TMI Blog2004 (11) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... vant and material facts for the disposal of the issue involved in the ground of appeal taken by the Revenue, as borne out from the orders of tax authorities below, for asst. yr. 1983-84 are that after the orders of appellate authorities, the confirmed addition on account of surtax liability was Rs. 35,54,011 and on account of inclusion of excise duty in the closing stock was Rs. 63,69,269 and on account of the valuation of closing stock was Rs. 22,64,798. The AO, after initiating penalty proceedings under s. 271(1)(c) and after considering the reply dt. 27th Dec., 1993, of the assessee, rejected the contention of the assessee and levied total penalty under s. 271(1)(c) of IT Act of Rs. 68,14,654 @ 100 per cent on the tax sought to be evaded. 5. Aggrieved with the order of the AO, the assessee filed an appeal before the CIT(A) and contended that the AO has not made any specific allegation, either in the assessment order or in the penalty notice as to whether the assessee has concealed the particulars of its income or has furnished inaccurate particulars of its income. The assessee contended that because of the material defect, the initiation of penalty proceedings under s. 271(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the assessee was still in litigation before the Supreme Court, therefore, the penalty under s. 271(1)(c) on this ground could not be levied as the assessee had not concealed any facts nor it has furnished inaccurate particulars of its income. It had made a bona fide claim based on judicial pronouncements. 6. The CIT(A), after considering the submission of the assessee and by placing reliance on the decisions of various authorities, deleted the impugned addition while passing a detailed order. 7. The facts of the appeal of the Revenue filed for asst. yr. 1985-86, pertaining to levy of penalty under s. 271(1)(c) on account of claim of deduction of surtax liability amounting to Rs. 6,71,039 are identical to the facts and issue of imposition of penalty under s. 271(1)(c) in respect of surtax liability, so, the same are not reproduced hereinagain for the sake of brevity. 8. We have considered the rival contentions of the learned representatives of both the parties, perused the record and carefully gone through the orders of tax authorities below. 9. In the instant appeals, the first point required to be considered by us is whether the claim of the deduction by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the excise duty while valuing the unsold goods in closing stock was correct, so, the assessee cannot be said to have furnished any inaccurate particulars in this regard. On the contrary, we find that the assessee had made a legal claim, so, there was no concealment of income. Hence, we are of the opinion that on these facts and in view of the legal position, the claim of the assessee was bona fide and did not call for any penalty under s. 271(1)(c) and, therefore, the penalty imposed under s. 271(1)(c) in respect of deduction claimed on account of excise duty while valuing the closing stock by the AO has been rightly deleted by the CIT(A). Accordingly, the order of the CIT(A), in this regard, is upheld. 13. Now, we shall take up the third penalty levied by the AO under s. 271(1)(c) on the claim of surtax in both the assessment years under consideration. The point whether the assessee could claim deduction on account of surtax liability now stands settled by the decision of the Supreme Court, reported in the cases of SmithKline French (India) Ltd. Etc. vs. CIT (1996) 132 CTR (SC) 500 : (1996) 219 ITR 581 (SC), A.V. Thomas Co. Ltd. vs. CIT (1987) 61 CTR (Ker) 287 : (1986) 159 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. In the case of CIT vs. Munish Iron Store (2004) 186 CTR (P H) 159 : (2003) 263 ITR 484 (P H), their Lordships observed that the jurisdiction to impose penalty flows from the recording of the satisfaction of the AO regarding concealment of income. In case there is a defect in the assumption of jurisdiction, it cannot be cured. In this case, the Tribunal deleted the penalty on the ground that while finalising the assessment the AO did not record satisfaction in term of section under s. 271(1)(c). So, penalty imposed under s. 271(1)(c) was cancelled. 18. The High Court held, the reasons assigned by the Tribunal for cancellation of penalty were legally correct. Similar view was taken by the Delhi High Court in the case of Diwan Enterprises vs. CIT Ors. (2001) 167 CTR (Del) 324 : (2000) 246 ITR 571 (Del) and in the case of CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321 : (2000) 246 ITR 568 (Del). It means that recording of satisfaction by the AO before initiating penalty proceedings was mandatory and in case no satisfaction was recorded by the AO as to whether the assessee has concealed particulars of income or has furnished inaccurate particulars of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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