TMI Blog2002 (7) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... rs declared additional income of Rs. 1,26,55,032 under section 132(4). The declarations were made in the hands of the partners and family members. Subsequently the assessees of the group filed the returns admitting additional income of only Rs. 47,50,040 and they also paid taxes on such income. The assessees had also filed reasons for the discrepancy in the income declared originally under section 132(4) and the income admitted later in the returns. Subsequently during the course of assessment proceedings, after discussion with the Revenue authorities Shri P.V.V.P. Krishna Rao, the Managing Partner of the assessees firm agreed to declare the entire additional income originally declared in the hands of the partners and family members since the assessee firm was the main earning organization for the group and the partners and the family members were not having adequate independent source of income. It was also requested by the assessee that the taxes paid in the names of the assessees of the group should be given credit in the hands of the firm and waiver of interest chargeable under sections 234B and 234C should be recommended. Thereafter, the assessee admitted the entire additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional income in the hands of the firm was consequent upon the understanding between the assessee and the Department and therefore, non-initiation of penalty proceedings under section 271(1)(c) and giving credit to the taxes by the members in the hands of the firm resulting in short charging of interest under section 234 did not render the assessment erroneous and prejudicial to the interest of the Revenue. In support of such claim the assessee had also relied on certain judicial pronouncements. 4. The CIT was not satisfied with the explanation offered by the assessee. He held that "even non-initiation of penalty proceedings though warranted as also correct charging of interest though not done on account of giving credit wrongly to taxes paid by partners/members of group would make the assessment erroneous and prejudicial to the interest of Revenue." Referring to Explanation 5 of section 271(1)(c) he held that immunity from concealment penalty is available to a person making declaration under section 132(4). In the instant case the declaration under section 132(4) was not made by the assessee but in the name of partners and family members and hence the immunity could not be ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been stated that since the Department is of the view that all such additional incomes ought to be assessed in the hands of the firm itself, the assessee with a view to purchase peace, agrees with the Department and files the revised return. In the same letter the assessee has also requested that the assessment may be completed amicably and the taxes already paid by the individuals may be given credit in the hands of the firm, and interests, all immunities assured may be given to the firm if any under sections 234A, 234B and 234C and penalty and prosecutions, if any, may be waived/dropped. The learned AR also filed a specimen of letter written by the various assessees while filing revised returns under section 139(5) reducing the additional incomes shown in original returns as per declaration under section 132(4). In the said letter it has also been requested that the taxes already paid may be given credit in the hands of the firm, all immunities assured to the assessee may be in turn given to the firm and interest and penalty and prosecution proceedings may be waived/dropped. 6. It was pointed out by the learned AR that the revised returns filed by the assessee firm was accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83] 142 ITR 606 (Delhi High Court) (iii) P.C. Puri v. CIT [1985] 151 ITR 584 (Delhi High Court) (iv) CIT v. Keshrimal Parasmal [1986] 157 ITR 484 (Rajasthan High Court) (v) Surendra Prasad Singh v. CIT [1988] 173 ITR 510 (Gauhati High Court) (vi) CIT v. Linotype Machinery Ltd. [1991] 192 ITR 337 (Calcutta High Court) (vii) Addl CIT v. Sudershan Talkies [1993] 200 ITR 153 (Delhi High Court) (viii) CIT v. Sudershan Talkies [1993] 201 ITR 289 (Delhi High Court) (ix) Narendra Associates, Engineers Contractors v. ITO [1988] 26 ITD 406 (Hyd.) (x) Variety Cloth Centre v. ITO [1996] 59 ITD 377 (Pune) (SMC) (xi) Jain Exports (P.) Ltd. v. Dy. CIT [1999] 68 ITD 126 (Delhi) (i) In the case of JK D'Costa the Hon'ble Delhi High Court held that penalty proceedings and assessment proceedings are independent and separate proceedings and an assessment cannot be said to be erroneous or prejudicial to the interest of Revenue because of the failure of the Assessing Officer to initiate penalty proceedings during the course of assessment proceedings. In this case it was further held that when the CIT comes to the conclusion that there is defect in the Assessment Order regarding le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. (iii) Swarup Vegetable Products Industries Ltd (No. 1) v. CIT [1991] 187 ITR 412 (Allahabad High Court): In this case the assessee had not shown the amount received by him by way of refund of excise duty in P L Account on the ground that a writ petition was pending wherein a third party had claimed a portion of the amount. Assessing Officer admitted the contention of assessee without making proper enquiries. The CIT set aside the order for fresh Assessment Order of CIT was upheld as valid. (iv) CIT v. Panna Devi Saraogi [1970] 78 ITR 728 (Calcutta High Court): In this case the CIT set aside the assessment order as the Assessing Officer had no jurisdiction over the assessee and he had not made proper enquiries about the initial capital and source of money invested in the name of the assessee. Order of CIT was upheld. 9. We have carefully considered the submissions made by the rival parties, the facts of the case, the case laws relied upon and the materials produced before us. We find that the learned CIT has declared the Assessment Order dated 31-3-1997 as erroneous and prejudicial to the interest of the Revenue for non-initiation of penalty under section 271 (1)(c) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellery and Rs. 33,93,000 silver in ornaments (3) FDRs including units purchased Rs. 12,45,000 in the name of AA Rama Ambica (4) Stock-in-trade (difference) Rs. 43,75,000 --------------- Total Rs. 1,28,50,000 --------------- The assessee's AR and Sri Krishna Rao agreed to file revised returns admitting the additions as above in the names of partners and family members of this group. But it is argued with them that since assessee firm M/s. Ambica Chemical Products (R) Eluru is the main earning organisation for the group and the partners and family members of the group are not having adequate independent sources of income, the entire additions discussed above should be assessed only in the hands of assessee firm for assessment year 1995-96 only. To these arguments the assessee's AR and Sri Krishna Rao stated that as agreed in the statement given under section 132(4), they have already paid taxes in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laration made under section 132(4) are given credit in the hands of the assessee firm and the interest under section 234B charged at Rs. 8,96,790 and interest under section 234B charged at Rs. 2,60,266 are due to additional tax payable on account of further additions made in finalisation of the assessment proceedings and also due to payment of 140A tax at Rs. 14,80,560. During the course of discussions, the assessee's AR and Sri Krishna Rao stated that due to difference of opinion and confusion and tension at the time of search, they have declared income under section 132(4) in the names of assessee of the group and filed returns of income by the assessee after claiming certain deductions which are mainly due to some discrepancies and difference of opinion and now that with a view to finalise the tax matter and to buy peace with the Department, they are coming forward to file revised returns in respect of the assessee firm and assessee of the group as finality and considering these facts they requested not to take penal action against the firm and assessee of the group. In the appraisal report, the ADI also recommended to take a lenient view since the assessee paid taxes on the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 271(1)(c) the discretion to initiate or not to initiate penalty proceedings and the discretion to levy or not to levy the penalty lies with the Assessing Officer and not with the CIT. The CIT cannot indirectly do what he is barred from doing under the Act by taking recourse to section 263 to substitute his own discretion in place of that of Assessing Officer, In this regard the following observations of the Honourable Bombay High Court in the case of CIT v. Gabrial India Ltd [1993] 203 ITR 108 are relevant: "This is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself would not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, that the order is erroneous, is absent". 9.4 In view of the above the action of the Assessing Officer in not initiating the penalty proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this section is not to set aside merely unfavourable orders and bring to tax some more money to the treasury. Nor is the section meant to get at sheer escapement of revenue which, as it well-known, is taken care of by provisions elsewhere in the Act such, for instance, as section 147 of the Act. The prejudice must be prejudice to the Revenue administration". 9.5 In the present case under consideration undoubtedly there was an understanding with the Department and the Assessing Officer had acted to honour the assurance given to the assessee and thereby to safeguard the fair name and reputation of the Department. Hence, his action cannot be condemned as prejudicial to the interest of Revenue. 10. In the light of the above discussions and keeping in view the judicial pronouncements in the case laws relied upon by the AR we hold that penalty proceedings and assessment proceedings are independent and separate proceedings and while dealing with the assessment proceedings and assessment order the CIT cannot direct the Assessing Officer to initiate penalty proceedings. We have also perused the case laws relied upon by the learned DR and find that they are distinguishable on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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