Income Tax Appellate Tribunal - Amritsar
Tarlochan Singh And Sons (Huf) vs Income Tax Officer on 21 September, 2007
Equivalent citations: (2008)114TTJ(ASR)82
ORDER
Joginder Pall, A.M.
1. This is a bunch of four appeals filed by the assessee against consolidated order of the CIT(A), Bhatinda, for the asst. yrs. 1997-98, 1998-99, 1999-2000 and 2000-01. Since the issues raised in all the appeals are identical, these were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. In the memorandum of appeals, the assessee has raised following identical grounds:
1. That the learned CIT(A) has erred in law and on facts in confirming the levy of penalty under Section 271(1)(c).
2. That on law and on facts and in the circumstances of the case, the learned CIT(A) has erred in upholding the imposition of penalty under Section 271(1)(c) amounting to Rs. 1,34,200 without appreciating that as per amended proviso to Section 275 w.e.f. 1st June, 2003, the penalty has already time-barred.
3. That on law and on facts and in the circumstances of the case, the learned CIT(A) has erred in confirming the penalty levied under Section 271(1)(c) amounting to Rs. 1,34,200 by the AO by misstating the facts that the assessee appellant has come up with explanation of partial partition of immovable assets of the HUF only after issue of notice under Section 148. Therefore, the interpretation of the law by the assessee was not bonafide.
4. That on law and on facts and in the circumstances of the case, the learned CIT(A) has erred in upholding the levy of penalty whereas as per explanation filed and other material placed on records no penalty in this case is called for.
3. During the course of hearing of the appeal, the assessee sought to raise the following additional ground common for all the assessment years:
1. That the order of the AO levying penalty under Section 271(1)(c) of the IT Act, 1961, is bad in law as there is no proper recording of satisfaction by the AO at the time of initiating the penalty as well as at the time of levying the penalty, as such there was jurisdictional defect in assuming of jurisdiction. That similarly, the learned CIT(A) has grossly erred in confirming the order levying penalty under Section 271(1)(c) of the IT Act, 1961, as such, the order of the learned CIT(A), confirming the levy of penalty is liable to be cancelled.
4. The learned Counsel for the assessee, Sh. P.N. Arora, submitted that additional ground is purely legal in nature for which relevant facts are already on record and arises from the orders of the authorities below. Thus, relying on the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. C1T , the learned Counsel submitted that the additional ground may be admitted.
5. The learned Departmental Representative, Sh. Tarsem Lal, submitted that he has no objection to the admission of the additional ground.
6. We have heard both the parties and carefully considered the respective submissions. Additional ground raised by the assessee involves purely a question of law. All the relevant facts relating to the additional ground are already on record. Therefore, relying on the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd v. CIT (supra), the additional ground is admitted for all the assessment years.
7. The facts of the case common for all the assessment years are that the assessee had not filed returns of income for any of these assessment years. However, during the course of assessment proceedings in the case of Smt. Pritam Kaur w/o Sh. Tarlochan Singh for the asst. yr. 1997-98, the AO noticed FDRs amounting to Rs. 30 lacs in the names of wife and two sons of Sh. Tarlochan Singh, Karta of HUF. The interest on these FDRs was not disclosed in the return. Therefore, notices under Section 148 were issued on 14th March, 2002 for all the assessment years and the assessments were picked up for scrutiny. It was explained by the assessee that there was partial partition of the assets of HUF on 30th April, 1978 and, therefore, interest income was not liable to be assessed in the hands of HUF. It was submitted that on partial partition, assets of the HUF were divided among the members of HUF. However, the land was sold by Sh. Tarlochan Singh as Karta of HUF jointly as on the date of sale, the assets cannot be transferred in the names of the respective members. The sale proceeds of land were divided among the members of the HUF and, therefore, interest income was income of the members of the HUF liable to tax in their individual capacity. However, the AO rejected the claim of the assessee for the reasons that the so-called partition deed was not written on judicial stamp paper but on a plain paper; that the said deed was not registered with the competent authority as required under Section 17(b) of the Registration Act; that no effect for partial partition was given in the Revenue record in respect of immovable properties; and that all the seven deeds vide which the lands were sold on 18th June, 1996 for Rs. 35,03,499 were signed by Sh. Tarlochan Singh and not on behalf of any other coparceners. Further, the AG observed that as per certificate issued by the Bank of Punjab, Patiala, FDRs were in the names of Tarlochan Singh & Sons, HUF. Thus, he rejected the claim of the assessee for partial partition and held that the so-called partial partition deed dt. 30th April, 1978 made on a plain paper was an afterthought, fictitious and camouflage to dodge the IT Department to avoid the income-tax liability. Accordingly, the aforesaid income was brought to tax in the hands of the HUF in respect of all the assessment years. On appeals, the learned CIT(A) accepted the claim of the assessee for partition and observed that the MUF was in existence only upto 8th Sept., 1996. The Revenue filed appeals against the order of the CIT(A) before the Tribunal. The Tribunal vide its consolidated order dt. 10th June, 2005 in ITA Nos. 404 to 407/Asr/2003 for the asst. yrs. 1997-98 to 2000-01 set aside the consolidated order of the CIT(A) and restored that of the AO.
8. At the time of completing the assessments for these assessment years, the AO also initiated penalty proceedings under Section 271(1)(c) by recording in the foot of the assessment orders as under:
Penalty notice under Section 271(1)(c) of the IT Act, 1961 for concealment/furnishing inaccurate particulars of income has been issued separately.
After receipt of the order of the Tribunal, the AO allowed a fresh opportunity by issue of notice dt. 17th Nov., 2005 to show cause why penalty should not be imposed for all the assessment years. In reply to such show-cause notices, the assessee submitted that the penalty under Section 271(1)(c) could not be imposed merely because the claim of the assessee for partial partition of the assets of the HUF was rejected by the Department. It was also submitted that such claim was accepted by the learned CIT(A) and later the order of the CIT(A) was reversed by the Tribunal. It was submitted that the assessee had already filed an appeal against the order of the Tribunal, Amritsar Bench and the same is pending with the Hon'ble Punjab & Haryana High Court. It was, therefore, submitted that penalty proceedings initiated under Section 271(1)(c) may be dropped because the assessee had neither concealed any particulars of income nor furnished inaccurate particulars of income. However, the AO did not find the explanation of the assessee as satisfactory. Relying on the judgment of Hon'ble Punjab & Haryana High Court in the case of New Bijli Foundry v. CIT , the AO observed that the findings recorded in the assessment orders are relevant for penalty proceedings and the same cannot be said to be without any basis. He further referred to the judgment of Hon'ble Supreme Court in the case of Addl. CIT v. Jeevan Lal Sah , whereby referring to Expln. 1 to Section 271(1)(c), the apex Court had observed that the presumption of concealment arises against the assessee unless the assessee discharges the burden of proof that the failure to return correct income did not arise from fraud or gross or willful neglect. The AO observed that in the present case, the assessee failed to discharge the onus to prove that the failure to file correct return did not arise from any fraud or gross or wilful neglect on its part. Thus, the AO held that the assessee had concealed the particulars of its income and thereby furnished inaccurate particulars of income. He, therefore, imposed a penalty @ 200 per cent of the tax sought to be evaded as against minimum leviable @ 100 per cent of the tax sought to be evaded. In this manner, the AO imposed penalty of Rs. 2.70 lacs, Rs. 3 lacs, Rs. 3.30 lacs and Rs. 4.20 lacs for the asst. yrs. 1997-98, 1998-99, 1999-2000 and 2000-01 respectively.
9. Aggrieved with the orders of the AO, the assessee challenged the levy of penalty in appeals before the CIT(A). During the course of appeal proceedings, the assessee also raised an additional ground to the effect that orders for imposing penalty for all the assessment years were time-barred. This ground was admitted by the CIT(A). It was argued before the CIT(A) that the penalty proceedings under Section 271(1)(c) of the Act were initiated by the AO on 6th March, 2003 at the time of completing the assessments. The learned CIT(A) decided the quantum appeal on 27th June, 2003. It was submitted that since the CIT(A) had decided the quantum appeal vide his order passed after 1st June, 2003, the case of the assessee was covered by proviso to Section 275(1)(a) of the Act, as per which the AO should have levied the penalty either before the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty had been initiated, are completed, or within one year from the end of the financial year in which the order of the CIT(A) was received by the Chief CIT or CIT, whichever was later. It was submitted that the orders for imposing the penalty should have been passed on or before 31st March, 2004. Instead the AO imposed penalty for all the assessment years vide his orders dt. 30th Nov., 2005. Tims, it was contended that the orders for imposing penalty were time-barred. This submission of the assessee was rejected by the C1T(A) on the ground that the case was covered under Section 275(1)(a) of the Act because the assessee had filed an appeal before the Tribunal. Therefore, the date of limitation upto six months from the end of the month in which the order of the Tribunal was received by the Chief CIT or CIT was operative in this case. He observed that orders for imposing penalty were passed within the said limit. Thus, he decided the grounds against the assessee and in favour of the Revenue by recording the following findings on p. 2 of the consolidated impugned order:
I have carefully considered arguments of the counsel for the appellant and also the remand report of the AO. On a bare reading of Section 275 and also from the remand report of the AO, it is clear that the time-limitation in this case had not expired. A case in which the appeal is filed before the Tribunal, the time-limitation has to be calculated as per the provisions of Section 275(1)(a) and in a case where the additions are confirmed by the CIT(A) order imposing penalty shall be passed by the AO within the time-limitations given in the proviso to Section 275(1)(a). In the proviso an order imposing penalty has to be passed within the time-limitation given there. In a case where the additions are not confirmed by the CIT(A) and no order imposing penalty has to be passed, the time-limitation would be as per Section 275(1)(a) in case the Tribunal uphold the additions which were deleted by the CIT(A). In the present case the addition made by the AO was deleted by my predecessor but the same has been restored by the Hon'ble Tribunal by setting aside the order of my predecessor. The time limitation in this case therefore would be six months from the end of the month in which the order of the Tribunal is received by the CIT, Bhatinda. Thus, the penalty order has been passed by the AO within the time-limitation. The additional ground taken up by the appellant is dismissed.
10. As regards the merits of the ease, the assessee had reiterated the submissions, which were made before the AO. It was submitted that mere rejection of claim of the assessee for partial partition did not justify imposition of penalty under Section 271(1)(c) because the income was not included for the reason that the assets of the HUF were partitioned. Therefore, the assessee was under a bona fide belief that income was not taxable in the hands of the I-IUF. These submissions did not find favour with the CIT(A), who upheld the penalty imposed by the AO in principle. However, he observed that the AO was not justified in levying penalty @ 200 per cent of the tax sought to be evaded as against the minimum leviable @ 100 per cent. Accordingly, the learned CIT(A) reduced the amount of penalty levied in this case @ 100 per cent. The relevant findings recorded by the CIT(A) on pp. 3 and 4 are as under:
I have carefully considered arguments of the counsel for the appellant and the observations of the AO in the penalty order, the assessment orders and observations of the Hon'ble Tribunal in their order. The AO has levied penalty under Section 271(1)(c) for furnishing inaccurate particulars of income/concealment of income. In the appellant proceedings, the counsel for the appellant has argued that the interpretation of law by the assessee is bona fide and the assessee had not included income of the partitioned assets in the HUF income under a bona fide belief that he is not liable to include the same and in such circumstances no penalty is called for as held by the Hon'ble Supreme Court in the case of Cement Marketing Co. of India Ltd. v. Asstt. CST . The arguments of the counsel are devoid of any merit. The income was not included by the appellant not because of difference in interpretation of law but because of fraudulent method adopted by him not to disclose the income correctly. The appellant has produced partial partition deed showing partial partition of assets of HUF on 30th April, 1978. This partial partition was held to be in genuine by the AO for the income correctly. The appellant has produced partial partition deed showing partial partition of assets of HUF on 30th April, 1978. This partial partition was held to be in genuine by the AO for the detailed reasons given in the assessment order. The Hon'ble Tribunal in their order have held that the conditions laid down in determination of partition have not been satisfied. The AO, therefore, rightly held it to be an afterthought and fictitious and camouflage to dodge the IT Department. The Tribunal, therefore, held that there was no partial partition on 80th April, 1978 and also held that provisions of Section 171(9) are applicable. Hence, the concept of partial partition would not be applicable under the IT Act after 31st Dec, 1978. From the observations of the Hon'ble Tribunal it is very clear that after the AO issued notice under Section 148 for not disclosing the interest income earned from the FDRs, the appellant came up with the explanation that partial partition of the immovable assets of HUF had taken place on 30th April, 1978. This stand of the appellant was an after-thought, and was fraudulent in nature to dodge the IT Department. Thus, it cannot be said that the appellant was having a bona fide belief that the income was not taxable and it was due to interpretation of law. It is, therefore, held that the explanation filed by the appellant for not declaring the income correctly is false. Penalty under Section 271(1)(c) is leviable in these cases for all the years. The orders of the AO levying penalty under Section 271(1)(c) are confirmed.
However, it is found that the AO has levied penalty of Rs. 2,70,000 for the asst. yr. 1997-98, Rs. 3,00,000 for asst. yr. 1998-99, Rs. 3,30,000 for asst. yr. 1999-2000 and Rs. 4,20,000 for asst. yr. 2000-01 which is slightly more than 200 per cent of the tax sought to be evaded in all the years. The AO has not given any reason why such a heavy penalty has been levied. It is the discretion of the AO to levy penalty ranging from 100 per cent to 300 per cent but this discretion has to be used judiciously. Since the AO has not given any reason for levying higher rate of penalty, the same is reduced to Rs. 1,34,200 for the asst. yr. 1997-98, Rs. 1,38,130 for asst. yr. 1998-99, Rs. 1,63,000 for asst. yr. 1999-2000 and Rs. 2,10,500 for asst. yr. 2000-01 which is equal to 100 per cent of the tax sought to be evaded i.e. the minimum penalty leviable in all the years.
The assessee is aggrieved with the orders of the CIT(A). Hence, these appeals before this Bench.
11. As regards the legal ground taken in the memorandum of appeals common for all the assessment years, the learned Counsel reiterated the submissions, which were made before the authorities below. He drew our attention to proviso to Section 275(1)(a) inserted by the Finance Act, 2003, w.e.f. 1st June, 2003 as per which order for imposing penalty shall be passed before the expiry of financial year in which proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the CIT(A) is received by the Chief CIT/CIT, whichever is later. He submitted that in this case, penalty proceedings were initiated by the AO at the time of completing the assessments on 6th March, 2003. The learned CIT(A) decided the quantum appeals vide his order dt. 27th June, 2003. Thus, he submitted that as per proviso to Section 275(1)(a), the orders for imposing the penalty should have been passed on or before 30th April, 2004. However, he submitted that in the present cases, the orders for imposing the penalty were passed on 30th Nov., 2005. Thus, he submitted that the same were time-barred and the CIT(A) was not justified for upholding such orders.
11.1 As regards the merits of the additional ground, the learned Counsel drew our attention to the foot in the assessment orders, where the AO had merely mentioned that "penalty notice under Section 271(1)(c) of the IT Act, 1961 for concealment/furnishing inaccurate particulars of income has been issued separately." He submitted that it is mandatory for the AO to record his satisfaction in the assessment order before initiating the penalty proceedings under Section 271(1)(c). He submitted that there are two limbs of Section 271(1)(c) i.e. the assessee had either concealed the particulars of income or has furnished inaccurate particulars of such income. He submitted that the assessment order must show the application of mind and formation of belief of the AO as to whether the assessee had concealed the particulars of income or furnished inaccurate particulars of income. He submitted that failure to do so is a jurisdictional defect, which vitiates the orders for imposing penalty. He relied on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store and the judgment of Hon'ble Delhi High Court in the case of CIT v. Super Metal Re Rollers (P) Ltd. (2003) 185 CTR (Del) 349 : (2004) 265 ITR 82 (Del). He also relied on the decisions of Tribunal, Amritsar Bench in the following cases:
(i) Order dt. 6th June, 2005 in the case of Asstt. CIT v. Balbir Chand in ITA No. 34/Asr/2002 for the asst. yr. 1990-91 (copy placed at pp. 12 to 20 of the paper book).
(ii) Order dt. 3rd June, 2005 in the case of Harcharan Singh v. CIT in ITA No. 414/Asr/2005 for the asst. yr. 1995-96 (copy placed at pp. 5 to 11 of the paper book).
(iii) Order dt. 5th April, 2006, in the case of Asstt. CIT v. Shiv Shanker Rice & Gen. Mills (ITA No. 11/Asr/2006) for the asst. yr. 1988-89 (copy placed at pp. 21 to 33 of the paper book).
(iv) Order dt. 18th Jan., 2007, in the case of ITO v. Rakesh Gupta (2007) 107 TTJ (Asr) 909 (copy placed at pp. 61 to 68 of the paper book).
12. The learned Departmental Representative, on the other hand, heavily relied on the orders of the CIT(A). He submitted that that there is no merit in the submissions of the assessee that the orders for imposing penalty were time-barred. He submitted that the case of the assessee is covered under Section 275(1)(a) of the Act and not under proviso to Section 275(1)(a) because the assessee had filed the appeals before the Tribunal. The orders for imposing penalty were passed within a period of six months from the end of the month in which the order of the Tribunal was received by the Chief CIT/CIT. Thus, he contended that the same were passed within time.
12.1 As regards the merits of the additional ground relating to non-recording of satisfaction by the AO, the learned Departmental Representative drew our attention to a copy of the order of the Tribunal in quantum appeal placed at pp. 43 to 57 of the paper book, where the findings of the CIT(A) were reversed and that of the AO restored by observing that the AO had rightly held that the claim for partial partition was an afterthought and fictitious and camouflage to dodge the IT Department. Me submitted that this brings out mala fide intention on the part of the assessee. He further drew our attention to Expln. 3 to Section 271(1)(c), which refers to a case of deemed concealment because of assessee's failure to furnish returns of income under Section 139 of the Act and the assessment is completed under Section 148. Relying on the judgment of Hon'ble Supreme Court in the case of K.P. Madhusudhanan v. CIT , the learned Departmental Representative submitted that once a notice under Section 271(1)(c) is issued, the assessee has been put to notice, that the provisions thereof are to be used against him. These provisions also include the Explanation. He submitted that penalty under Section 271(1)(c) in the present cases was livable in terms of Expln. 3 to Section 271(1)(c) of the Act.
13. The learned Counsel for the assessee submitted, by way of rejoinder, that the question of invoking the Expln. 3 would arise only if the AO had correctly assumed jurisdiction at the time of initiating the penalty proceedings. He submitted that in the present case, the AO failed to record this satisfaction at the time of initiating the proceedings. Therefore, the orders for imposing penalty cannot be sustained.
14. We have heard both the parties at some length and given our thoughtful consideration to the rival submissions and gone through the evidence and material placed on record. We have also gone through the orders of the authorities below. The first issue that needs to be decided is whether the orders passed by the AO for imposing penalty under Section 271(1)(c) were time-barred ? Section 275 provides bar of limitation for imposing penalties. As per provisions of Section 275(1)(a) of the Act, the order for imposing the penalty in a case where the assessment order in the subject-matter of an appeal to the CIT(A) or to the Tribunal is to be passed before the expiry of financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, is completed or within six months from the end of the month in which the order of CIT(A) or the Tribunal was received by the Chief CIT/CIT, whichever period expires later. However, proviso to Section 275(1)(a) inserted by the Finance Act, 2003, w.e.f. 1st June, 2004 which provides an exception to the period of limitation stipulated under Section 275(1)(a). It would be useful to reproduce the proviso as under:
Section 275(1)....
(a)...
Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the CIT(A) under Section 246 or Section 246A. and the C1T(A) passes the order on or after the 1st day of June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the CIT(A) is received by the Chief CIT or CIT, whichever is later.
A bare reading of the proviso shows that the order for imposing penalty should be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. Admittedly, in this case assessment orders were passed on 6th March, 2003. Therefore, the financial year in which the proceedings were initiated ended on 31st March, 2003. This would not be applicable to the present case. The second part of the proviso provides that in a case where the relevant assessment is subject-matter of appeal before the CIT(A), and the appeal is decided by the CIT(A) by his order passed after 1st June, 2003, the order for imposing penalty should be passed within one year from the end of the financial year in which the order of the CIT(A) was received by the Chief CIT/CIT, whichever is later. This would apply only to orders of the CIT(A) passed after 1st June, 2003. In this case, the date on which the CIT(A) decided the quantum appeals was 27th June, 2003. When the case was remanded by the CIT(A), the AO referred to the date of receipt of the order of the Tribunal by the CIT(A), Bhatinda on 16th June, 2005. However, there is no date for receipt of order of CIT(A) by the CIT, Bhatinda. Though the learned Authorised Representative has taken this ground before the Bench and effectively argued the same, yet the actual date of receipt of the order was not mentioned. Be that as it may, a copy of the order of the CIT(A) in quantum appeals was placed before the Bench against which the Revenue had filed appeals before the Tribunal. The date of service of the order of CIT(A) in the quantum appeals on the CIT has been mentioned in the memorandum of appeal as on 8th Aug., 2003. As per this date, the orders for imposing the penalty must have been passed on or before 31st March, 2005. In the present case, the orders for imposing penalty were passed on 30th Nov., 2005, which were time-barred. As regards the plea of the Revenue that the case is covered by Section 275(1)(a) because the Revenue has filed an appeal against the order of the CIT(A), we find no merit in the same. Provisions of Section 275(1)(a) would apply to cases where the orders of the CIT(A) in the quantum appeals were passed before 1st day of June, 2003 and those were subject-matter of appeal before the Tribunal. However, the period mentioned therein would not be applicable in a case where orders of the CIT(A) in quantum appeals were passed after 1st June, 2003 as in the present case. We do not agree with the CIT(A) that proviso would be applicable only to a case where the addition in quantum appeal has been upheld by CIT(A). The section does not say so. We have also referred to the CBDT Circular No. 7 of 2003, dt. 5th Sept., 2003 [(2003) 180 CTR (St) 233]. Nowhere the circular says that proviso to Section 275(1)(a) would be applicable only to a case where the additions made by the AO are upheld in appeal by the C1T(A). Moreover, the proviso deals with the penalty proceedings which requires literal interpretation. When the language of proviso is clear and unambiguous, there is no scope for adding to or sub stracting from the same. The intention of inserting the proviso to Section 275(1)(a) is to avoid delay in completion of the penalty proceedings. Therefore, we are of the considered opinion that the case of the assessee was covered under proviso to Section 275(1)(a) as per which the orders for imposing penalty were required to be passed by 31st March, 2005. Since these were passed on 30th Nov., 2005, the same were time-barred. Otherwise the proviso would be redundant. Therefore, accepting the ground of appeal of the assessee, we set aside the order of the CIT(A) and quash the orders of the AO for imposing penalty being time-barred. This ground of appeal is allowed for all the assessment years.
15. Now we deal with the merits of the additional ground relating to failure of the AO to record satisfaction. It is settled position of law that AO can assume jurisdiction for levy of penalty under Section 271(1)(c) only by recording proper and valid satisfaction in the assessment order. In the case of CIT v. Munish Iron Store (supra), the Hon'ble Punjab and Haryana High Court has held that the jurisdiction to impose penalty flows from recording of the satisfaction of the AO regarding concealment of income. In case there is a defect in assumption of jurisdiction, the same cannot be cured. While taking such view, the Hon'ble High Court relied on the judgments of Hon'ble apex Court in the cases of Jain Bros. v. Union of India and DM. Manasvi v. CAT . Besides, reliance was also placed on the two judgments of Hon'ble Delhi High Court in the cases of CIT v. Ram Commercial Enterprises Ltd. and Diwan Enterprises v. CIT .
15.1 In the case of CIT v. B.R. Sharma , the Hon'ble Delhi High Court has held that the AO is under an obligation to record satisfaction prior to the initiation of the penalty proceedings in terms of Section 271(1)(c) of the Act. The order of the AO should apparently show that there is application of mind, which can only be gathered by the reasons stated in the order and reference to other records may not be very relevant for this purpose. Thus, the sum and substance of the ratio of various judgments is that recording of satisfaction in the assessment order is a mandatory requirement of law for assuming jurisdiction of levy of penalty under Section 271(1)(c). Failure to record satisfaction is a defect which cannot be cured and the same vitiates the order for imposing penalty. Now the fact whether the AO has recorded proper satisfaction or not has to be seen from the reasons recorded in the assessment order.
15.2 Now in this case, the AO has not mentioned in the body of the assessment orders as to whether the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income. He has merely mentioned at the foot of all the assessment orders as under:
Penalty notice under Section 271(1)(c) of the IT Act, 1961 for concealment/furnishing inaccurate particulars of income has been issued separately.
From the above, it is clear that while issuing the notice, the AO was not sure whether the assessee had concealed the particulars of income or furnished inaccurate particulars of income. This only shows lack of application of mind by the AO at the time of initiation (of) the penalty proceedings in this case. Such mention in the foot of the assessment orders without any discussion in the assessment orders does not amount to recording of proper satisfaction in consonance with the provisions of the Act.
15.3 Similar issue came to be considered by the Hon'ble Delhi High Court in the case of CIT v. Auto Lamps Ltd. where the AO had mentioned in the assessment order that "penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income had been initiated separately." The Hon'ble Delhi High Court observed that the AO failed to record the requisite satisfaction in consonance with the settled principles of law. Accordingly, the order of Tribunal for canceling the penalty was upheld. The relevant findings recorded by the Hon'ble Delhi High Court at p. 35 of the order are as under:
The bare reading of the above order passed by the AO on 6th Feb., 2003, shows that there is no application of mind and no opinion has been formed and no satisfaction has been recorded by the AO before or at the time of initiating penalty proceedings. In fact, in the impugned order it is recorded that penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of the income had been initiated separately. This itself shows that without even mentioning the essential ingredients which the AO is obliged to record for initiation of penalty proceedings, the impugned order was passed to pass an order initiating penalty proceedings while passing the assessment order in a routine manner would be an apparent violation of the relevant provisions. In our opinion, the impugned order clearly suffers from the infirmity of non-application of mind. The AO had failed to record requisite satisfaction in consonance with the settled principles of law.
The facts of the present care are identical to the farts of the case before Delhi High Court. Therefore, this judgment is squarely applicable to the facts of the present case.
15.4 Similar view was taken by the Hon'ble Delhi High Court in the case of CIT v. Super Metal Re Rollers (supra). Thus, from the above it is clear that the AO has not recorded valid satisfaction in consonance with the provisions of Section 271(1)(c) of the Act and, therefore, the assumption of jurisdiction for levy of penalty was bad in law. On identical facts, the Tribunal by relying on the judgments of the various High Courts including the Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store (supra) quashed the penalty orders in the following cases:
(i) Order dt. 6th June, 2005 in the case of Asstt. CIT v. Balhir Chand in ITA No. 34/Asr/2002 for the asst. yr. 1990-91 (copy placed at pp. 12 to 20 of the paper book).
(ii) Order dt. 3rd June, 2005 in the case of Harcharan Singh v. CIT in ITA No. 414/Asr/2005 for the asst. yr. 1995-96 (copy placed at pp. 5 to 11 of the paper book).
(iii) Order dt. 5th April, 2006, in the case of Asstt. CIT v. Shiv Shanker Rice & Gen. Mills in ITA No. 11/Asr/2006 for the asst, yr. 1988-89 (copy placed at pp. 21 to 33 of the paper book).
(iv) Order dt. 18th Jan., 2007, in the case of ITO v. Rakesh Gupta (supra) (copy placed at pp. 61 to 68 of the paper book).
Since the assumption of jurisdiction by the AO was bad in law, there is no question of invoking the Expln. 3 to Section 271(1)(c) as argued by the learned Departmental Representative. In any case, the same was not even invoked by the AO at the time of initiating the penalty proceedings or even in the orders for imposing the penalty. Now, in this case, the AO in the body of assessment order has mentioned that the alleged partition deed dt. 30th April, 1978 was an afterthought, fictitious and camouflage to dodge the Revenue. However, when such finding is read along with the last part of the assessment order, the same does not constitute valid satisfaction because the AO has not mentioned whether the proceedings have been initiated for concealing the particulars of income or for furnishing inaccurate particulars of income. As per law, the satisfaction of the AO should be clear and show due application of mind, which in this case does not exist. Thus, we set aside the order of the CIT(A) and quash the orders for imposing penalty. Accordingly, penalty is cancelled and respective additional ground taken for all the assessment years is allowed.
16. Since the orders for imposing penalty have been quashed, we do not consider it necessary to record our findings on the merits of the case. These grounds of appeal are disposed of in these terms.
In the result, the appeals filed by the assessee are allowed.