Andhra HC (Pre-Telangana)
V.V. Projects And Investments Pvt. Ltd. vs Dy. Commissioner Of Income Tax on 6 December, 2007
Equivalent citations: (2008)216CTR(AP)196, [2008]300ITR40(AP)
Author: G. Rohini
Bench: G. Rohini
JUDGMENT T. Meena Kumari, J.
1. Aggrieved by the order of the Income-tax Appellate Tribunal, Hyderabad, Bench 'B' in I.T.A. No. 865/Hyd/2002, dated 29.10.2004, the assessee preferred this Appeal under Section 260-A of the Income-tax Act, 1961 (for short, 'the Act').
2. The facts, in brief, are as under:
The Appellant (hereinafter referred to as 'the Assessee Company') is engaged in the business of manufacture of chemicals and also running a hotel in Kurnool Town. The Assessee Company filed its return of income for the Assessment Year 1995-96 on 30.11.1995 disclosing 'Nil' income. The return was processed under Section 143(1)(a) of the Act on 30.8.1996. It is to be noted that in its return dated 30.11.1995 the assessee company claimed 50% depreciation on Rs. 44,42,129/- on the Solar Equipment acquired by it for its hotel project. While stating that the solar equipment was acquired and installed after September, 1994, the Assessee Company claimed 50% depreciation amounting to Rs. 22,21,065/- for the assessment year 1995-96.
3. While so, the assessee filed another return of income for the same Assessment Year 1995-96 on 4.5.1998 declaring total income of Rs. 4,77,510/- stating that it gave up its claim for depreciation on the solar equipment since M/s, Solardur Energy Systems (P) Limited, Hyderabad, who supplied the solar equipment did not properly maintain its records and books and expressed its inability lo produce evidence toe I lie equipment supplied. It was also stated that with a view to avoid protracted litigation the revised return of income was being filed voluntarily and the same may be accepted since the additional income offered in the revised return did not represent concealed income.
4. The said revised return was accepted by the assessing officer - Deputy Commissioner of Income Tax, and an order of assessment was passed on 16.3.2001 under Section 143(3) of the Act determining total tax payable as Rs. 3,95,979/-, but stating that penalty proceedings under Section 271(1)(c) of the Act are initiated separately. The relevant portion of the said order may be extracted hereunder:
After verification of the information filed and books of accounts produced assessment is completed by accepting the returned net. income as per revised return of income.
Total Income Returned : Rs. 4,77,510/-
Tax Thereon : Rs. 1,43,253/-
Surcharge : Rs. 21,488/-
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Add: Interest Under Section 234-B : Rs. 2,19,051/-
Under Section 234-c : Rs. 12,187/-
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Total Tax payable : Rs. 3,95,979/-
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Proceedings Under Section 271(1)(c) initialed separately.
Sd/-
Xxxxx
3. The said order was followed by show-cause notice dated 17.9.2001 issued by the Deputy Commissioner of Income-tax calling upon the assessee company to show-cause as to why penalty under Section 271(1)(c) of the Act amounting to a minimum of Rs. 9,10,800/ being 100% of tax evaded and a maximum of Rs. 27,32,400/ being the 300% of fax evaded should not be levied. The assessee company submitted its explanation dated 27.9.2001 requesting to drop the proceedings stating that it was not a case of concealment of particulars of income or furnishing of inaccurate particulars.
However, the assessing officer - Deputy Commissioner of Income-tax, Hyderabad, rejected the contention of the assessee company that it was a voluntary declaration and passed an order dated 27.9.2001 levying a penalty of Rs. 9,10,800/- in exercise of the powers conferred under Section 271(1)(c) of the Act.
Aggrieved by the same, the assessee company preferred an Appeal before the Commissioner of Income-tax (Appeals) on 21.2.2002. The said Appeal was dismissed by order dated 22.8.2002 thereby upholding the penalty levied by the assessing officer. Challenging the said order, the assessee company preferred a further appeal before the Income-tax Appellate Tribunal, Hyderabad. After hearing both the parties, the Tribunal though upheld the order of the Commissioner of Income-tax (Appeals) on the issue of levy of penalty, expressed that the matter requires reconsideration so far as the quantification of penalty is concerned. Accordingly, by order dated 29.10.2004 while allowing the Appeal in part, the matter was remanded to the assessing officer to re-quantify the penalty after giving reasonable opportunity to the assessee in accordance with law. Aggrieved by the same, the assessee company preferred the present Appeal under Section 260-A of the Act.
4. We have heard the learned Counsel for both the parties and perused the material on record.
5. The learned Counsel appearing for the appellant/assessee company vehemently contended that the penalty of Rs. 9,10,800/- purportedly levied under Section 271(1)(c) of the Income-tax Act, 1961 by the respondents is contrary to law and unsustainable.
While submitting that recording of satisfaction of concealment of income by the assessee is a condition precedent for initiating proceedings for levy of penalty under Section 271(1)(c) of the Act, the learned Counsel contended that since the assessing officer in the assessment order dated 16.3.2001 did not record such satisfaction, but. on die other hand accepted the returned net income as per the revised return filed by the assessee, the impugned penalty proceedings are impermissible and without jurisdiction. The learned Counsel also contended that the impugned order which is based on a statement allegedly made by one K.S. Rao, Managing Director of M/s. Solardur Energy Systems (P) Ltd., without affording an opportunity to the assessee to cross-examine him is in violation of the principles of natural justice.
6. On the other hand, the learned Counsel appearing for the respondent contended that the impugned penalty proceedings do not suffer from any jurisdictional error warranting interference by this Court.
7. Having regard to the submissions made by the learned Counsel, the following substantial question of law arises for consideration by this Court:
Whether it is permissible for the assessing officer to initiate penally proceedings under Section 271(1)(c) of the Act without recording his satisfaction in the assessment order that the assessee concealed the particulars of his income or furnished inaccurate particulars?
For proper appreciation of the controversy involved, it is necessary to refer to Section 271 of the Act which deals with failure to furnish returns, comply with notices, concealment of income, to the extent it is relevant for the present case.
271. (I) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person -
(a) ...
(b) ...
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or
(d) ...
he may direct that such person shall pay by way of penalty,-
(i) ...
(ii) ...
(iii) in the cases referred to in Clause (c) or Clause (d) in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits.
On a plain reading of Sub-section (1) of Section 271 of the Act, it is clear that the assessing officer, in the course of any proceedings under the Act, is empowered to levy penalty in the circumstances specified in Clauses (a) to (d), which included concealment of particulars of income or furnishing inaccurate particulars of income. However, the language of Sub-section (1) of Section 271 of the Act itself makes it clear that recording of satisfaction of concealment of income by a person or furnishing inaccurate particulars of such income is a condition precedent for levying penally invoking the power under Section 271(1) of the Act.
While interpreting the object and intendment of Section 271(1) of the Act, the Supreme Court in D.M. Manasvi v. C.I.T. (S.C.) 86 I.T.R. 557, held as under:
What is contemplated by Clause (1) of Section 271 is that the Income-tax Officer or the Appellate Assistant Commissioner should have been satisfied in the course of proceedings under the Act regarding matters mentioned in the clauses of that sub-section. It is not, however, essential that notice to the person proceeded against should have also been issued during the course of the assessment proceedings. Satisfaction in the very nature of things precedes the issue of notice and it would not be correct to equate the satisfaction of the Income-tax Officer or Appellate Assistant Commissioner with the actual issue of notice. The issue of notice is a consequence of the satisfaction of the Income-tax Officer or the Assistant Appellate Commissioner and it would, m our opinion, be sufficient compliance with the provisions of the statute if the Income-tax Officer or the Appellate Assistant Commissioner is the satisfied about the matters referred to in Clauses (a) to (c) of Sub-section (1) of Section 271 during the course of proceedings under the Act even though notice to the person proceeded against in pursuance of that satisfaction is issued subsequently.
In C.I.T. v. Munish Iron Store (P. and H.) 263 I.T.R. 484, a Division Bench of Punjab & Haryana High Court while referring to the ratio laid down in the above decision that under Section 271(1) of the Act, it is the assessing authority which has to form its opinion and record its satisfaction before initiating the penalty proceedings, further held that the jurisdiction to impose penalty flows from recording of the satisfaction and in case there is a jurisdictional defect in the assumption of jurisdiction it cannot be cured.
The above proposition of law has been reiterated by the High Court of Delhi in CIT v. Vikas Promoters P. Ltd. (Delhi) 277 I.T.R. 337, emphasizing as under:
...the satisfaction is not to be in the mind of the Assessing Officer but must be reflected from the record. It is a well-settled rule of law that the authorities performing quasi-judicial or judicial function must give reasons in support of its order so as to provide in the order itself the ground which weighed with the authorities concerned for passing an order must give reasons in support of its order so as to provide in the order itself the ground which weighed with the authorities concerned for passing an order adverse to the interest of the assessee. Further more the provisions of section 21(1)(c) are penal in nature thus must be strictly construed, the element of satisfaction should be apparent from the order itself. It is not for the courts to go into the mind of the authorities or trace the reasons from the files of such authorities.
The Delhi High Court in C.I.T. v. Ram Commercial Enterprises Ltd. (Delhi) 246 I.T.R. 568, held that 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.
8. In a recent decision reported in Dilip N. Shroff v. Joint CIT (SC) 291 I.R.T. 519, the Supreme Court having reviewed all the decided cases relating to penalty proceedings under Section 271(1)(c) of the Act held that the order imposing penalty under Section 271(1)(c) being penal in nature, the rule of strict construction shall apply.
From die legal position noticed above, it is clear that the assessing officer has to form his own opinion and record his satisfaction of concealment of income or furnishing inaccurate particulars of income before initialing penalty proceedings under Section 271(1)(c) of the Act. It is also clear that such satisfaction of the assessing officer must be spelt out in the order of assessment itself but cannot be assumed from the issue of a notice under Section 271(1)(c) of the Act. Failure to record such satisfaction amounts to a jurisdictional defect which cannot be cured.
9. However, while placing strong reliance upon the expression 'in the course of any proceedings under the Act' in Section 271(1) of the Act, the learned Counsel for the respondent sought to contend that the penally proceedings being independent it is sufficient if the satisfaction is recorded in the order levying penalty. The learned Counsel in support of his submission cited a Full Bench decision of Allahabad High Court in C.I.T. v. Gopal Krishna Singhania (All.) 89 I.T.R. 27.
10. In the above decision, the Full Bench of Allahabad High Court was dealing with proceedings under Section 34 of the Income-tax Act, 1922 which corresponds to Sections 147 & 148 of the new Act of 1961 which provide for reassessment of income chargeable to tax which has escaped assessment. Having considered the scope and object of the said provisions, the Full Bench held that penalty under Section 28(1)(c) of the old Act (corresponding to Section 271(1)(c) of the new Act) can be levied during the course of proceedings under Section 34 in respect of a default committed during the original assessment proceedings.
The said decision is clearly distinguishable on facts and the ratio laid down therein is not applicable to the instant case.
11. It is also relevant to note that whether the assessee has concealed his income or has deliberately furnished inaccurate particulars thereof is essentially a finding of fact which has to be spelt out by way of recording the satisfaction of the Assessing Officer as required under Section 271(1) of the Act. Therefore, in the absence of such a finding in the assessment order no penalty proceedings can be initiated.
12. As noticed above, the declaration of income made by the assessee company in revised return and the explanation that it had done so to buy peace with the department and to avoid protracted litigation was accepted by the Assessing Officer in his order dated 16.3.2001 without raising any objection. Admittedly the assessing officer accepted the returns filed by the assessee after verification of the information filed and books of accounts produced. Thus, the assessment was completed accepting the returned net income as per the revised return of income. Not only the assessment order did not. reflect any satisfaction as required under Section 271(1) of the Act but even the show-cause notice dated 17.9.2001 was silent with reference to the satisfaction arrived at by the assessing officer with reference to the concealment of income by the assessee company. Nothing has been placed before this Court by the Revenue to show that any other material was available with the assessing officer to the effect that, the assessee concealed the income. In the circumstances, it is not open to the Assessing Officer to invoke the power under Section 271(1)(c) levying penalty.
13. For the aforesaid reasons, we are of the opinion that, the impugned penalty proceedings arc without jurisdiction apart from being arbitrary and illegal.
14. Accordingly, we set aside the impugned proceedings and allow the Appeal in favour of the ussessee. No costs.