TMI Blog2009 (7) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be required to be made in respect of the provisions of Section 274 and 275 of the Act. New provision held to be valid. - VIKRAMAJIT SEN and RAJIV SHAKDHER, JJ. For the Petitioner : Mr. O.S. Bajpai, Mr Bibhuti Singh Mr. V.N. Jha, Advocates in WP(C) No. 5059/2008 Mr. M.S. Syali, Sr. Advocate with Mr. Satyen Sethi, Ms. Mahua Kalra, Mr. Peeyoosh Kalra Ms. Vidushi Chandana, Advocates in WP(C) No. 6272/2008 For the Respondent : Mr. P. P. Malhotra, Additional Solicitor General with Ms. Sonia Mathur, Advocate for the UOI. Ms. Prem Lata Bansal M.r Sanjeev Sabharwal, Sr. Standing Counsels for Revenue. JUDGMENT RAJIV SHAKDHER, J. - The captioned writ petitions lay challenge to the provisions of Section 271(1B) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') on the ground that it is ultra vires the Constitution of India. The impugned provision which was brought on to the statute book by the Finance Act, 2008 with retrospective effect from (w.r.e.f.) 01.04.1989, has resulted in a grievance in so far as the petitioners/assessees are concerned, in as much as, apropos to its insertion in the Act, the salutary requirement of the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion No. 5059/2008 2.1 In respect of Writ Petition No. 5059/2008, we had called for ITA No. 548/2006, which is an appeal filed by the Department against the order of the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal') quashing the penalty proceedings, in order to ascertain the bare facts; the writ petition being bereft of facts essential for the purposes of adjudication. The following facts, which are not disputed, emerge on reading of the file. 2.2 On 29.10.2001 the petitioner filed a return of income declaring a loss of Rs 53,54,135/-. The said return was processed under Section 143(1) of the Act. However, on 25.10.2002 notices under Section 143(2) of the Act were issued. Consequent thereto, even though the Assessing Officer by an order dated 20.02.2004 assessed the taxable income of the assessee as nil', he made two adjustments to the returned income. First, an addition of Rs 3,82,636/- as income from undisclosed sources. Second, he restricted the deduction under Section 80HHC of the Act to Rs 53,17,841/- as against the claim of the assessee of Rs 1,03,61,340/-. Importantly, by the very same order, the Assessing Officer initiated penalty proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust fail. The Department being aggrieved preferred an appeal, being ITA No. 548/2006 to this court under Section 260A of the Act. The said appeal is pending adjudication and is listed for hearing on 28.10.2009. Writ petition No. 6272/2008 3. The petitioner is a company incorporated in United Kingdom and is engaged in the business of air transportation service. The petitioner has branch offices in India at New Delhi, Mumbai, Chennai and Kolkata. 3.1 The operations of the petitioner in India essentially pertain to the following activities: (i) air-transportation of passengers, cargo and mail to and from India; and (ii) rendering engineering and ground-handling services to aircrafts operated by other airlines in India. 3.2 On 11.02.1994, the Government of India as empowered under the provisions of Section 90 of the Act, entered into a Double Taxation Avoidance Agreement (in short DTAA') with the Government of United Kingdom. 3.3 It was the claim of the petitioner that by virtue of the provisions of Article 8 of DTAA the profits from both the activities described hereinabove, were not taxable in India in view of the fact that the petitioner was a tax resid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e very same order initiated penalty proceedings. Consequent thereto, the Respondent No. 4, that is, the Assistant Director of Income Tax, by an order of even date i.e., 30.03.2006 imposed penalty separately, equivalent to 100% of tax sought to be evaded on the aforesaid concealed income, in respect of, all six assessment years mentioned hitherto, that is, assessment years 1996-97 to 2001-02. 3.8 Aggrieved, the assessee preferred an appeal to the CIT(A). The CIT(A) by an order dated 30.12.2006 confirmed the penalty imposed by the Assessing officer under Section 271(1)(c) of the Act. 3.9 Being aggrieved, the petitioner carried the matter further in appeal to the Tribunal. The Tribunal by an order dated 23.11.2007 set aside the order of the CIT(A) confirming the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Act in respect of the six assessment years referred to hereinabove. The Tribunal relied upon the judgment of the Division Bench of this court in Ram Commercial (supra) as also the judgment of the Supreme Court in the case of D.M. Manasvi vs CIT (1972) 86 ITR 557, in coming to the conclusion that the Assessing Officer is required to form his o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The submissions of the learned counsel for the assessee, however, to the effect that remand of the matter ought not to be construed as, the assessee, having accepted the constitutional validity or the applicability of the impugned provision to its case; as these were the subject matter of the writ petition filed by the assessee, that is, the present writ; was taken note of by this Court. Submissions 4. Submissions on behalf of the petitioner have been made by Mr.O.S. Bajpai, Advocate in Writ Petition No.5059/2008. The contours of his submissions are as follows:- (i) It is contended that the only object of the impugned amendment, i.e., insertion of Section 271(1B) of the Act with retrospective effect is to nullify the judgment of the Supreme Court in D.M. Mansavi (supra) and CIT vs. S.V. Angidi Che ttiar (1962) 44 ITR 739. The impugned amendment does not seek to cure any defect and as a matter of fact the impugned provision leaves the main penalty provision, i.e., Section 271(1)(c) of the Act intact, in as much as it remains on the statue book. (ii) The impugned provision is not a validating Act. In this context the judgment of the Supreme Court in the case of Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, is a question of fact which cannot be legislatively presumed by creating a fiction, as is sought to be done, by the impugned provision. Furthermore, he contends that the decision to levy penalty is discretionary which has to be exercised by the Assessing Officer, acting in his quasi judicial capacity, based on facts and circumstances of each case and hence cannot be substituted by legislative presumption. (v) The impugned provision is violative of Article 14 of the Constitution as there is no nexus between the object sought to be achieved by the legislature and the impugned provision. He impugned the provisions of Section 271(1B) of the Act on the ground that it confers on the Assessing Officer wholly arbitrary power, there being no in-built guidelines laid down for exercising such power. (v)(a). To buttress his submissions the learned counsel has given examples such as the following:- (v)(b) He hypothesizes a situation by suggesting that: suppose an Assessing Officer makes additions or disallowances in respect of say, assessees A and B and initiates penalty proceedings against only one of the two. The learned counsel submits that in the absence of any guidelines as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel submits that the impugned provision is unconstitutional and, therefore, void ab-initio. It is, thus submitted, that, it can neither be held to be valid prospectively or retrospectively. (vii) The presumption contained in Explanation 1 of Section 271 being a rule of evidence whereby the onus is shifted on to the assessee is available only at the time of imposition of penalty. The stage of initiation of penalty proceedings being separate and independent to the stage of imposition of penalty, the said presumption provided for in Explanation 1 is not available at the time of initiation of penalty proceedings. 5. Mr M.S. Syali, Senior Advocate appearing for the petitioner in Writ Petition No.6272/2008 while complimenting the submissions made by Mr.O.S.Bajpai, Advocate has submitted that a bare reading of the Memorandum explaining the Finance Bill, 2008 (hereinafter referred to as the 'Memorandum') and the Notes on Clauses, i.e., Clause 48 would show that the object and reasons stated therein do not get reflected in the impugned provision. He contends that the very fact that sub-section (1B) of Section 271 of the Act deems satisfaction in the order of assessment, re-a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the satisfaction is required to be recorded in writing only at the time of levy of penalty and not at the time of initiation of penalty proceedings. He submitted that taxing statute has to be construed strictly. If the words of the statute are clear then one need not look further to determine the purpose, meaning and object of the legislature. He submitted that amendment was clarificatory in as much as it sought to make clear that the Assessing Officer is not required to record his satisfaction in writing before initiating penalty proceedings and such satisfaction can be specifically arrived at and hence recorded, only at the stage of levy of penalty as against prima facie satisfaction which is arrived, at the stage of initiation. He contended that instead of satisfaction at two stages, by virtue of the amendment, satisfaction be arrived at and recorded only at the stage of imposition. Therefore, according to the learned ASG a simple endorsement in the assessment order that penalty proceedings are initiated would suffice. In this regard reference was made to Clause 48 of Notes on Clauses of the Finance Act, 2008. (iii) He further contended that the submissions of the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of some relevance to briefly note the legislative history of Section 271 of the Act. 7.1 Section 271 of the Act corresponds to the provisions contained in sub-sections (1), (2) and (6) of Section 28 of the Income Tax Act, 1922 (hereinafter referred to as the '1922 Act'). The relevant provision of the 1922 Act which are pari materia with clause (c) of sub-section (1) of Section 271 reads as follows:- 28. Penalty for concealment of income or improper distribution of profits. - (1) if the income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal in the course of any proceedings under this Act, is satisfied that any person- (a) has without reasonable cause failed to furnish the return of his total income which he was required to furnish by notice given under sub-section (1) or sub-section (2) of section 22 or section 34 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice, or (b) has without reasonable cause failed to comply with a notice under sub-section (4) of section 22 or sub-section (2) of section 23, or (c) has concealed the particulars of his income or deliberately furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome included in the total income, but which had been disallowed as deduction; it shall be presumed by a deeming fiction that the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income for the purpose of clause (c) of sub-section (1) of Section 271, unless the assessee proved that failure to return the correct income was not on account of fraud or any gross or willful neglect on his part. The purpose of this explanation obviously was to shift the onus, which even though rebuttable, on to the assessee as against the Department with respect to a charge of concealment of particulars of income or furnishing inaccurate particulars of income by the assessee. In sum and substance the effect of the Amendment was that in a case of penalty proceedings under Section 271(1)(c) of the Act, where the assessee's returned income was less than 80% of the assessed income after making due adjustment for expenditure incurred bonafide, the onus lay upon the assessee to establish that his failure to declare in his return the amount of assessed income after due adjustment for expenditure, was not on account of fraud or any gross or any willful neglect on hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum which shall not be less than one thousand rupees but which may extend to twenty five thousand rupees for each such failure." 7.7 Apart from the above, a new provision for levy of additional tax in the form of Section 158B alongwith a provision for interest under Section 234A was also inserted. The intent being to substitute penalty, on account of failure or delay in filing of returns under clause (a), failure to comply with the notices and directions under clause (b), and on account of concealment of particulars of income or of furnishing of inaccurate particulars income under clause (c) of sub-section (1) of Section 271 of the Act was sought to be supplanted by additional tax under Section 158B and interest under Section 234A of the Act. 7.8 Curiously, the aforesaid amendment was not brought into operation and by virtue of Direct Tax Laws (Amendment) Act, 1989 the provision of Section 271 prior to its substitution by Direct Tax Laws (Amendment) Act, 1987 was re-introduced w.e.f. 01.04.1989, with certain other modifications. Section 158B was also omitted w.e.f. 01.04.1989. Importantly, as contended by the Learned ASG appearing on behalf of the Revenue, sub-section (5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. 8.2 But would the cut off date of 01.04.1989 create an invidious discrimination or result in a class legislation vis-¨¤-vis those whose case is to be considered on the basis of law obtaining prior to 01.04.1989. We are of the view that there would be no violation of the equality clause under Article 14 of the Constitution on this ground alone, for the reason that if an assessee has fallen foul of the law, that is, penalty provisions are otherwise applicable to him, he cannot be heard to say that rigours of law ought not to apply to him because another person similarly placed has not exposed to such a rigour. There is no equality in illegality. This is not the case where a more onerous procedure is applied to him as against an assessee to whom pre-amendment law is applied. While considering a challenge to the vires of a Statute, the Court is required to lean in favour of its validity, preferring an interpretation that would preserve its constitutionality as the legislature, it is presumed, does not exceed its jurisdiction. The onus is squarely on the person challenging the constitutional vires of the Statute. The exception to the Rule is that where a challenge is made on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Except with the prior approval of the [Joint] Commissioner] (3) An income-tax authority on making an order under this Chapter imposing a penalty, unless he is himself the Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer.]" 10. A bare reading of section 271(1)(c) would show that to initiate penalty proceedings following pre-requisites should obtain. (i) The Assessing Officer should be satisfied' that:- a) The assessee has either concealed particulars of his income; or b) furnished inaccurate particulars of his income; or c) infracted both (a) and (b) above (ii) This 'satisfaction' should be arrived at during the course of 'any' proceedings. These could be assessment, reassessment or rectification proceedings, but not penalty proceedings. (iii) If ingredients contained in (i) and (ii) are present a notice to show cause under Section 274 of the Act shall issue setting out therein the infraction the assessee is said to have committed. The notice under Section 274 of the Act can be issued both during or after the completion of assessment proceedings, however, the satisfaction of the Assessing Officer that there has been an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is a considerable variance in the judicial opinion on the issue as to whether the Assessing Officer is required to record his satisfaction before issue of penalty notice under this sub-section. Some judicial authorities have held that such a satisfaction need not be recorded. However, Hon'ble Delhi High Court in the case of CIT v. Ram Commercial Enterprises Ltd (246 ITR 568) has held that such a satisfaction must be recorded by the Assessing Officer. Given the conflicting judgments on the issue and the legislative intent, it is imperative to amend the Income Tax Act to unambiguously provide that where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment; and such order contains a direction for initiation of penalty proceedings under sub-section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under sub-section(1). Similar amendment has also been proposed in the Wealth-tax Act. These amendments will take effect retrospectively from 1st April, 1989. LAW AS IT STOOD PRIOR TO THE AMENDMEN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer that action under S. 28 had been taken for concealment of income indicating clearly that the Income-tax Officer was satisfied in the course of the assessment proceeding that the firm had concealed its income." (Emphasis is ours) 13.1 Briefly, let us also examine the facts of D.M. Manasvi's case (supra). The assessee in the said case was an individual. He was assessed to tax for four (4) assessment years, i.e., assessment year 1959-60 to assessment year 1962-63. After completion of assessment for two years it was discovered by Assessing Officer that the assessee had failed to disclose income from one entity, namely, M/s Kohinoor Grain Mills Sales Depot (in short Kohinoor). The Income Tax Officer (in short the 'I.T.O.') was of the opinion that this entity was not a genuine partnership firm but a sole proprietorship concern of the assessee. Accordingly, income from Kohinoor was added to assessee's income in the two assessment years under consideration as well as in the other two assessment years in which assessment had been completed after they were duly reopened. This circumstance propelled the I.T.O. to initiate penalty proceedings. The assessee lost through-out. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome or had furnished 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 indeed 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 satisfac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars. In this respect we find that in the present case the inference that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars is based not merely upon the falsity of the explanation given by the assessee. On the contrary, it is made amply clear by the order of the Tribunal that there was positive material to indicate that the business of Kohinoor Mills belonged to the assessee and the whole scheme was to disguise the profits of the assessee as those of a firm of four partners. The present is not a case of inference from mere falsity of explanation given by the assessee, but a case wherein there are definite findings that a device had been deliberately created by the assessee for the purpose of concealing his income. The assessee as such can derive no assistance from Anwar Ali's case" 13.2 To summarize: the Supreme Court held that the 'satisfaction' which the Assessing Officer was required to arrive at during the course of assessment proceedings for initiation of penalty proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings, the Assessing Officer lacked the jurisdiction for initiation of penalty proceedings. The Tribunal refused to refer the question of law under Section 256(1) of the Act as it obtained at the relevant point of time; consequently a petition under Section 256(2) of the Act was preferred in this Court. A Division Bench of this Court after taking note of the law laid down by the Supreme Court in both S.V. Angidi Chettiar (supra) and D.M. Manasvi (supra) noted very carefully that the law requires that before initiating penalty proceedings it is the Assessing Officer who is required to be satisfied as to whether penalty proceedings have to be initiated. The submission of the Revenue that having regard to the material on record an inference could be made that a requisite satisfaction had been arrived at by the Assessing Officer was expressly rejected by this Court by observing that the Court in the proceedings pending before it, could not based on the material available on record substitute, the requisite finding which the law requires the Assessing Officer to make with its own findings for sustaining the initiation of penalty proceedings by the Assessing Officer. This is quite evident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. 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." 13.6 What is obvious is that in the facts of the said case there was nothing on record which would suggest that the Assessing Officer had applied his mind to the material on record and thereupon arrived at a prima facie satisfaction that it was a fit case for initiation of penalty proceedings against the assessee. The argument of the Department that based on material on record the Tribunal should have inferred that requisite satisfaction had been arrived at by the Assessing Officer, was expressly rejected by the Court, as the provision mandated that it had to be the satisfaction of the Assessing Officer. 13.7 The ratio of Ram Commercial (supra) was applied by the same Division Bench which decided Ram Commercial (supra) in Diwan Enterprises (supra). The observations made therein being relevant are extracted hereinafter:- In spite of the abovesaid plea of the petitioner having been rejected, the penalty imposed under section 271(1)(c) has still to be set aside though for a different reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borne in mind. Another Division Bench of this Court in CIT vs. Vikas Promoters P. Ltd. (2005) 277 ITR 337 (Delhi) while dismissing the appeal of the Revenue made note of the fact from the order of the Tribunal that there was no record of satisfaction before initiation of penalty proceedings. The Assessing Officer it seems had perfunctorily initiated the penalty proceedings by simply stating in the assessment order 'penalty proceedings under Section 271(1)(c) are initiated separately'. In this background the Division Bench while applying the ratio of the judgment in Ram Commercial as follows:- Learned counsel appearing for the petitioner while relying upon CIT v. S.V. Angidi Chettiar (1962) 44 ITR 739 (SC) contended that it was not necessary for the authorities to record reasons of satisfaction before issuing the demand notice as the proceedings taken by the Assessing Officer per se reflected the ingredients of section 271(1)(c) of the Act that there was concealment of income and as such the assessee was liable for penal action within the provision of the said Act. Having perused the judgment of the Supreme Court aforereferred, we are of the opinion that the argument of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 1991-92 amounting to Rs 2 lacs, Rs 7 lacs and Rs 5 lacs respectively. Thus, the total amount which was surrendered, which included interest as well, for the aforesaid assessment years was Rs 26.75 lacs. The assessee, even before investigation could be launched to ascertain reasons for increase in unsecured loans accepted that it would pay the tax demanded for not only assessment year 1992-93 but also for earlier assessment years i.e, 1989-90, 1990-91 and 1991-92. Importantly, during the course of the assessment proceedings the Assessing Officer had made a record in an office note that: since the Director of the assessee company had filed an indemnity bond undertaking therein to pay tax for the afore-mentioned assessment years; in event of a default penalty proceedings may be initiated under Section 271(1)(c) of the Act. Similarly, in respect of assessment year 1992-93, the office note specifically stated that; if tax for the said assessment year was paid by the stipulated date i.e, 30.06.1995 then penalty proceedings shall be dropped since the assessee had made a surrender of its own accord before the entire increase of unsecured loans was investigated". The Court observed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The dismissal of the appeal of the Department veered on the question whether or not a substantial question of law was raised which is why reliance was placed by the Division Bench on the judgment in S.R. Fragnances (supra). 13.13 The Punjab Haryana High Court seems to have accepted the view held by this Court in Ram Commercial (supra) in the case of CIT vs Munish Iron Store (2003) 263 ITR 484. Briefly, in Munish Iron Store (supra) the Punjab Haryana High Court approved the order of the Tribunal cancelling the penalty imposed on the assessee on the ground that the satisfaction as regards concealment of income or furnishing of inaccurate particulars by the assessee in order to assume jurisdiction, initiated and levy of penalty was not recorded, as envisaged by law. The Court went on to hold that this was a jurisdictional defect which could not be cured. The relevant observations are found at pages 485 486 of the report. Shri Sawhney argued that failure of the assessee to file a correct return was by itself sufficient for levy of penalty under Section 271(1)(c) of the Act and the Tribunal committed a serious error by setting aside the orders of the assessing autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the reasons assigned by the Tribunal for cancellation of the penalty are legally correct and the order passed by it does not give rise to any question of law, much less a substantial question of law requiring determination by this court under Section 260A of the Act. Hence, the appeal is dismissed." 14. On the other hand the learned ASG has heavily relied upon the judgment of the High Court of Calcutta in Becker Gray and Co. Ltd vs. Income Tax Officer (1930) (1978) 112 ITR 503 and that of the High Court of Allahabad in Shyam Biri Works Pvt. Ltd vs. CIT (2003) 259 ITR 625 to propound what the Revenue considers is a contra view. 14.1 Briefly, the facts in Becker Gray and Co (supra) are as follows: the assessee who, carried on the business of purchase and sale of jute fabrics was issued a notice under Section 271/274 of the Act, in the course of assessment proceedings on the ground that he had concealed particulars of income or deliberately furnished inaccurate particulars during the course of assessment. The Assessing Officer, amongst others, had made an addition of Rs 25,10,315/- on account of excess commission alleged to have been paid by assessee to one, Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Becker Gray Co (supra) was, as a general proposition, of the view that whether or not satisfaction requires to be recorded in writing would depend on the facts and circumstances of the case; however, in the facts of the said case the Court was of the view that having regard to the contents of the assessment order, there was material available with the Assessing Officer, to initiate penalty proceedings. On the other hand, the Allahabad High Court has taken the view it is not necessary for the Assessing Officer to record his satisfaction in writing. Since the background facts and circumstances do not find a mention in the said judgment of the Allahabad High Court, we are unable to gather as to whether, like in the case of Becker Gray and Co (supra), there was material available on record to demonstrate that before initiating penalty proceedings the Assessing Officer had arrived at a prima facie satisfaction. 14.4 The view in Shyam Biri Works (supra) was reiterated by another Division Bench judgment of the Allahabad High Court in Nainu Mal Het Chand vs CIT (2007) 294 ITR 185 (All). The Court after taking note of the view of the Delhi High Court in Ram Commercial (supra), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he apex court in CIT v. S.V. Angidi Chettiar (1962) 44 ITR 739, that a mere indication as to the initiation of the penalty proceedings separately in the assessment order is tantamount to an indication as to the satisfaction of the authorities that the assessee has concealed income or furnished inaccurate particulars, had not been brought to the notice of the Delhi High Court in (a) CIT v. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568; (b) Diwan Enterprises v. CIT (2000) 246 ITR 571 (Delhi); and (c) CIT v. Vikas Promoters P. Ltd. (2005) 277 ITR 337 (Delhi). For this reason and in the light of the law enunciated in various decisions of this court, referred to supra, with respect, we are unable to agree with the viewed expressed by the Delhi High Court in (a) CIT v. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568; (b) Diwan Enterprises v. CIT (2000) 246 ITR 571 (Delhi); and (c) CIT v. Vikas Promoters P. Ltd. (2005) 277 ITR 337 (Delhi)¡ ¡ . "44. ¡ ¡ ¡ ¡ Under the facts and circumstances of the case, it is clear that the original return filed by the assessee, when compared with the revised return pursuant to the notice issued under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d accordingly." 15.2 A bare reading of the aforesaid extract from Rampur Engineering (supra) would show that the Full Bench: (i) applied the law, as it ought to, as declared in D.M. Manasvi (supra) and S.V. Angidi Chettiar (supra) (ii) a fortiori the principle for initiation of penalty proceedings being; the prima facie satisfaction of the Assessing Officer during the course of assessment proceedings being discernible from the record, was reiterated. (iii) the irrelevance of the Assessing Officer having to say so in so many words that I am satisfied' was highlighted. (iv) the judgment of the Division Bench in Ram Commercial was affirmed which enunciated that: Firstly satisfaction should be that of Assessing Officer. Secondly, the assessment order should reflect such satisfaction. 15.3 In our opinion when the above is juxtaposed with the following observations in Rampur Engineering (supra) in the absence of clear finding as to the concealment of income or deliberately furnished inaccurate particulars the initiation of penalty proceedings will be without jurisdiction" - it could only mean that prima facie satisfaction of the Assessing Officer as reflected in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008. Even though both the Memorandum as well as Notes On Clauses refers to the conflict in judicial opinion and gives that, as the reason for insertion of the impugned provision, in our opinion, in sub-section (1B) of Section 271 does not do away with the principle that the prima facie satisfaction of the Assessing officer must be discernible from the order passed by the Assessing Officer during the course of assessment proceedings pending before him. 15.8 If there is no material to initiate penalty proceedings; an assessee will be entitled to take recourse to a court of law. On the other hand, if the Assessing officer's prima facie satisfaction is discernible from the record ordinarily, an assessee would be required to approach authorities under the statute. 15.9 Therefore, the submission of the petitioners that the court's power of judicial review is taken away is completely unfounded. At the stage of initiation the Assessing Officer cannot be expected to reflect in his order availability of prima facie satisfaction with respect to each and every addition or disallowance. The inter-relation of additions or disallowances, if any, may be unravelled only at the conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich, we have read and interpreted the impugned provision. The fact that retrospectivity is limited to 01.04.1989, as indicated hereinabove even though perhaps carried out for obscure reasons, cannot enure to benefit of those to whom the amended law is to apply. 16.1 The learned ASG has submitted that amended law would apply to those proceedings which are not finalised, i.e., are pending before various judicial forums. In our view the Revenue would do well to keep in mind the principle setforth by the Supreme Court in the case of CIT vs Onkar Saran Sons. (1992) 195 ITR 1: that offence of concealment is committed on the date on which the original return is filed. We need not say more - as facts of each case would have to be examined. 17. Counsel for both sides had cited many cases on the issue of retrospectivity and scope and ambit of a validating statute in support of their respective submission. A brief review of case laws would show that it only brings to fore the principles applied by us hereinabove. 17.1 The lead case on the issue is Prithvi Cotton Mills (supra). Reliance is placed by Revenue on the observations of the Supreme Court at pages 283 and 287 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctively so as to bind even past transactions. The validity of a Validating Law, therefore, depends upon whether the Legislature possesses the competence which it claims over the subject-matter and whether in making the validation it removes the defect which the courts had found in the existing law and makes adequate provisions in the Validating Law for a valid imposition of the tax." 17.2 In several judgments following Prithvi Cotton Mills (supra) this principle, has been reiterated, that is, in M/s Ujagar Prints Ors vs UOI 1989 (3) SCC 488; P. Kannadasan Ors vs State of Tamil Nadu Ors. 1969 (5) SCC 670; National Agricultural Coop. Marketing Fed. of India Ltd Anr. vs UOI Ors. (2003) 260 ITR 548 and State Bank Staff Union ( Madras Circle ) vs UOI 2005 (7) SCC 584. We may only observe that the position of law with respect to the scope of a validating statute is well settled. However, in view of opinion that we have expressed it may not be necessary to dilate upon it further to examine the validity of the impugned provision. 17.3 On behalf of the Revenue the following judgments were also cited. CIT vs C. Ananthan Chettiar (2005) 273 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsonance with the safeguards which are contained in Article 14 of the Constitution. 17.7 The reliance is also being placed on the judgment of the Supreme Court in CIT vs Shelly Products Anr. (2003) 261 ITR 367. The question which came up for consideration in this case was whether the assessee was entitled to refund of income tax paid by it by way of advance tax and self-assessment tax in the event of assessment being nullified by the Tribunal on the ground of jurisdiction and there being no possibility of framing a fresh assessment. In this context the Supreme Court was, amongst others, required to adjudicate as to whether proviso (b) to Section 240 of the Act which came into force w.e.f. 01.04.1989 was clarificatory and hence retrospective in nature. The Supreme Court held that in the facts and circumstances of the case the amendment was clarificatory in nature and hence retrospective. It is evident that the applicability of this principle will depend on the construction of the provision and the fact situation obtaining in a case. 17.8 Reliance was also placed by the Revenue on the judgment of the Supreme Court in the case of UOI vs Dharmendra Textiles Processor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to hold that the power of the legislature to enact a law retrospectively includes the power to affect existing contracts, reopen past, closed and completed transactions as also effect accrued rights and remedies or effect procedure. In other words a legislature can enact a retrospective law which takes away or impairs vested or accrued rights under existing law as long as it is competent to enact the said law and if the same is not unreasonable. In the facts of the said case in paragraph 68 and 69 at page 690 the Supreme Court while applying the law observed as follows:- Despite the aforesaid conclusion, the Act [proviso to Section 4(3)] to the extent it takes away the appointments already made, some of the petitioners had been appointed much before the enforcement of the Act (ten in number as noticed hereinabove) in implementation of this court's decision, would be unreasonable, harsh, arbitrary and violative of Article 14 of the Constitution. The law does not permit the legislature to take back what has been granted in implementation of the court's decision. Such a course is impermissible." In Lohia Machines Ltd vs UOI on the aspect of reasonableness and arbitrariness of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit from it." 18.2 Mr Syali also placed reliance on the judgment of the Supreme Court in Tata Motors Ltd vs State of Maharashtra Ors. (2004) 5 SCC 783. This was a case where the assessee had claimed set off in respect of sales tax payable by them for a certain period by invoking the benefit available under the Rules framed under the Bombay Sales-tax Act, 1959. By virtue of the amendment brought about in Section 26 of the Maharashtra Tax Laws (Levy, Amendment and Repeal) Act, 1989 (Maharashtra Act 9 of 1989) the facility of drawback, set off etc. of tax paid by a manufacture of goods specified in Schedule B of the Act of 1989 was not applicable to manufacture of goods out of waste, scrap goods and products. The Supreme Court in appeal quashed the provisions of Section 26 of the Maharashtra Act 9 of 1989. The Court observed in paragraph 15 at page 789 and 790 of the judgment that while there it can be no dispute that the legislature has an enormous power to enact laws prospectively as also retrospectively, and that, the Government must be allowed leeway in matters of taxation because several fiscal adjustments have to be made by the government depending upon the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the facts of the case, the observation made in paragraph 31, 38 and 39 are elaborated in the subsequent paragraphs of the judgment of the court, that is, in paragraph 45 and 46 at pages 1999 and 2000. In nutshell the ratio of the judgment is that, though the thumb-rule is that reasons are required to be given by authorities performing judicial, quasi-judicial and administrative acts, it can be excluded expressly or impliedly depending on the nature of the inquiry and the scheme of the legislation. Furthermore, in the instant case we are dealing with a stage which relates to the initiation of penalty proceedings. The provision does not call for recording of reasons. Section 271(1)(c) of the Act requires only a manifestation and/or delineation of the Assessing Officer's prima facie satisfaction that the assessee has infracted the provisions of clause (c) of Section 271(1) of the Act. In our opinion the ratio of the S.N. Mukherjee (supra) is not applicable to the facts obtaining in the present case. CONCLUSIONS:- 19. In the result, our conclusion are as follows:- (i) Section 271(1B) of the Act is not violative of Article 14 of the Constitution. (ii) The position of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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