Income Tax Appellate Tribunal - Delhi
Assistant Commissioner Of Income Tax vs P.N. Sapra on 29 January, 2002
Equivalent citations: (2004)82TTJ(DELHI)322
ORDER
Krishan Swarup, A.M.
1. The appeal by the Department and the cross-objection by the assessee are against the order of the CIT(A)-III, New Delhi, dt. 6th Feb., 1996, in relation to penalty order under Section 271(1)(c) of the IT Act, 1961, for the asst. yr. 1989-90.
2. The solitary ground taken by the Department and the cross-objections of the assessee read as under:
Ground by the Department "On the facts and in the circumstances of the case, the learned CIT(A) has erred in reducing the penalty levied under Section 271(1)(c) of the IT Act, 1961, by relying on the additional evidence in contravention of Rule 46A."
C.O. by the assessee "1. That on the facts and circumstances of the case and in law the learned CIT(A) erred in not quashing the penalty levied by the AO.
2. That the learned CIT(A) should have held that no penalty could be levied in absence of recording of satisfaction of concealment by the AO, before initiating such penalty."
3. The facts concerning the matter, in brief, are thus. For the assessment year under consideration, the assessee had filed his return declaring an income of Rs. 2,16,570 and vide order under Section 143(3) of the Act, the assessment was completed on a total income of Rs. 2,57,830. The difference between the returned and assessed income had arisen because of certain disallowances and an addition of Rs. 27,269 on account of cash credits held to be unexplained. In the assessment order the AO had observed, "penalty proceedings under Section 271(1)(c) has already been initiated separately". Subsequently a penalty order was passed in which the assessee was held guilty of concealing the particulars of income/furnishing inaccurate particulars of income in the context of addition of Rs. 27,269 made on account of unexplained credits. In his ex parte order, the learned CIT(A), after referring to the facts of the case and assessee's letter dt. 16th Nov., 1993, available on records, observed that since the assessee had furnished confirmation in respect of a sum of Rs. 8,000 which included the particulars of the assessment of the creditor, no penalty could be levied with reference to this amount. The assessee was, however, held liable to penalty with reference to the balance of Rs. 19,269. The AO was directed to recalculate the penalty accordingly.
4. As is evident from the ground reproduced above, the grievance of the Department is that the learned CIT(A) has ordered reduction of penalty by relying on an additional evidence in contravention of provisions of Rule 46A of the IT Rules. As per the cross-objections, the contention of the assessee is that the learned CIT(A) has erred in not quashing the penalty in toto which had been levied without recording of satisfaction of concealment before initiating the proceedings.
5. Both the parties were heard. The submission of the learned Departmental Representative was that the AO had recorded a categorical finding that no documentary evidence in support of the loans claimed to have been taken by the assessee was placed on record by him and, therefore, the learned CIT(A) has erred in reducing the penalty without any basis, may be on consideration of some additional evidence. In reply, the learned counsel for the assessee submitted that the learned CIT(A) had decided the appeal ex parte and, therefore, there was no question of any additional evidence having been taken by him on record. In support of assessee's cross-objection, the learned counsel, while relying upon the decision of the Hon'ble Delhi High Court in the case of CIT v. Raw Commercial Enterprises Ltd (2000) 246 ITR 568 (Del), submitted that since the assessment order did not even indicate that the AO had formed any opinion nor had he recorded a satisfaction that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income, the penalty order itself deserved to be cancelled. The learned counsel also placed before us a copy of order of the ITAT, Delhi Bench 'F' dt. 11th Sept., 2001 rendered in the case of Dy CIT v. R.J. Wood & Co. (P) Ltd in WTA No. 73/Del/96 [reported at (2002) 76 TTJ (Del) 387-- Ed.] to which one of us was a party, by which the Department's appeal objecting to the deletion of penalty was dismissed, inter alia, on the ground that while completing the assessment no satisfaction of concealment had been recorded. The learned Departmental Representative had nothing to say on this aspect.
6. In its decision in the case of Ram Commercial Enterprises Ltd (supra) the jurisdictional High Court has, following the ratio of the apex Court decision in the case of D.M. Manasvi v. CIT (1972) 86 ITR 557 (SC), held that the condition precedent for initiation of penalty proceedings is that the AO should form an opinion and record his satisfaction in the assessment order itself that income has been concealed or that inaccurate particulars of income have been furnished. It is further held that merely because the penalty proceedings have been initiated, it cannot be assumed that such satisfaction has been arrived at. The above proposition has been reiterated by the Hon'ble High Court in the case of Diwan Enterprises v. CIT and Ors. (2000) 246 ITR 571 (Del), in which it is further held that non-recording of satisfaction was a jurisdictional defect which cannot be cured and consequently the subsequent proceedings leading to the passing of the penalty order must fail. In the case before us, on going through the assessment order, we find that it does not record the satisfaction as is warranted by Section 271 for initiating the penalty proceedings. Respectfully following the binding decisions of the jurisdictional High Court and even without going into the merits of the case, we would hold that the AO's penalty order was bad in law and it deserves to be cancelled as such. Ordered accordingly.
7. In the result, while the Department's appeal is dismissed, the assessee's cross-objection is allowed.