TMI Blog1982 (4) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... stribution of petroleum and allied products. The capital of the respondent has been contributed in pounds sterling and as on December 31, 1966, the authorised capital of the respondent consisted of pounds 25,000,000 divided into 12,500,000 'A' ordinary shares of pound one each and 12,500,000 'B' ordinary shares of pound one each. All the shares of the respondent were issued and fully paid up. The respondent's accounts including profit and loss account were expressed in terms of pound sterling. The respondent was obliged by law to lay before its shareholders at its annual general meeting profit and loss account expressed in terms of pounds sterling. The financial year of the respondent is from January to December. The respondent company had been assessed to income-tax in India for a number of years. For the assessment year 1967-68, it duly filed its return and the assessment year involved in the proceeding in the court of the first instance and in this appeal is the assessment year 1967-68. On June 5, 1966, the rupee was devalued and as a result of the devaluation of the rupee, the respondent in respect of its trading for the financial year 1966 claimed to have suffered a loss in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs before the Income-tax Officer, the respondent was represented by Shri V. Newatia of M/s. Price Water House Peat Co. and Shri O. P. Mathur, Taxation Officer of the respondent company. They were heard by the Income-tax Officer and the Income-tax Officer for reasons recorded in his order disallowed the entire claim of the respondent on account of devaluation loss and added back an amount of Rs. 8,19,01,945 to the respondent's income claimed by the respondent by way of deduction on this account. The Incometax Officer also disallowed a large part of the claim on account of depreciation, terminal allowance and development rebate. On the basis of the view expressed by the Income-tax Officer that the entire claim on account of devaluation, loss and the greater part of the claim on account of depreciation, terminal allowance and development rebate were not allowable and on the basis of the said claims being rejected and being added to the income of the respondent and as a necessary consequence of such rejection, the respondent's total income was assessed at Rs. 8,25,26,427. Against the said order of assessment by the Income-tax Officer, an appeal was preferred by the respondent before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under clause (c) of subsection (1) of section 271 and whereas it appears to me that you have concealed the particulars of your income or deliberately furnished inaccurate particulars of such income for the assessment year 1967-68, you are hereby requested to appear before me at 11.30 a.m. on September 20, 1971, and show cause why an order imposing a penalty on you should not be made under section 271(1)(c) of the said Act. If you do not wish to avail yourself of this opportunity of being heard in person or through authorised representative, you may show cause in writing on or before the said date which will be considered before any such order is made under section 271 (1)(c)." The respondent in its writ application filed in this court challenged the validity of the aforesaid two notices. The respondent's principal grievance was that the conditions which were necessary to be fulfilled for levy of any penalty and for initiating the necessary proceedings for imposition of penalty were totally absent and there was no justification for issuing the said notices and for starting the penalty proceedings against the respondent and for continuing the same. It appears that after the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r explanations from the company. If you agree, please let the company have your confirmation immediately that you be pleased to drop the penal proceedings under advice to us so that the company is spared further expenses in this matter." As the authorities concerned did not inform the respondent that the penalty proceedings against the respondent had been dropped, it presented petition under article 226 of the Constitution for the issue of appropriate writs for quashing the said two notices and for prohibiting the authorities from continuing the said penalty proceedings against the respondent and also for restraining the authorities from taking any further proceedings in the matter of adjudging or imposition of any penalty against the respondent. The arguments made by both the parties in the court of first instance have been set out in detail in his judgment by A. N. Sen J. The main points taken on behalf of parties may briefly be stated. On behalf of the petitioner in the court of the first instance, i.e., respondent in this appeal, after referring to section 271 of the Income-tax Act, 1961, it was contended that the conditions laid down in the section, the fulfilment of whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any had furnished inaccurate particulars of its income by seeking to raise the said legal pleas. It was contended that unless the requirement of section 271 including the Explanation therein was satisfied, penalty proceedings against an; party could not be lawfully and validly initiated as no penalty could be imposed unless the requirement for imposition of penalty was satisfied. In the instant case, there could have been no satisfaction on the part of the Income-tax Officer in the course of assessment proceedings that the respondent company had concealed any part of its income or has furnished any inaccurate particulars of its income in the return. The order of the Income-tax Officer in the assessment proceedings would clearly go to indicate that the company had raised certain questions of law before the Income-tax Officer in support of the contentions for claim in respect of deduction of devaluation loss, increased depreciation and development rebate which was not accepted by the Income-tax Officer. The question whether the Income-tax Officer was right or wrong in rejecting the contentions and whether the claim of the respondent company was indeed immaterial for the writ proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inaccurate particulars of income by the respondent company. The Explanation under section 271 could have no application in the instant case as the Explanation would only apply on the basis of the deeming provision contained therein ; but the deeming provision would have no application except in case of fraud or gross or wilful neglect. Raising of legal pleas or urging question of law for getting relief to which a person might be entitled to or to which a person might consider himself to be entitled could never constitute fraud or gross or wilful neglect on the part of any such person. In the facts and circumstances of this case, the respondent company had raised the aforesaid contentions of law claiming the said deductions after taking proper advice in the matter and such contentions of the respondent company had yet to be finally adjudicated upon. As raising of the said question of law could never be considered to be an act of fraud or gross or wilful neglect, the Explanation would also have no application. Although the requirements of section 271 were not satisfied in the instant case, the authorities concerned were still persisting in proceeding with penalty proceedings by apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on a consideration of the relevant materials that the requirements of section 271 had not been satisfied, it could not exercise the power of imposing any penalty against the assessee. It was: further submitted that the statute did not require any notice to be given to the assessee for initiating penalty proceeding and the notice that has been given to the company was not a statutory notice, but it had been given in compliance with the provisions contained in section 274 to give the assessee necessary opportunity of showing cause as to why penalty should not be imposed on it. Since such notice was not a statutory notice, it could not be challenged and the validity thereof could not be questioned in a writ proceeding. It was further submitted that, in the instant case, the Explanation contained in section 271 was clearly attracted and in view thereof, it became the duty of the respondent company to satisfy the appropriate authority in the course of the penalty proceeding that there had been no fraud, gross or wilful neglect on the part of the assessee and the onus of proving the same clearly rested on the assessee. The facts and circumstances of this case would go to show that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross or wilful neglect on its part before the appropriate authority in the penalty proceedings itself and as the appropriate authority was the proper forum where such evidence had to be furnished, it could not be said that the appropriate authority lacked jurisdiction or was acting in excess of its jurisdiction in penalty proceedings against the respondent company. The act does not require any statutory notice to be given for initiating penalty proceedings against an assessee. The requirement of the statute is to hear the assessee and give the assessee reasonable opportunity of being heard before an order of imposition of penalty is passed. The notice is usually given to show cause why penalty should not be imposed by the appropriate authority, if the authority concerned is satisfied that a fit case for exercise of power for imposition of penalty on the basis of the provision contained in section 271 of the Act has arisen and the notice is issued for the purpose of hearing the case or giving the assessee a reasonable opportunity of being heard before passing an order of imposition of penalty in compliance with the requirements of section 274 of the Act. The learned judge of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent company and the respondent company had not furnished any inaccurate particulars of income. The contentions raised by the respondent company do not in any way indicate that there had been any concealment of the particulars of income of the respondent company or that it had furnished any inaccurate particulars of income. The facts and circumstances of this case would clearly go to show that the Income-tax Officer proceeded on the basis that the respondent company had concealed particulars of its income or had furnished wrong particulars of income only on the ground of rejection of the contentions raised by the respondent company. The rejection of legal contentions raised before the Income-tax Officer could not be said to constitute material which could lead to the satisfaction of the authorities concerned, that the respondent company had concealed its income or had furnished inaccurate particulars of its income. Satisfaction of the Income-tax Officer is a basic requirement for exercise of power for imposition of penalty and a condition precedent to the exercise of the power for imposition of penalty under section 271 of the Act though it is not a condition precedent to the assump ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may arise if the contentions put forward by the assessee are found to be frivolous, vexatious, dishonest or male fide. Various legal contentions raised by the assessee await final adjudication and even if the contentions raised by the assessee are not sound, that is of no consequence in the facts and circumstances of this case. Even if the same conditions are ultimately rejected, it cannot be said that by raising the same, the assessee has committed an act of fraud or gross or wilful negligence. Legal contentions bona fide raised, whether they are ultimately accepted or rejected by the appropriate authority, will not be generally an act of fraud or gross or wilful negligence. As in the facts and circumstances of this case, there is no fraud or gross or wilful negligence on the part of the assessee-company, the provisions of section 271(1)(c) cannot be attracted. Considerations which are necessary to be fulfilled before exercising the power of imposition of penalty under section 271 of the Act do not exist in the facts and circumstances of this case and in the absence of the said considerations, the authority concerned is not competent to exercise the power for imposition of penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst instance were advanced. On behalf of the appellant, it was contended that unlike section 147 of the Act, the impugned notices are not notices conferring jurisdiction on the authority in initiating the penalty proceedings. Such notices are not a condition precedent for invoking jurisdiction for initiating penalty proceedings. The impugned notices were given to the assessee informing him of the initiation of penalty proceeding and an opportunity to defend such proceedings. According to the appellant, in the facts and circumstances of this case, as there was concealment of income or furnishing of inaccurate particulars of income, penalty proceedings were initiated and by the said impugned notices, the respondent company was given an opportunity to defend the case. Further, in the facts and circumstances of this case, since the income returned by the assessee fell short of the statutory limit, Explanation in the section is applicable and it is for the assessee to prove before the authority concerned that there was no act of fraud or gross or wilful negligence on its part. All the above will be considered by the concerned authority in the penalty proceedings which it is competent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the first instance in his judgment has set out in detail the arguments of the parties advanced before him. His Lordship after considering the contentions of the respective parties for reasons recorded in detail in the judgment allowed the application of the respondent herein. We respectfully agree with the reasonings of the learned judge of the court of the first instance. As will appear from the judgment, the learned judge has dealt in great detail with the contentions of the parties and has given his reason in great detail and since we fully agree with and accept the reasons given by the learned judge of the court of the first instance for avoiding prolixity and repetition, we refrain from giving our reasons in detail. We, however, say that in the instant case, the respondent company has disclosed all the necessary materials, papers and documents before the assessing authority and raised various legal contentions in support of its claim for devaluation loss and development rebate and depreciation at an enhanced rate. The claims and contentions of the respondent were rejected by the Income-tax Officer which were upheld by the Appellate Assistant Commissioner. The determinati ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
