Income Tax Appellate Tribunal - Delhi
Ram Commercial Enterprises Ltd. vs Assistant Commissioner Of Income-Tax on 11 October, 1994
Equivalent citations: [1995]52ITD147(DELHI)
ORDER
Manzoor Ahmed Bakshi, Judicial Member
1. The appellant is a private limited company. Its appeal is against the decision of the CIT (Appeals) XIV, New Delhi and it relates to the levy of penalty under Section 271(1)(c) of the Income-tax Act of Rs. 9,77,100 for assessment year 1986-87.
2. We have heard the learned counsel for the assessee, Shri G.C. Sharma and the learned Departmental Representative, Shri D.D. Goyel and have perused the records.
3. The salient facts are that the assessee filed its return of income for assessment year 1986-87 for which the previous year ended on 30-6-1985 on 17-9-1986 declaring income of Rs. 15,700. On 19-11-1987 there was a survey in the premises of the assessee. Statement of the Accountant of the assessee-company, Shri Mehta had been recorded during survey operations. Statement of the Director of the company had also been recorded after the survey. On 9-12-1987, assessee filed a revised return declaring income of Rs. 15,66,620 which included income of Rs. 15,50,000 as income from other sources. Assessing Officer, during the course of assessment proceedings, which were taken up after the filing of a revised return, asked the assessee to explain the source of accretion in the share capital of Rs. 24,50,000. Assessee explained the sources as under :-
(a) Rs. 15,50,000 shown as income from other sources in the
revised return.
(b) Rs. 9,00,000 Amount shown from individual shareholders as
their investment under Voluntary Disclosure
Scheme.
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Total Rs. 24,50.000
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Out of Rs. 9,00,000 assessee could furnish proof of disclosure in respect of Rs. 8,99,000 only. The difference of Rs. 1,000 was thus added by the Assessing Officer as income from undisclosed sources. The sum of Rs. 15,50.000 was also assessed as income from other sources as declared by the assessee. Assessment was made vide order dated 17-2-1988 at an income of Rs. 15,72,400. In the assessment order Assessing Officer recorded that penalty proceedings under Sections 271 (1)(a), 271 (1)(c) and 273(1)(b) of the Act had been initiated separately. Assessing Officer had issued penalty notices to the assessee to show cause as to why penalty be not imposed for concealment of income or/and furnishing of inaccurate particulars of income. Assessee had requested to keep the proceedings in abeyance till the decision of the Commissioner of Income-tax in a petition filed under Section 273A for waiver of penalty. This request of the assessee was not accepted. The Assessing Officer accordingly proceeded to impose a penalty of Rs. 9,77,100 in respect of Rs. 15,50,000 disclosed by the assessee voluntarily as income from other sources as also in respect of Rs. 1,000 added by the Assessing Officer as income from undisclosed sources.
4. Assessee appealed to the Commissioner of Income-tax (Appeals) claiming that revised return was filed voluntarily and that there was no concealment of income. Learned CIT (Appeals) has held that since the revised return has been filed by the assessee following the survey operations, the same cannot be said to have been filed to rectify any grievious omission or mistake in the original return and that it could not thus be a revised return. Assessee had relied on the decision of the Calcutta High Court in the case of CIT v. Bengal Iron Galvanising Works [1987] 165 ITR 249 in support of the contention that where assessee makes a voluntary disclosure before any inquiry or investigation had been initiated by the revenue penalty for concealment is not warranted. The CIT (Appeals) has held that this case was inapplicable to the facts of the assessee's case as revised return was filed by the appellant after the survey operations were conducted in its business premises. The learned CIT (Appeals) has further held that merely because in the assessment order the Assessing Officer has failed to discuss the matter in length to conclude that the appellant had concealed particulars of its income during the year, is not sufficient ground for deleting the penalty imposed under Section 27l(1)(c). The learned CIT (Appeals) has further held that the assessee had concealed the income and no attempt was made to give any explanation to rebut the presumption. Penalty imposed by the Assessing Officer has thus been confirmed.
5. The learned counsel for the assessee confined his attack towards the legality of the penalty order. Shri Sharma contended that the Assessing Officer, during the course of assessment proceedings, should be satisfied about the assessee having concealed the income or of furnishing inaccurate particulars of income and it is well-settled that he should record his satisfaction for the initiation of the proceedings. In this connection, reliance has been placed on the decision of the Supreme Court in the case of D.M. Manasvi v. CIT[1972] 86 ITR 557. Taking us through the entire assessment order passed by the Assessing Officer for the relevant assessment year, Shri Sharma contended that there is not even a whisper about the assessee having concealed the income relating to the sum of Rs. 15,50,000 offered for taxation in the revised return. A perusal of the assessment order, according to Shri Sharma, reveals that the Assessing Officer had initiated penalty proceedings with reference to the sum of Rs. 1,000 only and not with reference to the sum of Rs. 15,50,000. The Assessing Officer has also not made any reference to the survey operations or any material found during the course of such operations regarding increase in share capital or any incriminating document having been' found during the course of survey operations. The Assessing Officer has also not mentioned about any inquiry having been made before the assessee filed the revised return disclosing additional income of Rs. 15,50,000 by way of income from other sources. Shri Sharma further contended that if the Assessing Officer would have been satisfied about the assessee having concealed the income to the tune of Rs. 15,50,000 the former would have made a special mention in the assessment order and not chosen to ignore the survey operations and enquiry regarding the increase in share capital. Shri Sharma pointed out that Assessing Officer himself had conducted the survey operations in assessee's premises and, therefore, he was conscious of the fact of such operations and the material found during the course of said operations. Since the Assessing Officer was satisfied that assessee was not guilty of concealment to the tune of Rs. 15,50,000 he purposely did not make any mention in the assessment order regarding the said operations. A perusal of the assessment order, according to Shri Sharma, clearly reveals that Assessing Officer had conducted inquiry regarding the increase in share capital to the tune of Rs. 24,50,000 out of which Rs. 15,50,000 was accepted as having been disclosed by the assessee in the return out of income from other sources. Thus, according to Shri Sharma, the Assessing Officer not having initiated penalty proceedings with regard to sum of Rs. 15,50,000, penalty under Section 271(1)(c) cannot be justified simply on change of opinion or otherwise. Learned counsel for the assessee further contended that if the Assessing Officer would have,, made a reference to any incriminating documents, or other material found during the course of survey suggesting concealment of income, the assessee had a right of appeal against such findings. Assessing Officer not having made any mention in the assessment order about any material having been found during survey operations penalty under Section 27l(1)(c) cannot be imposed on change of opinion by the successor or by the same Assessing Officer. Shri Sharma further contended that no material worth the name was found during the survey operations. The assessee as a matter of cooperation and in order to buy peace had offered additional income as income from other sources. Shri Sharma clarified that income of Rs. 15,50,000 was not offered under Section 68 of the Act as unexplained investment out of share capital but the said amount was disclosed as income from other sources. The source of increase in the share capital was explained out of the said income. Shri Sharma further contended that a sum of Rs. 1,000 alone could be said to have been added under Section 68 as assessee had failed to explain the source to that extent. At best, according to Shri Sharma, penalty relating to the sum of Rs. 1,000 alone can be sustained.
6. Shri Goyel, the learned Departmental Representative, on the other hand, contended that the assessee is making the claim of lack of jurisdiction for the first time before the Tribunal. This claim had not been made before the Assessing Officer or before the first appellate authority. Shri Goyel further contended that Assessing Officer was satisfied during the course of assessment proceedings that assessee had concealed the income to the tune of Rs. 15,50,000. It was further contended that though satisfaction of the Assessing Officer during the course of assessment proceedings is a condition precedent for imposition of penalty, yet it is not necessary that such satisfaction should be recorded in the assessment order. Shri Goyel further contended that it is also not necessary that a notice should be issued to the assessee before the making of assessment order. The satisfaction of the Assessing Officer, according to the learned Departmental Representative, has got to be inferred from the records and not necessarily to be gathered from the assessment order. Shri Goyel contended that the records clearly indicate that Assessing Officer was satisfied about the assessee having concealed the income of Rs. 15,50,000 also. In this connection, he relied upon the following documents/ evidence :-
(a) A copy of the order sheet entry dated 23rd December, 1987.
(b) Letter dated 1-2-1988 issued by Assessing Officer asking the assessee to give details of share application money along with confirmations.
(c) The reply filed by the assessee placed at page 18 of the Paper Book.
(d) Report of the Assessing Officer to the Commissioner of Income-tax under Section 273A.
(e) Statement of Shri Mehta, Accountant of the company recorded during survey operations.
(f) Order of the Assessing Officer regarding impounding of books.
(g) Office Note in the assessment order regarding the survey operations.
Shri Goyel, contended that the order sheet entry referred to above, impounding of books of account, the questionnaire of the Assessing Officer dated 1-2-1988, office-note in the assessment order and a report of the Assessing Officer to the Commissioner in 273A proceedings, clearly indicate that Assessing Officer was satisfied about the assessee having concealed the income of Rs. 15,50,000 besides a sum of Rs. 1,000. Shri Goyel further contended that assessee had filed the original return at Rs. 15,700 only. This return was revised disclosing higher income. There was thus clear concealment in the original return of income. Shri Goyel accordingly pleaded that the decision of the revenue authorities may be upheld.
7. Shri Sharma in his counter reply contended that whether there has been a satisfaction of the Assessing Officer during the course of assessment proceedings or not, is a finding of fact to be recorded on the basis of evidence on record. Survey operations, pleaded Shri Sharma, are meant to collect material for the purposes of assessment but these operations cannot be said to be assessment proceedings. The law regarding the satisfaction of the Assessing Officer during the course of assessment proceedings is well-settled. It has to be seen as to whether there was a visible satisfaction and in this connection, the assessment order is the best proof either in favour of the revenue or against it. Shri Sharma contended that satisfaction cannot be inferred but it has to be visible as it is the foundation for imposition of penalty for concealment of income. The learned counsel further contended that in this connection the text of the assessment order is very important. The income of Rs. 15,50,000 has been assessed as income from other sources. The same had not been added as income from undisclosed sources under Section 68 on account of the increase in share capital for which no explanation would have been furnished by the assessee. Shri Sharma contended that the office note written by the Assessing Officer also clearly supports the contention of the assessee that Assessing Officer was satisfied during the course of assessment proceedings that penalty in regard to the sum of Rs. 15,50,000 was not attracted. Shri Sharma further contended that the material referred to by the learned Departmental Representative is something extraneous and dates after the passing of the assessment order. Assessing Officer might have changed his opinion after the passing of the assessment order on the advice of his superiors or otherwise. The documents referred to by the learned Departmental Representative, according to Shri Sharma, do not suggest that Assessing Officer was satisfied regarding the assessee having concealed the income or furnished inaccurate particulars of income during the course of assessment proceedings. It was, accordingly, pleaded that the penalty imposed may be cancelled.
8. We have given our careful consideration to the rival contentions. The principle of law that satisfaction of the Assessing Officer during the course of assessment proceedings that assessee has concealed income or furnished inaccurate particulars of income, is the foundation for the Assessing Officer's jurisdiction for imposing the penalty is well-settled. A notice to the assessee before the assessment informing about the concealed income is not necessary. However, satisfaction of the Assessing Officer during the course of assessment proceedings is a condition precedent for imposition of penalty under Section 271(1)(c). This view is based on the decision of the Supreme Court in the case of DM. Manasvi (supra). Whereas this position of law is not even disputed by the revenue. The claim of the assessee is that there has been no such satisfaction the claim of the revenue is to the contrary. We have, therefore, to refer to the relevant documents and evidence on record to find out as to whether the Assessing Officer could be said to have been satisfied in the course of assessment proceedings, that assessee had concealed the income of Rs. 15,50,000. There is no doubt that a survey operation had been conducted in the premises of the assessee. Such operations had been conducted by Shri G.P. Singh, the Income-tax Officer concerned himself who has also passed the assessment order in this case. When during the course of survey operations Shri Mehta, Accountant of the company had been asked about the discrepancy in the share applications, he had not been in a position to explain the discrepancy. When asked as to how much amount was involved in shares applications, where complete details may not be available, he indicated about Rs. 15 lakhs. The Assessing Officer did not make any inquiry from the assessee nor was the assessee confronted before the filing of the revised return on 9-12-1987 about any discrepancy. Assessee filed the revised return along with a letter stating that the sum of Rs. 15,50,000 was being offered to tax in order to buy peace. During the course of assessment proceedings after the filing of the revised return the Assessing Officer made enquiries about the increase in share capital of Rs. 24,50,000. Assessee had explained the increase in share capital as under:-
(a) Income from other sources as disclosed in the revised return Rs. 15,50,000
(b) Amount shown by individual shareholders as their investment under Voluntary Disclosure Scheme Rs. 9,00,000
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Total Rs. 24.50.000
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The Assessing Officer did not question the additional income disclosed by the assessee as income from other sources of Rs. 15,50,000. However, enquiry was made with regard to investment of Rs. 9,00,000 out of which Rs. 8,99,000 was accepted as explained and the balance of Rs. 1,000 added as income from undisclosed sources presumably under Section 68. The Assessing Officer completed the assessment vide order dated 17-2-1988. Assessing Officer has discussed the increase in the share capital of Rs. 24,50,000 and has also referred to the explanation of the assessee vis-a-vis its source. There is not even a whisper in the assessment order about the survey operations or collecting of any material whatsoever during such operation nor is there any mention of the circumstances, if any, that would have forced the assessee to file the revised return. The fact of assessee having filed the revised return and disclosing the income from other sources at Rs. 15,50,000 is, however, mentioned. Office Note, which in our view, is decisive in determination of the issue in hand, reads as under:-
A survey operation was conducted at the business premises of the assessee-company on 19-11-1987. Before assessment proceeding was started and material found during the survey operation was confronted, the assessee revised return of income at Rs. 15,60,620 declaring income from other sources at Rs. 15,50,000.
9. This note clearly demonstrates the intention of the Assessing Officer. It has been categorically mentioned by the Assessing Officer that assessee had filed the revised return before the start of the assessment proceeding and before the material found during the survey operations was confronted to the assessee. This clearly shows that Assessing Officer was satisfied that the assessee cannot be held to be guilty of concealment in regard to the sum of Rs. 15,50,000. There is otherwise no purpose of giving a note below the assessment order indicating about the assessee's filing of the revised return before the confrontation of material found during the course of survey operation and before the start of the assessment proceedings. If the Assessing Officer would have been satisfied about the assessee being guilty of concealment in regard to the sum of Rs. 15,50,000 he would have demonstrated or at least made a mention in the assessment order that the assessee had filed the revised return after detection and without bona fide intentions. That is not so and as per the report furnished to the Commissioner under Section 273A also, the Assessing Officer in column No. 7 has affirmed in negative against the following query:-
Whether any enquiries regarding assessability were pending against the assessee before filing of the return(s) by him or any other information suggesting that the assessee has taxable income or he is concealing income.
10. In column No. 8 of the said report, to which our attention was drawn by the learned Departmental Representative, Assessing Officer has indicated that the difference between the declared income constitutes concealment and in Column No. 10, the Assessing Officer has mentioned that material was detected by the Assessing Officer during survey operations. This report is undated but it is not disputed before us that this is much after the framing of the assessment in the assessee's own case. Letter dated 18th March, 1988 is also after the making of the assessment order. Moreover, this letter also does not show that the Assessing Officer was satisfied that assessee had concealed the income and was liable to penalty in regard to sum of Rs. 15,50,000. Moreover, we find merit in the contention raised on behalf of the assessee that for the purposes of gathering as to whether Assessing Officer was satisfied about the-assessee having concealed the income during the course of assessment proceedings or not, it is necessary to consider the material as was available before the date of assessment and the subsequent material has got to be ignored for such purposes as the Assessing Officer could have changed his mind after the making of the assessment order. The order sheet entry dated 23-12-1987 reads as under:-
Shri Mehta Accountant of M/s. Ram Commercial Enterprises appeared today. A revised return of income was filed on 9-12-1987 showing income of Rs. 15,60,620. Case was fixed for today. There is increase in the share capital of the company to the tune of Rs. 24.50 lakhs. He is asked to verify it. Assessee-company was surveyed before and surrendered Rs. 15.50 lakhs relating to assessment year 1986-87. Assessee asking for adjournment. Next date 29th December, 1987.
The finding of the Income-tax Officer in the assessment order in this regard is as under:-
During the period under consideration there was an increase of Rs. 24,50,000 in the share capital of the assessee-company. In the assessment year 1985-86, the issued subscribed and paid up share capital was to the tune of Rs. 24,50,000 and the assessment was completed under Section 143(3). In the assessment year 1986-87 share capital raised to Rs. 49,00,000. The source of this accretion (increase of Rs. 24,50,000) has been explained by the assessee-company as under:-
Shown as income from other
sources in the revised return Rs. 15,50,000
Amount shown by the individual
shareholders as their investment
under Voluntarily Disclosure Scheme Rs. 9,00,000
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Rs. 24,50.000
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However, out of the total amount of Rs. 9,00,000, assessee-company could file proof only in respect of Rs. 8,99,000 in the hands of the following shareholders. Photostat copies of their assessment orders with their affidavits were filed and placed on record :
1. Shri Sant Parkash, HUF Rs. 58,500
2. Shri Om Parkash, Indl. Rs. 1,40,500
3. Shri Sant Parkash, Indl. Rs. 1,74,500
4. Shri Rajnish Kumar, Indl. Rs. 2,81,000
5. Smt. Prem Kumari Rs. 95,500
6. Shri Om Parkash, HUF Rs. 54,500
7. Smt. Krishna Rani Rs. 94,500
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Total Rs. 8,99,000
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The assessee-company could not explain the source of remaining Rs. 1,000, therefore, it is added back to its income as income from other sources.
The order sheet entry, reply of the assessee, statement of Shri Mehta do not suggest that Assessing Officer was satisfied about the assessee having concealed the income. Having gone through the assessment order and the office note therein, and the record that existed up to the date of assessment order, we are of the firm view that the satisfaction of the Assessing Officer regarding assessee being liable to penalty in regard to the sum of Rs. 15,50,000 is not visible. On the contrary, it is clear to us that Assessing Officer, whether rightly or wrongly is a different matter, had been satisfied that assessee was not liable to penalty in regard to sum of Rs. 15,50,000. The reference in the assessment order regarding initiation of penalty proceedings is clearly with regard to the concealment of income to the tune of Rs. 1,000, which has remained unexplained out of Rs. 9,00,000. The order sheet entry and other records referred to by the learned Departmental Representative do not, in any way, demonstrate that Assessing Officer was satisfied during the course of assessment proceedings that assessee was liable to penalty in regard to the sum of Rs. 15,50,000. It is a different matter that after the completion of the assessment, the Assessing Officer has held the assessee to be liable to penalty for concealment. That for purposes of issue in hand, is not relevant. What is relevant and important in this case is as to whether there has been a satisfaction of the Assessing Officer during the course of assessment proceedings that the assessee was liable to penalty in regard to the sum of Rs. 15,50,000 disclosed as income from other sources in the revised return. The answer to this query is in negative. Thus since the very foundation for the imposition of penalty under Section 271(1)(c) is lacking in this case, we cancel the penalty imposed under Section 271(1)(c).
11. In the result, the appeal of the assessee is allowed.