Income Tax Appellate Tribunal - Delhi
Balka Services (P) Ltd. vs Income Tax Officer on 4 April, 2005
Equivalent citations: (2006)102TTJ(DELHI)115
JUDGMENT
P.M. Jagtap, A.M.
1. This appeal by the assessee is directed against the order of learned CIT(A)-V, New Delhi, dt. 6th Sept., 2004, whereby he confirmed the penalty of Rs. 17,69,045 imposed by the AO under Section 271(1)(c).
2. The relevant facts of the case giving rise to this appeal are as follows. The assessee is an investment company engaged in the business of sale and purchase of shares and securities for earning dividend income as well as profit. During the year under consideration, another company, namely, M/s Bhagwan Dass Agro Industries (P) Ltd., was merged with the assessee-company pursuant to an order passed by the Hon'ble Delhi High Court on 14th March, 2000. The said merger was made effective from 1st April, 2000. Since the assessee-company had already filed the petition for merger w.e.f. 1st April, 2000, it claimed the carry forward of business loss and long-term capital loss of the merging company, i.e., M/s Bhagwan Dass Agro Industries (P) Ltd., in its return of income for the year under consideration. The said return of income was filed by the assessee-company on 31st Oct., 2001, declaring a loss of Rs. 44,94,076 which was inclusive of the loss of Rs. 42,15,081 pertaining to the merging company, M/s Bhagwan Dass Agro Industries (P) Ltd. The claim of the assessee for loss of Rs. 42,15,081 made in its return of income on account of carry forward of the losses of the merging company was disallowed by the AO. Keeping in view the provisions of Section 72A and the income of the assessee-company, it was assessed at a loss of Rs. 2,78,995 in the assessment completed under Section 143(3) read with rectification order Section 154. As a result of the said addition of Rs. 42,15,081 made in the assessment which resulted in the reduction of loss shown by the assessee-company to that extent, the AO initiated penalty proceedings under Section 271(1)(c) and after rejecting the explanation offered by the assessee-company during the course of penalty proceedings, he held that the assessee-company has furnished inaccurate particulars of its income amounting to Rs. 42,15,081. He, therefore, imposed a minimum penalty of Rs. 17,69,045 under Section 271(1)(c) being 100 per cent of the tax sought to be evaded by the assessee on the said income. The penalty so imposed under Section 271(1)(c) by the AO was challenged by the assessee in an appeal filed before the learned CIT(A) and it was submitted, inter alia, on its behalf before him that its finally assessed income for the year under consideration being negative, i.e., loss, penalty under Section 271(1)(c) was not imposable as held by the Hon'ble Supreme Court in the case of CUT v. Prithipal Singh & Co. The learned CIT(A), however, found no merits in the submission made on behalf of the assessee and keeping in view Expln. 4 to Section 271(1)(c), inserted subsequently, he confirmed the penalty imposed by the AO under Section 271(1)(c). Aggrieved by the same, the assessee-company is in appeal before the Tribunal.
3. We have heard the arguments of both the sides and also perused the relevant material on record. Before us, the learned Counsel for the assessee has raised two legal contentions to challenge the penalty imposed by the AO under Section 271(1)(c) and confirmed by the learned CIT(A) besides factual merits. Firstly, he has contended that no satisfaction was recorded by the AO in his assessment order regarding the concealment of particulars of income by the assessee-company or furnishing of inaccurate particulars of such income. Relying on the decision of Hon'ble Delhi High Court in the case of CIT v. Ram Commercial Enterprise Ltd. , he has contended that in the absence of such satisfaction recorded by the AO in his assessment order, the initiation of penalty proceedings under Section 271(1)(c) was not tenable in law and consequently, the imposition of penalty is liable to be cancelled. The learned Departmental Representative, on the other hand, has relied on the decision of Hon'ble Supreme Court in the case of CIT and Anr. v. S.V. Angidi Chettiar to contend that the observation recorded by the AO in the concluding portion of his assessment order after computation of income that "penalty proceedings under Section 271(1)(c) are initiated separately" clearly amounts to his satisfaction. It is, however, observed that the said decision of Hon'ble Supreme Court in the case of Angidi Chettiar (supra) was cited before the Hon'ble Delhi High Court in the case of Ram Commercial Enterprises Ltd. (supra) and the same was thus considered by the Hon'ble jurisdictional High Court along with the subsequent decision of Hon'ble Supreme Court in the case of D.M. Manasvi v. CIT wherein it was observed by their Lordships of the Supreme Court that satisfaction before conclusion of the proceedings under the Act and not the issue of a notice or initiation of any stake (sic) for imposing penalty is a condition for the exercise of the jurisdiction. In the case of D.M. Manasvi v. CIT (supra), it was also held by their Lordships of the Supreme Court that Section 271(1) contemplates that the AO should have been satisfied in the course of assessment proceedings regarding matters mentioned in the various clauses of that sub-section and the satisfaction of the AO in the course of assessment proceedings regarding the concealment of income constitutes the basis or foundation in the proceedings for levy of penalty. Relying on this decision of the Hon'ble apex Court in the case of D.M. Manasvi (supra), the Hon'ble Delhi High Court in the case of CIT v. Ram Commercial Enterprise Ltd. (supra) has held that the satisfaction as to the assessee having concealed the particulars of his income or furnished inaccurate particulars of such income is to be arrived at by the AO during the course of assessment proceedings without which the very jurisdiction to initiate penalty proceedings is not conferred on the assessing authority by reference to Clause (c) of Sub-section (1) of Section 271. The Hon'ble jurisdictional High Court, therefore, upheld the order of the Tribunal cancelling the penalty imposed under Section 271(1)(c) on the ground that the assessment order did. not record the satisfaction as warranted by Section 271 for initiating the penalty proceedings. In the present case, a perusal of the entire assessment order passed by the AO clearly shows that the satisfaction required for initiation of penalty proceedings under Section 271(1)(c) as envisaged by the Hon'ble Delhi High Court in the case of Ram Commercial Enterprises Ltd. (supra), was not recorded by the AO in the assessment order and this being so, we hold that the initiation of penalty proceedings was not in accordance with law and the penalty imposed in pursuance of such invalid proceedings is liable to be cancelled on this ground.
4. The learned Counsel for the assessee has also raised a contention before us that the income finally assessed by the AO in the case of the assessee being negative, i.e., loss, the imposition of penalty under Section 271(1)(c) was not justified as held by Hon'ble Punjab & Haryana High Court in the case of CIT v. Prithipal Singh & Co. and further confirmed by the Hon'ble Supreme Court in its decision (supra). In this regard, the learned Departmental Representative has relied on the recent decision of Hon'ble Bombay High Court in the case of CIT v. Chemiequip Ltd. (2003) 182 CTR (Bom) 144 in support of the Revenue's case and pointed out that the decision of Hon'ble Punjab & Haryana High Court in the case of Prithipal Singh & Co. (supra) has been distinguished by the Hon'ble Bombay High Court keeping in view Expln. 4 to Section 271(1)(c) inserted in the statute w.e.f. 1st April, 1976. We have carefully perused both these decisions cited by the learned Representatives of both the sides in support of their stand. It is observed that the decision of Hon'ble Punjab & Haryana High Court in the case of Prithipal Singh & Co. (supra) has been distinguished by the Hon'ble Bombay High Court in the case of Chemiequip Ltd. (supra) on the ground that the assessment year involved in the case of Prithipal Singh & Co. (supra) before the Hon'ble Punjab & Haryana High Court was 1970-71, whereas Expln. 4 has been inserted in the statute only w.e.f. 1st April, 1976. In this regard, it is pertinent to note that although the assessment year involved in the case of Prithipal Singh & Co. (supra) was 1970-71, the effects of Explns. 3 and 4 were taken into consideration by the Hon'ble Punjab & Haryana High Court in its decision while observing that Explns. 3 and 4 annexed to Section 271(1)(c) also presuppose taxable income. It appears that this vital and material aspect, however, was not brought to the kind notice of the Hon'ble Bombay High Court in the case of ChemiEquip Ltd. (supra) apparently because none appeared on behalf of the assessee-respondent in the said case before the Hon'ble Bombay High Court. It is also worthwhile to note here that the Hon'ble Punjab & Haryana High Court has followed its decision rendered in the case of Prithipal Singh & Co. (supra) in its subsequent judgment delivered in the case of CIT v. Varindra & Co. (2001) 171 CTR (P&H) 51: (2001) 118 Taxman 946 (P&H), wherein the assessment year involved was 1990-91, i.e., after the insertion of Expln. 4 to Section 271(1)(c). Moreover, their Lordships of the Supreme Court have affirmed the order of Hon'ble Punjab & Haryana High Court in the case of Prithipal Singh & Co. (supra) and while discussing the effects of such affirmation by the Hon'ble apex Court, the Jaipur Bench of Tribunal in its Third Member decision in the case of Subhash Gupta (Individual) v. Dy. CIT (2003) 78 TTJ (Jp)(TM) 692: (2003) 85 ITD 167 (Jp)(TM) has observed that the order of Hon'ble Punjab & Haryana High Court in the case of Prithipal Singh & Co. (supra) has merged with the order of Hon'ble Supreme Court and has become law of the land under Article 141 of the Constitution. Explaining further, the Jaipur Bench has observed that as per the law so laid down by the Hon'ble Supreme Court, penalty under Section 271(1)(c) can be recovered in addition to tax payable on assessment and in case no tax is found to be payable, no penalty can be imposed under Section 271(1)(c). Keeping in view this legal position as well as the judicial propriety that if contrary opinions are expressed by different High Courts on a particular issue, the Tribunal is bound to follow the view which is favourable to the assessee, we deem it just and proper to follow the view expressed by the Hon'ble Punjab & Haryana High Court in the case of Prithipal Singh & Co. (supra), as affirmed by the Hon'ble Supreme Court and hold that there being no positive income and no tax payable in the present case, the imposition of penalty under Section 271(1)(c) was not justified.
5. It is also observed that all the relevant facts and figures pertaining to its claim on account of brought forward losses of the merging company, i.e., M/s Bhagwan Dass Agro Industries (P) Ltd., were separately given by the assessee-company in its computation of income filed along with the return of income and a perusal of the same (copy placed at page No. 2 of the assessee's paper book) clearly shows that there was no concealment of particulars about the said claim on the part of the assessee-company. Moreover, as demonstrated by the learned Counsel of the assessee from the relevant documentary evidence, no tax advantage was either gained by the assessee-company from the said claim nor was sought to be gained in the subsequent years. As such, considering all the facts of the case and the legal position emanating from the aforesaid judicial pronouncement, we are of the view that it was not a fit case to impose penalty under Section 271(1)(c) and the learned CIT(A) was not justified in confirming the said penalty imposed by the AO. His impugned order is, therefore, set aside and the penalty imposed by the AO under Section 271(1)(c) is cancelled.
6. In the result, the appeal of the assessee is allowed.