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TMI Blog2007 (11) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,76,71,321 ------------------------------------ 2. The relevant facts of the case giving rise to these appeals are that the assessee is a company incorporated in United Kingdom and is a tax resident of that country. It is mainly engaged in the airline business and has been operating in various countries including India. During the assessment years under consideration, the assessee company was carrying on its business in India through PEs in the form of its branches located in New Delhi, Mumbai, Chennai and Kolkata. The business so carried on in India comprised of (i) operation of aircraft in international traffic for transportation of passengers, goods and mail to and from India and (ii) rendering of engineering and ground handling services to aircrafts operated by other airlines. The profit derived by the assessee company from the business of operation of aircrafts in international traffic was undisputedly not taxable in India in view of art. 8 r/w art. 7(9) of the Double Taxation Avoidance Agreement between India and United Kingdom (in short "the DTAA") which provides that such profit shall not be taxed in the source country i.e. India and the same was thus taxable only in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pending for disposal. After having upheld the charge ability of the profits derived by the assessee company from the business of provision of engineering and ground handling services to other airlines to tax in India, the Tribunal set aside and restored back the matter to the AO for all the three asst. yrs. 1996-97, 1997-98 and 1998-99 for making fresh assessments of taxable profits derived by the assessee company from the said business. In pursuance to the orders of the Tribunal, the AO determined and assessed the taxable profits derived by the assessee company from the aforesaid business at Rs. 3,36,80,703, Rs. 3,79,40,770 and Rs. 2,72,11,877 for asst. yrs. 1996-97, 1997-98 and 1998-99 respectively besides the assessments already completed assessing such income at Rs. 3,80,92,065, Rs. 5,89,23,281 and Rs. 7,84,81,918 respectively for the asst. yrs. 1999-2000, 2000-01 and 2001-2002 respectively. After considering the assessee company's submissions and the facts and circumstances of the case, the AO also held that the assessee company was liable for penalty under s. 271(1)(c) of the Act in respect of above incomes which were brought to tax on account of profits derived by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) could be imposed. 5. After considering the submissions made on behalf of the assessee company before him as well as the material available on record, the contention of the assessee that the penalty orders passed by the AO for asst. yrs. 1996-97, 1997-98 and 1998-99 were barred by time, was rejected by the learned CIT(A) for the following reasons given in para No. 8 of his impugned order: "I have carefully examined the issue and also considered the facts of the case. I have also carefully considered the submissions made by the learned Authorised Representative as well as the case laws relied upon by him. I have also perused the relevant assessment orders, appellate orders, penalty orders and other material placed on record. As regards the limitation matter, it is noticed that penalty proceedings under s. 271(1)(c) of the Act for the asst. yrs. 1996-97, 1997-98 and 1998-99 were initiated by the AO in the assessment orders passed by him on 23rd Feb., 2004 in pursuance to the order of the Hon'ble Tribunal whereby the matter was set aside and restored back to the AO for making de novo assessment of taxable profits derived by the appellant from the business of provision of engineeri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een concealed by the assessee. Thereafter, the learned CIT(A) proceeded to examine the submissions made on behalf of the assessee company in the light of facts of the case including the outcome of quantum proceedings as well as the various judicial pronouncements and ultimately held on such examination that there was a failure on the part of the assessee to rebut the presumption of concealment raised against it in respect of the additions made on account of profits derived by it from the business of rendering of engineering and ground handling services in India to aircrafts operated by other airlines. He, therefore, held that Expln. 1 to s. 271(1)(c) was clearly applicable in the facts of the assessee's case and relying thereon, he confirmed the penalties imposed by the AO under s. 271(1)(c) for all the six years under consideration by his common appellate order, dt. 30th Oct., 2006. Aggrieved by the said order of the learned CIT(A), the assessee company has preferred these appeals before the Tribunal. 7. Ground No. 1 raised by the assessee, which is common in all these six appeals, is general seeking no specific decision from us. 8. In ground No. 2, which is again common in all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A). He submitted that these submissions were duly forwarded by the learned CIT(A) to the AO calling for his comments thereon and in the remand report dt. 7th Sept., 2006 submitted by AO to the learned CIT(A), reliance was placed by the AO on the judgment of the Hon'ble Delhi High Court passed in the case of CIT vs. Indus Valley Promoters Ltd. (2006) 204 CTR (Del) 149 : (2006) 155 Taxman 223 (Del) whereby the decision of Division Bench in the case of Ram Commercial Enterprises was sought to be referred to the Full Bench for reconsideration. As pointed out by the learned counsel for the assessee, it was also submitted by the AO in the said remand report that the satisfaction as required under s. 271 was easily discernible from the assessment orders. He submitted that by the judgment passed in the case of Indus Valley Promoters Ltd., a specific issue was referred by the Hon'ble Delhi High Court to the Full Bench as to whether in the absence of the requisite satisfaction specifically recorded by the AO, the findings in the assessment order can be looked into to ascertain that the same is discernible from such findings in the assessment order or not. He contended that there was no dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as appellate authorities in the said orders. For instance, he invited our attention to the following findings/observation recorded by the AO in the assessment originally passed for asst. yr. 1996-97: (a) Page 9 of the assessment order "In fact, British Airways earns huge profits out of these activities and the assessee has himself offered 15 per cent profit for taxation. (b) Page 10 of the assessment order "In this letter the assessee did not furnish the details of engineering and traffic handling for two stations viz. Calcutta and Bombay". (c) Page 14 of the assessment order "The mere fact that the assessee agreed to pay the taxes shows that he accepted the taxability of the profit earned through engineering technical handling". "Throughout the proceedings, the assessee was asked to give the details of receipt and expenditure so that the correct profit may be determined". (d) Page 15 of the assessment order "The contention of the assessee clearly shows that he is not ready to pay the correct taxes and from the very beginning concealing his particulars of incomes. The assessee is receiving money for this activity separately through Tribunal clearance house and costs are al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi High Court in the case of CIT vs. Indus Valley Promoters Ltd. to contend that the decision rendered by the Division Bench in the case of Ram Commercial Enterprises has now been referred to the Full Bench of Hon'ble Delhi High Court for reconsideration. 15. The learned Departmental Representative also relied on the latest unreported decision of Hon'ble Delhi High Court in the case of CIT vs. Smt. Santosh Sharma rendered vide a judgment delivered on 17th Sept., 2007 in IT Appeal No. 1088 of 2006 wherein it was held by their Lordships that the observations recorded by the AO in the last part of the assessment order "penalty proceedings under s. 271(1)(c) for furnishing inaccurate particulars of income have separately been initiated" read with a noting made by him in the earlier portion of the assessment order about the failure on the part of the assessee to explain the source of credits in her bank account as well as her failure to adduce any evidence to support the genuineness of such credits, were sufficient to show his satisfaction as required by law for initiation of penalty proceedings. He contended that keeping in view this latest decision of the jurisdictional High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd there was only a limited setting aside of the said orders, the initiation of penalty proceedings in the original assessment proceedings always survived in law and the penalties finally imposed by the AO were in pursuance of the said initiation only. He contended that the satisfaction of the AO thus has to be ascertained from the assessment orders passed in the original proceedings itself and the appellate orders as well as orders passed in the set aside proceedings in the quantum proceedings are not relevant in this context. As regards the decision of Calcutta Bench of Tribunal in the case of Dinbandhu Pal vs. ITO relied upon by the learned Departmental Representative, he submitted that there was a decision of Hon'ble Calcutta High Court against the assessee on the point of recording of satisfaction by the AO and the said decision of the Hon'ble jurisdictional High Court therefore was preferred by the Tribunal over the decision of Hon'ble Delhi High Court in the case of Ram Commercial Enterprises. As regards the various observations/findings as recorded by the AO in the relevant assessment orders as pointed out and relied upon by the learned Departmental Representative, he submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce has been placed before us by the learned counsel for the assessee inter alia on various decisions of Hon'ble Delhi High Court. In one of such decisions rendered in the case of CIT vs. Ram Commercial Enterprises Ltd., it was held by the Hon'ble Delhi High Court that the assessing authority has to form its own opinion and record its satisfaction before initiating the penalty proceedings and it cannot be assumed that such a satisfaction was arrived at merely because the penalty proceedings had been initiated. The satisfaction is to be arrived in the course of any proceedings under the Act which would mean assessment proceedings and the satisfaction as envisaged by the Hon'ble Delhi High Court in the case of Ram Commercial Enterprises Ltd. thus has to be reached during the course of assessment proceedings by the AO and the same has to be recorded by him in the assessment order. In the case of Diwan Enterprises vs. CIT (2001) 167 CTR (Del) 324 : (2000) 246 ITR 571 (Del), it was found that the AO had nowhere recorded his satisfaction till the conclusion of assessment proceedings that assessee had concealed income and this failure on the part of the AO was held to be jurisdictional de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a series of judgments of the Hon'ble Delhi High Court, has not been referred to the Full Bench for reconsideration and what has been actually referred to the Special Bench and which is pending for disposal is only the issue relating to the manner and method of recording such satisfaction in the absence of any specific provisions contained in the statute in this regard. The issue referred to the Full Bench of Hon'ble Delhi High Court thus is incidental to the main issue of satisfaction inasmuch as after having held that there is a mandatory requirement of recording the satisfaction by the AO before initiating the penalty proceedings under s. 271 (1)(c), the consequential issue which arises is whether such satisfaction has to be recorded in so many words or in the absence of any manner or method prescribed in the statute for recording such satisfaction, would it be sufficient if the same is otherwise discernible from the order passed by the authority in a case where such satisfaction is not recorded in specific terms. It therefore cannot be said that the issue as decided by the Hon'ble Delhi High Court in the series of judgments rendered in several cases about the jurisdictional cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failure to adduce any evidence to support the genuineness of such credits were sufficient to show his satisfaction as required by law for initiation of penalty proceedings. The learned Departmental Representative has strongly relied on this latest decision of Hon'ble Delhi High Court to contend that if the satisfaction is discernible from the orders passed in proceedings, there is a compliance of the statutory requirement as well as satisfaction of jurisdictional condition and the initiation of penalty proceedings is valid in the eyes of law. He has also contended that the appellate proceedings are continuation of the assessment proceedings and therefore the orders passed by the appellate authorities in the quantum proceedings as well as the orders passed by the AO in the set aside proceedings as per the directions of the appellate authorities are required to be looked into so as to find out as to whether the requisite satisfaction for initiation of penalty proceedings was there or not. 21. As regards the contention of the learned Departmental Representative that the orders passed by the appellate authorities in the quantum proceedings as well as orders passed by the AO in the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, the orders originally passed by the AO for asst. yrs. 1996-97, 1997-98 and 1998-99 had not been entirely set aside by the Tribunal but it was a case of partial set aside inasmuch as the order of the AO on the issue in dispute was upheld by the Tribunal in principal and only the matter of quantification of income was set aside by it to the AO for deciding the same afresh. The orders passed by the AO originally thus were not completely set aside by the Tribunal nor the penalty proceedings initiated during the course of original assessment proceedings were dropped as a consequence of the Tribunal's order. The penalty proceedings initiated in the original assessment proceedings thus had never been dropped and the same not only survived throughout but even the penalties were finally imposed in pursuance of the said initiation. It is no doubt true that in the assessment orders passed in the set aside proceedings, there was an observation recorded by the AO to the effect that penalty proceedings under s. 271(1)(c) are being initiated. However, as the assessment orders passed by the AO in the original assessment proceedings had not been entirely set aside by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Lal vs. Dhirendra Nath (Dead) by IRs. & Ors. (1999) 4 SCC 11, paras 14 to 22 in which this Court referred to its earlier decision in Muktul vs. Manbhari (1959) SCR 1099 on the scope of the doctrine of stare decisis with reference to Halsbury's Law of England and Corpus Juris Secundum, pointing out that a decision which has been followed for a long period of time, and has been acted upon by persons in the formation of contracts or in the disposition of their property, or in the general conduct of affairs, or in legal procedure or in other ways, will generally be followed by Courts of higher authority other than the Court establishing the rule, even though the Court before whom the matter arises afterwards might be of a different view. The learned Attorney General contended that the interpretation given to s. 90 of the IT Act, a Central Act, by several High Courts without dissent has been universally followed; several transactions have been entered into based upon the said exposition of the law; that several tax treaties have been entered into with different foreign Governments based upon this law. hence, the doctrine of stare decisis should apply or else it will result in chaos an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved by the Hon'ble Delhi High Court in the case of Indus Valley Promoters Ltd., it would depend on the facts and circumstances of each case whether or not the authority has applied its mind to the question of concealment of income or furnishing of inaccurate particulars of such income. It was also held by their Lordships that whether the authority was or was not satisfied about any such concealment or furnishing of inaccurate particulars will also depend upon the facts of each case and the order which the authority has made. The issue as to whether the requisite satisfaction for initiation of penalty proceedings is discernible from the findings/observations recorded by the AO in the assessment order thus is basically a question of fact which is required to be decided on the facts and circumstances involved in each case. In the case of Smt. Santosh Sharma cited by the learned Departmental Representative, it was held by the Hon'ble Delhi High Court having regard to the relevant observations/findings recorded by the AO in the assessment order that the requisite satisfaction as required for initiation of penalty proceedings was discernible from the said order and this issue in our opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the AO and the order passed by him in the said proceedings alone can be looked into to find out or ascertain as to whether there was such satisfaction recorded by him, it is pertinent to consider and decide as to whether such satisfaction was indeed recorded by the AO in the assessment orders passed for the years under consideration during the course of original assessment proceedings before initiating penalty proceedings. In this regard, it is observed that the following notings were made by the AO in the said orders: Asst. yrs. 1996-97, 1997-98 and 1998-99 "Penalty proceeding under s. 271(1)(c) of the IT Act is initiated separately." Asst. yr. 1999-2000 "Initiate proceedings under s. 271 (1)(c) of the IT Act 1961 for willful concealment of income to evade lawful tax liability and furnishing inaccurate particulars." Asst. yr. 2000-01 "Initiate penalty proceedings under s. 271(1)(c) for willful concealment of income and furnishing inaccurate particulars of income." Asst. yr. 2001-02 "Initiate penalty proceedings under s. 271(1)(c) for furnishing inaccurate particulars of income/concealment of income." 27. During the course of hearing the learned Departmental Represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concealed the particulars of his income or having furnished inaccurate particulars of such income. It was also held by their Lordships that there was thus a jurisdictional defect in initiating the penalty proceedings which could not be cured and consequently all the subsequent proceedings leading upto the passing of the penalty order must fail. To the similar effect is the decision of Hon'ble Delhi High Court in the case of Shri Bhagwant Finance Company Ltd. vs. CIT wherein it was held that established cannons of law impose a duty upon the concerned authorities of apply their mind, record satisfaction and then alone initiate penalty proceedings in conformity with the provisions of s. 271. This issue again came up before the Hon'ble Delhi High Court for consideration in the case of CIT vs. Globe Sales Corporation wherein the exact requirement of law in the matter of recording satisfaction before initiating penalty proceedings was explained by their Lordships stating that a bare reading of the provisions of s. 271(1) which vest the authorities concerned with the power to impose penalty, clearly postulates that an officer has to record his satisfaction in terms of the section that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Delhi High Court discussed hereinabove, we are therefore of the view that the requisite satisfaction about the assessee having concealed the particulars of his income or having furnished inaccurate particulars of such income was not recorded by the AO in the relevant assessment orders before initiating the penalty proceedings under s. 271(1)(c) and in the absence thereof, the initiation of penalty proceedings itself was bad in law and consequently the penalties imposed by him in pursuance of the said initiation are liable to be cancelled. In that view of the matter, we set aside the impugned order of the learned CIT(A) confirming the penalties imposed by the AO under s. 271(1)(c) for all the six years under consideration and cancel the penalties so imposed. 30. In the other grounds raised by the assessee in these appeals, the penalties imposed under s. 271(1)(c) have been challenged inter alia on merits also and although elaborate arguments have been advanced by both the sides on the issues raised in the said grounds, the said issues have been rendered merely of academic nature as a result of our decision on preliminary issue rendered hereinabove. We, therefore, do not deem it n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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