Income Tax Appellate Tribunal - Jodhpur
Verma Tractors vs Assistant Commissioner Of Income Tax on 18 August, 2006
Equivalent citations: (2007)106TTJ(JODH)591
ORDER
Hari Om Maratha, J.M.
1. This appeal arises from a penalty order passed under Section 271(l)(c) of the Act in relation to assessment order for asst. yr. 1988-89. The penalty of Rs. 1,05,000 levied by the AO was confirmed by the learned CIT(A) vide his order dt. 8th July, 2005.
2. The facts as narrated before us and as culled from the available record are that the search was conducted at the business premises of M/s Verma & Company on 27th Sept., 1988, which is a sister-concern of the assessee. The loose papers seized by the Department revealed that substantial number of transactions were not accounted for in the regular books of account maintained by the assessee. The peak amount of Rs. 1,32,280 involved in these transactions, was taken as concealed income and was added in asst. yr. 1988-89. A statement of the partner of the assessee-firm was recorded during the course of search, in which he agreed to surrender a sum of Rs. 5,00,000 against loose papers in the hands of the assessee-firm. The peak amount of Rs. 1,32,280 relates to asst. yr. 1988-89, for the reason that unaccounted transactions relate to the period from April, 1987 to September, 1987. Accordingly, addition of Rs. 1,32,280 was made in the assessment for asst. yr. 1988-89. This was surrendered in the return of income for asst. yr. 1989-90. Consequently, a penalty proceeding was initiated under Section 271(1)(c) of the Act and consequently, a penalty was levied which was confirmed by the learned CIT(A). This appeal has been preferred by the assessee. The appeal was filed belatedly by three days. A condonation petition has been filed which is supported by duly attested affidavit of the partner of the firm. The reasons mentioned in the condonation petition are that due to delay caused by courier, the appeal reached late in the Tribunal. This fact is supported by duly sworn affidavit. The delay being of few days and there being a sufficient reason for the delay, we condone the same and admit the appeal. It has been clearly held by Hon'ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji that when the cause of substantial justice is pitted against pedantic rules, the former should prevail.
3. I have heard on the merits of the appeal also. It is true that the assessee-firm was not subjected to search under Section 132(1) of the Act. Shri Ajay Kumar, the partner of the firm was only searched. The assessee-firm was surveyed under Section 133A of the Act. The assessee had already filed the return for asst. yr. 1988-89 and the surrender of Rs. 1,32,280 was made by Shri Ajay Kumar for 1989-90.
4. It has been argued before me that the AO did not record his satisfaction to initiate penalty proceedings in the assessment order and simply mentioned that a notice under Section 271(1)(c) is being issued separately. In this regard, the decision of the Hon'ble Delhi High Court in the case of CIT v. Auto Lamp Ltd. has been referred to by the learned Authorised Representative.
5. I have considered the rival submissions on this point as well. It is true that the AO is required to record his satisfaction and has to record the same before or at the time and initiate penalty proceedings under Section 271(1)(c) of the Act. Merely because the penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at. The learned Departmental Representative present at the time of hearing categorically stated after going through assessment order that no satisfaction as contemplated has been recorded while framing the assessment order. Moreover, this fact is evident from the perusal of the assessment, a copy of which is on record. Assessment order 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 yet another decision of the same Hon'ble Court in the case of CIT v. Vikas Promoters (P) Ltd. it has been held after relying on the decision of Hon'ble Supreme Court in the case of CIT v. S.V. Angidi Chettiar and in CIT v. Ram Commercial Enterprises Ltd. , that the element of satisfaction should be apparent from the order itself. It is mandatory for the AO to record satisfaction before drawing inference for the purpose of penalty while completing the assessment order under Section 143(3) of the Act. The provisions of Section 271(l)(c) are penal in nature and thus must be strictly construed.
6. The perusal of the last para of the assessment order reveals that the AO has simply stated that penalty notice under Section 271(1)(c) has been issued separately. In my considered opinion this does not amount to recording of a proper satisfaction for the purpose of initiating the penalty. Reliance is placed on the abovementioned decisions of the Hon'ble Delhi High Court. This view has been followed in numerous decisions of the Tribunal all over India, including this Bench in the case of Narendra Kumar v. ITO in ITA No. 449/Jd/2001, asst. yr. 1997-98, dt. 25th Feb., 2005 [reported at (2005) 94 TTJ (Jd) 156-Ed.] of which I was author. It was held that a penalty under Section 271(1)(c), levied for additions made on the basis of surrender of income and after rejection of explanation does not, ipso facto, lead to levy of penalty under Section 271(1)(c) of the Act.
7. The learned Authorised Representative Shri Suresh Ojha has also drawn my attention towards page No. 1 of his paper book wherein a copy of notice issued under Section 271 r/w Section 274 of the section has been placed. This notice was issued on 30th Jan., 1991 to the assessee. This is a format of two pages and on which on the second page an item in respect of which the notice was being sent, has been ticked. From this item it is not clear as to whether the assessee has concealed the particulars of income or has (furnished) inaccurate particulars of such income. In this regard, reliance has been placed on the decision of Bench rendered in ITA No. 1360/Jp/1996 (asst. yr. 1988-89) in the case of Verma Tractors v. Asstt. CIT, the same assessee, for the same assessment year. This above case related to another penalty order passed under Section 273(2)(c) of the Act in which similar type of notice was issued and this Bench considered the notice as invalid. Therefore, by following my own order I hold that the notice issued under Section 271(l)(c) on 30th Jan., 1991 to the assessee is not a valid notice. Consequently, any penalty proceeding undertaken on the basis of an invalid notice, cannot survive in the eyes of the law. On merits also when the assessee has not surrendered any amount for the year under consideration it is difficult to come to the conclusion that the assessee has consciously concealed the taxable income. Consequently, the penalty levied under Section 271(1)(c) is hereby cancelled/deleted.
8. In the result, the appeal stands allowed.