TMI Blog2013 (7) TMI 808X X X X Extracts X X X X X X X X Extracts X X X X ..... law in sustaining the penalties and reversing the order of the CIT (Appeals) –AO should record in the assessment order his satisfaction that the assessee had either concealed the income or furnished inaccurate particulars of income in his return before imposing penalty - Court noticed that in the assessment orders passed by the AO for the A.Y 1982-83 and for the A.Y. 1983-84 no such satisfaction is recorded - decided in favour of assessee. - ITTA NO 29/2000, ITTA NO 31/2000, ITTA NO 33/2000 - - - Dated:- 27-5-2012 - GODA RAGHURAM and RAMACHANDRA RAO M. S. JJ. Judgment: M. S. Ramachandra Rao J.- I. T. T. A. Nos. 29, 33 and 31 of 2000 are filed under section 260A of the Income-tax Act, 1961 (for brevity the Act ), by M/s. Chennakesava Pharmaceuticals, Vijayawada (hereinafter referred to as the assessee ) against the common orders of the A. P. Income-tax Appellate Tribunal (Hyderabad Bench B ), Hyderabad, in I. T. A. Nos. 181, 182 and 183/Hyd/93 for the assessment years 1982-83, 1983-84 and 1984-85 respectively. 2. The assessee had filed its return of income declaring income of ₹ 53,102, ₹ 69,930 and ₹ 91,890 for the assessment years 1982-8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are incorrect or false, no penalty can be levied under section 271(1)(c) of the Act. In the cases on hand, the return of income had been accepted on the ground that the assessee had made full disclosure of its income. For the assessment year 1984-85, certain expenditure claimed is disallowed and that itself cannot be a ground for levying a penalty. He relied on CIT v. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC) and CIT v. SAS Pharma-ceuticals [2011] 335 ITR 259 (Delhi). 2. For the levy of penalty under section 271(1)(c) of the Act, the Assessing Officer has to form his own opinion and record satisfaction of concealment or furnishing of inaccurate particulars of income in his pro-ceedings, otherwise it would be a jurisdictional defect. In the present case, no such satisfaction is recorded by the Assessing Officer in the assessment order. For the assessment year 1984-85, there is merely an endorsement to the effect that penalty proceedings would follow, which is not sufficient. Therefore, levy of penalty is not sustainable. He relied on V. V. Projects and Investments Pvt. Ltd. v. Deputy CIT [2008] 300 ITR 40 (AP), CIT v. Munish Iron Store [2003] 263 ITR 484 (P H), CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interfered by the High Court exercising jurisdiction under section 260A of the Act. He also contended that the assessee had not raised the question about a need for the Assessing Officer to mention in the assessment order containing the reasons for imposing the penalty in the grounds of appeal filed in this court or before the Income-tax Appellate Tribunal and, there-fore, such a contention cannot be allowed to be raised by the assessee in these appeals. 9. Heard Sri A. V. Krishna Koundinya, learned senior counsel for the appellant-assessee and Sri J. V. Prasad, learned standing counsel for the Income-tax. 10. As mentioned above, the question framed by this court while admitting these appeals is Whether, in the facts and in the circumstances of the case, the Appellate Tribunal was justified in differing with the view taken by the first appellate authority and holding that the penalty was leviable under section 271(1)(c) of the Income-tax Act ? In our view, this question as framed is wide enough to encompass within it also the issue whether there is a need for the Assessing Officer to mention in the assessment order the reasons for imposing the penalty under section 271(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer to represent deliberate concealment, and so he initiated penalty proceedings under section 271 of the Act for the four assessment years in question. As, however, the minimum penalty leviable under section 271(1)(c) of the Act exceeded the sum of rupees one thousand, the cases were referred under section 274(2) of the Act to the Inspecting Assistant Commissioner who levied penalty under section 271(1)(c). In appeal before the Tribunal it was submitted on behalf of the assessee that there had been no valid levy of the penalties because the penalty proceedings had not been commenced in the course of proceedings under the Act. The Tribunal rejected this contention and observed that, as the Income-tax Officer had given directions in the assessment order for the issue of a notice under section 271(1)(c), the penalty proceedings could be said to have commenced during the course of the assessment proceedings and, therefore, levy of penalty was not invalid. The Tribunal also rejected the submission made on behalf of the assessee that there was no evidence to show that the assessee was the owner of the business of Kohinoor Mills and that there had been concealment of his income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is satisfied about the matters referred to in clauses (a) to (c) of sub-sec-tion (1) of section 271 during the course of proceedings under the Act even though notice to the person proceeded against in pursuance of that satisfaction is issued subsequently. It is important to note that in the said case the Income-tax Officer, while making the assessment orders for the assessment years in question, held that Kohinoor Mills had been wrongly shown to be a partnership firm and that the other alleged partners were simply name lenders of the assessee. 13. In Ram Commercial Enterprises Ltd.'s case [2000] 246 ITR 568 (Delhi), the Delhi High Court held, after considering the above judgment in Manasvi's case [1972] 86 ITR 557 (SC), as follows (page 571 of 246 ITR) : Merely because this court while hearing this application may be inclined to form an opinion that the material available on record could have enabled the initiation of penalty proceedings, that cannot be a substitute for the requisite finding which should have been recorded by the assessing authority in the order of assessment but has not been so recorded. A bare reading of the provisions of section 271 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings under section 271(1)(c) are initiated sepa-rately. The Delhi High Court confirmed the order of the Income-tax Appellate Tribunal which set aside the order of the appellate authority confirming the penalty proceedings and held that there was no satisfaction recorded by the concerned authorities and the order was bad in law. It held that the word satisfaction is of significance in section 271(1) and held as follows (page 340) : . . . satisfaction is not to be in the mind of the Assessing Officer but must be reflected from record . . . the authorities performing quasi-judicial or judicial functions must give reasons in support of its order so as to provide in the order itself the ground which weighed with the authorities concerned for passing an order adverse to the interest of the assessee. Furthermore, the provisions of section 271(1)(c) are penal in nature thus must be strictly construed, the element of satisfaction should be apparent from the order itself. It is not for the courts to go into the mind of the authorities or trace the reasons from the files of such authorities. It further held that the judgment in Ram Commercial Enterprises Ltd.'s case [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Commercial Enterprises Ltd.'s case [2000] 246 ITR 568 (Delhi) and held (page 46) : 'From the legal position noticed above, it is clear that the Assessing Officer has to form his own opinion and record his satisfaction of concealment of income or furnishing of inaccurate particulars of income before initiating penalty proceedings under section 271(1)(c) of the Act. It is also clear that such satisfaction of the Assessing Officer must be spelt out in the order of assessment itself but cannot be assumed from the issue of notice under section 271(1)(c) of the Act. Failure to record such satisfaction amounts to a jurisdictional defect which cannot be cured . . . . It is also relevant to note that whether the assessee has concealed his income or has deliberately furnished inaccurate particulars thereof is essentially a finding of fact which has to be spelt out by way of recording the satisfaction of the Assessing Officer was required under section 271(1) of the Act. Therefore, in the absence of such a finding in the assessment order no penalty proceedings can be initiated. It rejected the contention of the Revenue that the penalty proceedings are independent and it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish Iron Store [2003] 263 ITR 484 (P H), Vikas Promoters [2005] 277 ITR 337 (Delhi), Ram Commercial Enterprises [2000] 246 ITR 568 (Delhi) apart from Dilip N. Shroff [2007] 291 ITR 519 (SC) which have considered Manasvi's case [1972] 86 ITR 557 (SC). Moreover, the decision in Ram Commercial Enterprises was approved by the Full Bench of the Delhi High Court in Rampur Engineering Co. Ltd.'s case [2009] 309 ITR 143 (Delhi) [FB]. Even in Reliance Petroproducts [2010] 322 ITR 158 (SC), the Supreme Court had held that imposition of penalty is unwarranted when there is no finding in the assessment order that details supplied by the assessee were found to be false. Therefore, we agree with view taken in V. V. Projects and Investments Pvt. Ltd.'s case [2008] 300 ITR 40 (AP) and hold that it was correctly decided . We do not agree with the Revenue that the decision in V. V. Projects and Investments Pvt. Ltd.'s case [2008] 300 ITR 40 (AP) is contrary to the decision of the Supreme Court in Manasvi's case [1972] 86 ITR 557 (SC). 24. Applying the above principle that the Assessing Officer should record in the assessment order his satisfaction that the assessee had eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee had furnished inaccurate particulars or has concealed income although the Assessing Officer added a sum of ₹ 11,000 to the income returned by the assessee as per the revised return. 28. In M. K. Sharma's case [2008] 307 ITR 147 (Delhi), where the assessment order contained the words Assessed. Issue necessary forms. Penalty under sections 271(1)(a), 271(1)(b), 271(1)(c) and 273/274 of the Income-tax Act have been initiated. Charge interest under sections 139(8) and 215/217 of the Income-tax Act, the Delhi High Court held that the said statement recorded in the assessment order did not satisfy section 271(1)(c) of the Act as held by the Delhi High Court in Ram Commercial Enterprises Ltd.'s case [2000] 246 ITR 568 (Delhi). Even in Ram Commercial Enterprises Ltd.'s case [2000] 246 ITR 568 (Delhi), the Assessing Officer had only stated in the assessment order Penalty proceedings under section 271(1)(c) amongst others to be initiated against the assessee separately . In that case, the Delhi High Court held that merely because penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at in the absence of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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