Income Tax Appellate Tribunal - Jodhpur
Ashapurna Buildcon (P) Ltd. vs Assistant Commissioner Of Income Tax on 20 December, 2007
Equivalent citations: (2008)117TTJ(JODH)534
ORDER
Hari Om Maratha, J.M.
1. All the above captioned appeals, which have been filed by the assessee, are being disposed of by a common order for the sake of convenience and brevity. All these appeals emanate from penalty orders passed under Section 271(1)(c) for asst. yrs. 1999-2000, 2000-01 and 2002-03. The facts of all the three years are mutatis mutandis on identical, but we are narrating the facts of the appeal for asst. yr. 1999-2000, for ready reference.
2. The appellant/assessee is a private limited company and derives income from construction of houses as per standard plan on a lump sum amount basis. The company executed extra work as directed by the customers for which actual expenditure incurred was to be reimbursed. A search under Section 132(1) of the IT Act, 1961 (hereinafter referred to as 'the Act' for short) was conducted at various premises of the group of the assessee on 6th June, 2003. In response to notice issued under Section 153A of the Act, on 1st Nov., 2003, the assessee filed return on 30th July, 2004 by declaring 'nil' income. In the assessment framed under Section 153A r/w Section 143(3) of the Act, the following additions were made to the declared income of the assessee : (i) Extra income earned which was not found recorded in the regular books of accounts amounting to Rs. 5,67,926 and (ii) expenditure paid in cash amounting to Rs. 56,085 added under Section 40A(3) of the Act. The AO initiated penalty proceeding under Section 271(1)(c) of the Act for concealment of income/filing of inaccurate particulars of income. The assessee replied the show-cause notice so issued vide letter dt. 5th Sept., 2006. After carefully considering the reply of the assessee the learned AO finally levied a penalty of Rs. 2,08,480 under Section 271(1)(c) of the Act, as per law @ 100 per cent of the tax sought to be evaded. The above action of the AO was also confirmed by the learned CIT(A). Now, the assessee is in further appeal. The assessee has not filed appeal against quantum addition. The assessee has challenged the levy of penalty both on legal as well as on merits of the case.
3. We have heard rival submissions and have perused the available materials on record carefully.
4. The first addition which forms part of the basis for levy of the penalty is with regard to addition of Rs. 5,67,926 made by the AO on account of extra work done. As per the instructions of the customers, the assessee had carried out extra work. In the seized records evidence relating to extra income of Rs. 6,96,927 against which extra expenses of Rs. 1,29,001 had been incurred was found. The surplus of income over extra expenditure has been capitalized by the assessee and has been transferred to the closing work-in-progress in the return of income as per the details available in the profit and loss adjustment record filed with the return. The AO did not find this system of accounting being consistence with the system followed by it earlier. The AO found that this accounting system did not lead to a correct computation of income, therefore, he recomputed the same as under:
Asst. year Total extra Total extra Extra profit/loss
receipt (Rs.) expenditure (Rs.) (Rs.)
1998-99 5,47,207 12,42,864 (-) 6,95,657
1999-2000 6,96,927 1,29,001 5,67,926
2000-01 4,36,927 1,46,462 2,90,465
2001-02 1,00,000 55,356 44,644
2002-03 3,11,578 (-)95,503 4,07,081
Total 20,92,639 14,78,180 6,14,459
Thus, the AO made addition to the declared income of the assessee. Likewise, the AO also added an amount of Rs. 56,085 under Section 40A(3) of the Act, which is the second ground on which the impugned penalty is based. In the assessment order, the AO has mentioned that "the penalty proceedings under Section 271(1)(c) have been separately initiated for filing inaccurate particulars of income/concealment of income".
5. First of all, we are dealing with the legal objections raised by the assessee. It has been contended that no requisite satisfaction has been recorded by the AO either in the assessment order or in the notice issued under Section 271(1)(c) to the assessee on 28th March, 2006. As per learned Counsel, the AO has to come to a definite conclusion and has to record his satisfaction that the assessee has concealed income/has furnished inaccurate particulars of income. The learned Departmental Representative has controverted the above submission of learned Authorised Representative and has further contended that it is enough compliance if the "satisfaction of the learned AO" is manifest from the assessment order.
6. The latest legal position which has emerged from the decisions of Hon'ble apex Court of this country, rendered in the cases of (1) Dilip N. Shroff v. Jt. CW and T. Ashok Pai v. CTT is that penalty proceedings being quasi-criminal in nature, a heavy burden lies on the Department to establish that the assessee has really concealed his income and has held that finding in the assessment proceedings that there is an omission in income does not by itself lead to the inference that there is concealment notwithstanding the fact that the omission may constitute a good evidence for concealment but it is not conclusive. The penalty proceedings are independent proceedings where the matter has to be considered afresh from the angle required by the law relating to the penalty. This is true that the penalty provisions have to be construed strictly in the favour of the assessee. It is also true that by the Explanation appended to the section this burden has been shifted on the assessee wherever there is an inference of concealment at the time of initiation of the proceedings. The requirement to establish mens rea has been affirmed by the Hon'ble apex Court by holding that even after the amendment the burden placed on the taxpayer cannot be the same burden, as has been placed on the prosecution. This principle of law was laid by the Hon'ble apex Court in the case of P.N. Krishna Lai v. Government of Kerala (1995) Supp 2 SCC 187. Thus, a mere omission or negligence does not constitute a deliberate act of suppressio veri or suggstio falsi even after the amendment to Section 271(1)(c) made in the year 1964. The above observation finds support from the Hon'ble Supreme Court given in the cases of Addl CTT v. Jeevan Lai Sah and K.C. Builders and Anr. v. Asstt. CIT . In a recent decision of the Hon'ble Bombay High Court in the case of Jyoti Laxman Konkar v. CIT it has held that even if there is discrepancy which was noticed during survey and the assessee meanwhile filed a revised return admitting the value of such discrepancy, there was no concealment of income in the original return and as such no penalty was exigible. A concealment of income and furnishing inaccurate particulars of income are different, however, both are referred to deliberate act on the part of the assessee. The mere omission and notice would not constitute a deliberate act as is required under this section. By the reason of such concealment of income/furnishing inaccurate particulars of income, the assessee does not ipso facto become liable to penalty. Imposition of penalty is not automatic. The discretion given to the AO in this regard has to be exercised keeping in mind the relevant factors with a fair and objective approach.
7. Now coming to the recording of satisfaction we have noticed that the AO has simply mentioned that the penalty proceedings are being separately initiated.
He has nowhere come to the conclusion from which it can be specifically gathered that the assessee has either concealed income or has furnished inaccurate particulars of income. The AO has also not displayed such satisfaction even in the notice issued under Section 271(1)(c). Rather in the notice it is not clear as to whether it was issued for concealment of income or for furnishing of inaccurate particulars of income, or for both. In this regard the learned Counsel, Shri U.C. Jain has referred to the decision of the Hon'ble Delhi High Court given in the case of CIT v. Ram Commercial Enterprises Ltd. in which the Hon'ble Delhi High Court after relying on the decision of the Hon'ble Supreme Court in the case of DM. Manasvi v. CIT has held as under:
Having heard learned Counsel for the parties and having given our anxious consideration to the material available on the record, in the light of the law laid down by their Lordships of the Hon'ble High Court, we are of the opinion that no fault can be found with the judgment of the Tribunal and therefore, the question suggested by the Revenue does not arise as a question of law from the order of the Tribunal. The law is clear and explicit. Merely because this Court while hearing this application may be inclined to form an opinion that the material available on record could have enabled the initiation of penalty proceedings that cannot be a substitute for the requisite finding which should have been recorded by the assessing authority in the order of assessment but has not been so recorded. A bare reading of the provisions of Section 271 and the law laid down by the Hon'ble Supreme Court makes it clear that it is the assessing authority which has to form its own opinion and record its satisfaction before initiating the penalty proceedings. Merely because the penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at the absence of the same being spelt out by the order of the assessing authority. Even at the cost of repetition we would like to state that the assessment order does not record the satisfaction as warranted by Section 271 for initiating the penalty proceedings.
Likewise, reliance has also been placed on the other decision of the Hon'ble Delhi High Court given in the case of Diwan Enterprises v. CIT in which it has been held as under:
In spite of the abovesaid plea of the petitioner having been rejected. The penalty imposed under Section 271(1)(c) has still to be set aside though for a different reason and because the very foundation for initiation of the penalty proceedings is conspicuous by its absence. The opening clause of Sub-section (1) of Section 271 itself contemplates a finding as regards satisfaction of availability of grounds under Clause (c) being recorded during the assessment proceedings. Recently, in ITC No. 13 of 1996 decided on 8th Oct., 1998since reported in, CIT v. Ram Commercial Enterprises Limited , following the law laid down by their Lordships of the Hon'ble High Court in DM. Manasvi v. CIT and CIT v. S.V. Angidi Chetaar , we have held that unless requisite satisfaction was recorded in the proceedings under the Act, which would mean the assessment proceedings, the jurisdiction to initiate the penalty proceedings could not have been exercised. Satisfaction has to be before the issue of notice or initiation of any step for imposing penalty. In the case at hand we find the AO has nowhere recorded till the conclusion of the assessment proceedings his satisfaction that the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income. This is a jurisdictional defect, which cannot be cured. The initiation of the penalty proceeding was itself bad and consequently, all the subsequent proceedings leading upto the passing of the penalty order fail. CWP No. 3869 of 1997 is, therefore, liable to be allowed.
The Delhi 'E' Bench of the Tribunal while deciding the case of Balka Service (P) Ltd. v. ITO has held that merely by writing "issue of notice under Section 271(1)(c) for furnishing inaccurate particulars of income/concealing the income" after the computation of income in the order does not amount to a valid initiation of penalty for want of requisite satisfaction.
8. The submission of the learned Departmental Representative is that it a search case and the assessee has filed return of income by not declaring any extra income but the AO has assessed his total income at Rs. 6,90,146 on the basis of the transaction found recorded in the seized papers, the satisfaction is manifest. We have examined this submission of the learned Departmental Representative in the light of the decisions relied by him. From the appellate order it is clearly evident that there is no categorical mention of the satisfaction in the body of assessment order. The learned CIT(A) has inferred the satisfaction from the fact that it being a search and seizure case one can make out that under Section 271(1)(c) penalty has been initiated in respect of each addition. The learned CIT(A) has found that these are mere irregularities which have been committed by the AO and are not fatal in nature. As assessment made under Section 153A envisages that all other assessments "shall abate". It is an undeniable fact that the penalty in these cases arises on the basis of the assessment made under Section 153A of the Act in which no other assessments either have been referred to or are relevant in view of the second proviso to Section 153A of the Act. It is true that this is a search and seizure case. Whatever was detected during search has been disclosed by the assessee in the return filed by it but even by declaring such facts and figures the assessee has come to a conclusion that it did not earn income over and above what has been declared in the return filed under Section 153A of the Act. The AO has come to a different conclusion only on the basis of computation substituted by him, which according to him was a consistent method of accounting adopted by the assessee. The addition in question resulted from re-computation which was done by the AO and which is extracted in the form of table hereinabove. In these circumstances we are not in agreement with learned Departmental Representative that the "requisite satisfaction" is manifest and "inferable" from the assessment order itself. What is required to be recorded is the satisfaction in so many words and failure to do so cannot amount to mere and sheer irregularities. We are not concerned with the irregularities of evidence but we are concerned with a specific note of satisfaction, which is required to initiate penalty under Section 271(1)(c) of the Act. The learned Authorised Representative has relied on the decision of Hon'ble Madras High Court in the case of M. Sqjjanrqj Nahar v. CIT ; the fact of the above decisions are distinguishable. Moreover, this very Bench has similar conclusion in recent decision in ITA No. 590/Ju/2006 (asst. yr. 1994-95) in the case of Navini Enterprises v. Asstt. CIT, order dt. 7th Sept., 2007 in which decision of Hon'ble Madras High Court was found not applicable as in that case the revised return had been filed. Moreover, the issue involved in this case is covered by the decision of the Jodhpur Bench itself. The non-recording of satisfaction has been held not as a mere irregularity by the Calcutta Bench in the case of ITO us. Budge Budge Co. Ltd. (2006) 103 TTJ (Col) 139 which was followed by this Bench in the cases of Verma Tractors v. Asstt. CIT (2007) 106 TTJ (Jd) 591 and Navini Enterprises v. Asstt. CIT (supra). The other decision on which learned Departmental Representative has placed heavy reliance is that of the Hon'ble Allahabad High Court rendered in the case of Nainu Mai Het Chand v. CIT . In this case the'Hon'ble High Court has given a finding that the AO should be satisfied during the course of assessment proceedings that the assessee has concealed particulars of income or has furnished inaccurate particulars of income. This satisfaction can be gathered from the assessment order. The AO is not required to record his satisfaction in a particular manner or reduce it to writing. To understand the above ruling, one must go through the entire judgment of Hon'ble Allahabad High Court. The above finding should not be read in isolation otherwise it would not be correctly understood. Before reading the above finding one must go through the main finding given by Hon'ble Allahabad High Court which reads as under:
In order to justify the levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income; it is not enough for the purpose of penalty that the amount has been assessed as income, and (ii) the circumstances must show that there was animus, i.e., conscious concealment or act of furnishing inaccurate particulars on the part of the assessee; the explanation has no bearing on factor No. 1 but it has a bearing only on factor No. 2; the explanation does not make 'the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee; no penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income as with the hypothesis that it does; if an assessee gives an explanation which is unproved but not disproved, i.e., it is not accepted but circumstances do not the explanation cannot help the Department because there will be no material to show that the amount in question was the income of the assessee; alternatively, treating the explanation as dealing with both the ingredients (i) and (ii) above, where the circumstances do not lead to the reasonable and positive inference that the assessee's explanation is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part; even in this view of the matter, the explanation alone cannot justify levy of penalty and absence of proof acceptable to the Department cannot be equated with fraud or willful default.
Thus, the AO is required to prove positive concealment. If it is found noted, yes, one may gather such a satisfaction of the AO. In a recent decision, the Hon'ble Mumbai Bench of Tribunal has examined nature of proceedings under Section 271(1)(c) threadbare and has finally concluded that the AO has to arrive at his satisfaction and simply putting a footnote "issue penalty notice under Section 271(1)(c)"does not mean a satisfaction of the AO about the existence of any of the condition which attracts penalty under Section 271(1)(c) of the Act. The Hon'ble Bench has placed heavy reliance on the decision of the case of Hon'ble Supreme Court in the case of CIT v. S.V. Angidi Chettiar , inter alia.
9. The overall picture which now emerges is that the AO has to record his satisfaction in so many words merely mentioning 'penalty proceedings under Section 271(1)(c), are being separately initiated' would not suffice. The decision of Hon'ble Allahabad High Court cannot override the decision of Hon'ble apex Court and the same has to be read in its entirety. This Bench has been following the clear-cut view of the Hon'ble Delhi High Court mentioned (supra) and that of other High Courts. We are required to maintain consistency. Even if the decision of Hon'ble Allahabad High Court is taken to be a different view on the point, we have to go with our earlier view which is also based on the decisions of various other High Courts. The view taken by the Hon'ble apex Court is the law of the land from its very inception as per the Article 141 of the Constitution of India. Therefore, we are of the considered opinion that the AO has not recorded the requisite satisfaction in this case. Hence, the entire edifice on which the penalty has been based has to collapse. The recent judgment of the Hon'ble Punjab & Haryana High Court rendered in the case of CJT v. SuraJ Bhan (2006) 203 CTR (P&H) 230 : (2007) 294 ITR 481 (P&H), after relying on the decision of CIT v. Swesh Chandra Miital , supports our above finding. As a result, we are of the considered opinion that this is a clear case of non-recording of the requisite satisfaction and the same is hit by the abovementioned decisions, which go in the favour of the assessee. Therefore, we quash the entire penalty order and delete the impugned penalty. The facts and findings are exactly similar in other years, namely, 2000-01 and 2001-02. Therefore, on the basis of parity of reasonings, the penalty orders for these years are also quashed and the entire penalties are deleted.
10. In the result, all the three appeals of the assessee for asst. yrs. 1999-2000, 2000-01 and 2002-03 are allowed.