lapses and failure. Therefore, there has been some explanation, but all the fora below did not accept the said affidavit on the ground of afterthought. We think that the findings of afterthought of all the fora below is perverse and without having any material whatsoever. This conclusion of all the authorities below is based on conjecture and surmise. The question of afterthought will arise when an explanation was asked to be given 13 earlier but not given at the appropriate time and after having realized the mistake any document or affidavit is created or prepared subsequently it can be said to be an instance of afterthought.
Explanation is required at the stage of initiation of the penalty proceedings, not at the time of the assessment made on discovery of concealment of income. On discovery of concealment of income the Assessing Officer is to collect materials and to add the amount of concealed income in the assessment. At that stage no explanation is required as to why there has been concealment of income.
Such explanation is required at the subsequent stage when penalty proceeding is sought to be initiated. In this case at the first available opportunity before the Assessing Officer the explanation was offered with the supporting affidavit as stated above. As it has been rightly contended by Mr. Khaitan, that rejection of affidavit on the ground mentioned therein without the said Accountant being subjected to cross-examination, is unjust and improper. After cross-examination if it were found that at the instance of the assessee/appellant the said affidavit was filed intending to cover up his deliberate act of concealment, discarding of evidence would have been proper, the distinction has to be drawn whether it is a deliberate act of concealment of income on the part of the assessee or it is an omission on the part of the Accountant to record the same. Here fact clearly depicts that all records were available with the Nursing 14 Home. Had there been any deliberate act of concealment on the part of the appellant relevant records and documents would not have been kept, and it could have been destroyed or secreted at some other place. This was not done. However, the aforesaid observation of ours is based on records as available and it is not final opinion. This could be found out only when the said Accountant is subjected to cross-examination.
It is settled position in law in view of number of decisions of the Hon'ble Supreme Court as well as by the various High Courts that the affidavit of the Accountant cannot be thrown away or rejected without subjecting the deponent to cross-examination. In case of Mehta Parekh and Co. v. Commissioner of Income Tax (Bombay) reported in 30 ITR 181 the Supreme Court at page 187 of the report has observed as follows:-
"The appellants took up the affidavits of the parties were enough and neither the appellant Assistant Commissioner, nor the Income Tax Officer was present at the hearing of the appeal before the appellant Assistant Commissioner, considered it necessary to call for them in order to cross-examine them with reference to statement made by them in their affidavits. Under these circumstances it was not open to the revenue to challenge the correctness of the cash book entries or the statements made by this deponent in their affidavits. The fact of the cases before the Supreme Court showed that a few persons had 15 filed affidavit in support of the assessee stating that currency notes of denomination of Rupees one thousand each were supplied by them."
Bombay High Court in the case of Dilip Kumar Raj v. Commissioner of Income Tax reported in 94 ITR 1 following the said decision of the Supreme Court took the same view. It has been observed at page 8 of the said report that the affidavit which was filed before the Income Tax Officer and its truthfulness was not challenged by the cross-examination of Richard Millar. In that context, it was held that the Income tax officials should not have rejected the said affidavit without cross-examining the deponent.
When an affidavit is affirmed the deponent makes statement on oath with complete understanding and responsibility if not risk that if such statement is found to be false or incorrect he will be charged with the offence of purgery. As such, the affidavit cannot be thrown away without declaring the statements made therein are false or incorrect. Hence unless contrary is proved, statement in the affidavit is to be accepted as correct.
Under those circumstances, we think that rejection of this affidavit on the ground the same being an afterthought as rightly urged by Mr. Khaitan, is based on conjecture and further in violation of principle of natural justice. 16
In this context it is useful to note the observation of the Supreme Court in the case of Indian Rayon Corporation Ltd. -vs.- Commissioner of Income Tax reported in 261 ITR 98 (SC), as follows:-
"A dispute as far as possible should be decided on merits after affording reasonable opportunity of hearing to the parties. In such matters the Court should adopt a liberal and justice oriented approach (Collector Special Land Acquisition Officer v. Mst Katiji; AIR 1987 SC 1353)"
We accordingly hold that on this point the matter has to be reconsidered. We therefore set aside the findings of all the authorities below and remand the matter to the file of Commissioner of Income Tax who will if so thinks cross- examine the said deponent/Accountant as to correctness and truthfulness of the statement made by him. If it is found that such a statement is correct obviously it has to be held that explanation offered by the assessee appellant is acceptable so much so not to impose any penalty. If it is found that said statement is unbelievable and it was done in order to cover up the lapses of the appellant obviously the penalty imposed by all the fora below will be final.
Above exercise shall be initiated and completed within two months from the date of communication of this order. If no such step is taken it shall be 17 presumed that statements made in the said affidavit are to be correct, consequently, the explanation given by the assessee appellant is adequate for not imposing any penalty and therefore the amount of penalty will stand deleted.
This appeal is accordingly disposed of.
(Kalyan Jyoti Sengupta, J.) I agree.
(Kanchan Chakraborty, J.) 18