TMI Blog2006 (2) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Tribunal has any material to hold that the assessee in filing the revised return of income has not acted bona fide? and (iii) Whether on the facts and in the circumstances of the case the Tribunal was correct in holding that the levy of penalty is justifiable merely for the reason that no reasons were furnished by the assessee for filing an upward revision of income in the revised return of income?" The brief facts of the case are narrated as follows: The case of all the assessees under reference is, admittedly, identical and therefore, the case of M/s. Sajjanraj Nahar Sons is stated as a benchmark. The assessee was carrying on business in financing and hire purchase of vehicles. A return was filed on July 28, 1987, declaring taxable income of Rs. 88,010 which was arrived at after deducting a sum of Rs. 61,200 in respect of the interest paid on loans obtained from different parties in the earlier assessment years. After completing the assessment under section 143(1) of the Act, the Assessing Officer reopened the case and issued a notice under section 143(2) of the Act, and in response to the said notice the assessee appeared with the books of account and submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also preferred appeals against the assessment orders before the Commissioner of Income-tax (Appeals), who, by order dated February 26, 1991, allowed the appeals following the decision of the apex court in Sir Shadilal Sugar and General Mills Ltd. v. CIT [1987] 168 ITR 705. The said order of the Commissioner of Income-tax (Appeals) dated February 26, 1991, was appealed before the Tribunal by the Revenue. The Tribunal, by order dated September 25, 1997, set aside the order of the Commissioner of Income-tax (Appeals) disagreeing with the contention of the assessee that the filing of revised return voluntarily, without any detection of concealed income, exonerates the assessee from the penal consequences of section 271(1)(c) of the Act. The Tribunal, in detail discussed the facts and circumstances of the cases, the conduct of the assessee and came to the conclusion that: (i) the assessee did not act bona fide and honestly in returning the correct income originally; (ii) the filing of the revised return offering additional income by way of adding interest expenditure cannot be considered a bona fide act; and (iii) the Assessing Officer was fully justified in initiating and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madhusudhanan v. CIT [2001] 251 ITR 99, taking note of the Explanation inserted to section 271 of the Act, held that the decision in Sir Shadilal Sugar and General Mills Ltd. v. CIT [1987] 168 ITR 705, which was relied upon by the Commissioner of Income-tax (Appeals), is no more good law. It is further contended that the decisions relied upon by the assessee, namely (a) CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi); and (b) Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi), are not applicable to the facts and circumstances of these cases, as they are not at all related to the revised returns. Inviting our attention to the ratio laid down by the apex court in CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739, learned senior standing counsel for the Revenue contends that the decision in (a) CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi); and (b) Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi), do not hold good. It is also contended that the case of the assessee is squarely covered by the decisions of this court in (i) CIT v. J.K.A. Subramania Chettiar [1977] 110 ITR 602; and (ii) Ravi and Co. v. Asst. CIT [2004] 271 ITR 286. With regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income. Explanation 1.- Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. Explanation 2.- Where the source of any receipt, deposit, outgoing or investment in any assessment year is claimed by any person to be an amount which had been added in computing the income or deducted in computing the loss in the assessment of such person for any earlier assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of tax sought to be evaded',- (a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income; (b) in any case to which Explanation 3 applies, means the tax on the total income assessed; (c) in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished. Explanation 5.- Where in the course of a search under section 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been furnished, unless the assessee proves to the satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner that the price charged or paid in such transaction was computed in accordance with the provisions contained in section 92C and in the manner prescribed under that section, in good faith and with due diligence. (1A) Where any penalty is imposable by virtue of Explanation 2 to sub-section (1), proceedings for the imposition of such penalty may be initiated notwithstanding that any proceedings under this Act in the course of which such penalty proceedings could have been initiated under sub-section (1) have been completed. (2) When the person liable to penalty is a registered firm or an unregistered firm which has been assessed under clause (b) of section 183 then, notwithstanding anything contained in the other provisions of this Act, the penalty imposable under sub-section (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm .... (4) If the Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that the profits of a registered firm h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income: Provided that- (a) no penalty for failure to furnish the return of his total income shall be imposed on an assessee whose total income is less three thousand five hundred rupees unless he has been served with a notice under sub-section (2) of section 22; (b) where a person has failed to comply with a notice under subsection (2) of section 22 or section 34 and proves that he has no income liable to tax, the penalty imposable under this sub-section shall be a penalty not exceeding twenty-five rupees; (c) no penalty shall be imposed under this sub-section upon any person assessable under section 42 as the agent of a person not resident in the taxable territories for failure to furnish the return required under section 22 unless a notice under sub-section (2) of that section or under section 34 has been served on him; (d) when the person liable to penalty is a registered firm or an unregistered firm which has been assessed under clause (b) of subsection (5) of section 23, then, notwithstanding anything con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings under section 28(1) of the Indian Income-tax Act, 1922 came up for consideration of the apex court in CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739, which is also relied upon by the Delhi High Court in (a) CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568; and (b) Diwan Enterprises v. CIT [2000] 246 ITR 571. The apex court in CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739, held as follows: "The power to impose penalty under section 28 depends upon the satisfaction of the Income-tax Officer in the course of proceedings under the Act; it cannot be exercised if he is not satisfied about the existence of conditions specified in clauses (a), (b) or (c) before the proceedings are concluded. The proceeding to levy penalty has, however, not to be commenced by the Income-tax Officer before the completion of the assessment proceedings by the Income-tax Officer. Satisfaction before conclusion of the proceeding under the Act, and not the issue of a notice or initiation of any step for imposing penalty is a condition for the exercise of the jurisdiction." By placing reliance on the said decision in CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739 (SC), the Delhi High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self in the course of the assessment proceedings that the assessee had concealed his income, as in the instant case. The scope and ambit of section 28(1)(c) of the old Act, viz., the Indian Income-tax Act, 1922, came up for a detailed consideration in the following decisions: (a) The Full Bench of this court in A. Rm. A.L.A. Arunachalam Chettyar v. CIT [1931] 6 ITC 58 held as under: "It is argued here that the assessee discovered on January 7, 1929, that his previous return was an inaccurate one and that he was, therefore, entitled to claim the benefit of section 22(3) and make a revised return and as that has been accepted no penalty can be inflicted upon him for having concealed his income. That certainly is the correct statement of what an assessee is entitled to do, if he makes a bona fide discovery that he has made a previous incorrect return but it certainly does not apply to the facts of this case which show clearly that the previous return was deliberately dishonestly made. It is seriously argued that, notwithstanding that fact, the assessee is still enabled to put in a return correcting his former inaccurate one and that he is to be absolved from liability to have an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Now, Mr. Pandit on behalf of the assessee, in the first instance, has argued that every assessee has a right to file a revised return under section 22, sub-section (3), and if that return is in effect accepted, the earlier return must be treated as cancelled for all purposes and no penalty can be imposed in respect of any concealment in the earlier return. Now, it is perfectly true that every assessee has the right under section 22, sub-section (3), to submit a revised return if he discovers any omission or wrong statement in his original return before the assessment is made. But the omission or wrong statement may be accidental or deliberate. Where it is accidental, no result may ensue by reason of the omission; but where the omission is deliberate, the results of such deliberate omission cannot be got rid of merely by filing a revised return." (e) Again the Madras High Court in Sivagaminatha Moopanar and Sons v. CIT [1964] 52 ITR 591, following the decision of the Full Bench of this court in A. Km. A. L. A. Arunachalam Chettyar v. CIT [1931] 6 ITC 58, and referring to the decision in Ayyasami Nadar and Bros. v. CIT [1956] 30 ITR 565 held as follows: "If an assessee therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides that in order to enable an assessee to file a revised return as contemplated under sub-section (5) the omission or wrong statement that might have occurred or crept in in the original return, must be discovered by the assessee himself. In other words, if after examining the return and accounts in the proceedings the discovery of the omission or wrong statement is made by the departmental authority and thereafter the revised return purported to be under sub-section (5) is filed, that will not be considered as a revised return under sub-section (5). As a proposition of law it may be correct that if a revised return as contemplated under sub-section (5) is submitted before the assessment is made after the assessee having discovered some omission or some wrong statement in the original return and in the revised return he makes correction of the omission or the wrong statement, a penalty proceeding for concealment of the particulars of income or furnishing inaccurate particulars of such income as contemplated under clause (c) of sub-section (1) of section 271 may not be attracted. But, to avoid the penalty proceeding as contemplated under section 271(1)(c) by reason of submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act the fact that the assessee purported to file a revised return will not absolve him from liability to penalty under section 271(1)(c) of the Act, if he had concealed particulars of income or deliberately furnished inaccurate particulars of income in the original return already filed by him.' and held as under: 'as the assessee had intentionally and deliberately concealed the particulars of his income in the first return as well as in the second return, he cannot escape the liability to penalty under section 271(1)(c). Section 139(5) applies only to a limited category of cases where in the original return there was any omission or any wrong statement and not to cases of concealment or false statements. If a case does not fall under section 139(5), the fact that the revised return was filed before any investigation was started by the income-tax department will be of no consequence. The fact that the assessee furnished the particulars before any detection was made by the department or not will be relevant only when the Commissioner is considering the question whether the minimum penalty imposable under section 271(1) should be waived or reduced, on an application m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Enterprises Ltd. [2000] 246 ITR 568 (Delhi); (b) Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi); and (c) CIT v. Vikas Promoters P. Ltd. [2005] 277 ITR 337 (Delhi), referred to hereunder. In CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi), it was held as follows: "A bare reading of the provisions of section 271 and the law laid down by the Supreme Court makes it clear that it is the assessing authority which has to form its own opinion and record its satisfaction before initiating the penalty proceedings. Merely because the penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at in the absence of the same being spelt out by the order of the assessing authority. Even at the risk of repetition we would like to state that the assessment order does not record the satisfaction as warranted by section 271 for initiating the penalty proceedings." Similarly, in Diwan Enterprises v. CIT [2000] 246 ITR 571, it was held as under: "Satisfaction has to be before the issue of notice or initiation of any step for imposing penalty. In the case at hand we find the Assessing Officer having nowhere recorded till the concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed incorrect particulars of such income. What is contemplated by clause (1) of section 271 is that the Income-tax Officer or the Appellate Assistant Commissioner should have been satisfied in the course of proceedings under the Act regarding matters mentioned in the clauses of that sub-section. It is not, however, essential that notice to the person proceeded against should have also been issued during the course of the assessment proceedings. Satisfaction in the very nature of things precedes the issue of notice and it would not be correct to equate the satisfaction of the Income-tax Officer or Appellate Assistant Commissioner with the actual issue of notice. The issue of notice is a consequence of the satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner and it would, in our opinion, be sufficient compliance with the provisions of the statute if the Income-tax Officer or the Appellate Assistant Commissioner is satisfied about the matters referred to in clauses (a) to (c) of sub-section (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 subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, when compared with the revised return pursuant to the notice issued under section 143(2) of the Act forms the basis for the satisfaction of the Assessing Officer for initiating penalty proceedings under section 271(1)(c) of the Act. The Assessing Officer, therefore, has rightly reached the satisfaction that the assessee had concealed income in the original return by way of indicating his satisfaction that the penalty proceedings are proposed to be initiated. In any event, it is a settled law that once the authorities have arrived at a subjective satisfaction under the facts and circumstances of the case, it may not be proper for this court to enter into the merits of the controversy at all in the proceedings under reference, as the Tribunal had rendered a clear finding that, (i) the assessee did not act bona fide and honestly in returning the correct income originally; (ii) the filing of the revised return offering additional income by way of adding interest expenditure cannot be considered a bona fide act; and (iii) the Assessing Officer was fully justified in initiating and thereafter, levying penalty under section 271(1)(c) of the Act, after calling for explana ..... 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