TMI Blog2006 (10) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... der s. 271(1)(c) is not warranted. In support of his contention he has relied upon the following decisions: (1) CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321 : (2000) 246 ITR 568 (Del); (2) Diwan Enterprises vs. CIT Ors. (2001) 167 CTR (Del) 324 : (2000) 246 ITR 571 (Del); (3) CIT vs. Vikas Promoters (P) Ltd. (2005) 194 CTR (Del) 384 : (2005) 277 ITR 337 (Del); (4) Kshetra Mohan Roy vs. ITO (1983) 139 ITR 441 (Cal). 4. With regard to the merit of the levy of penalty for concealment of income he stated that the assessee has furnished the confirmation of the creditors before the AO. The AO has asked the assessee to produce the creditors. Since the assessee was unable to produce the creditors, he surrendered the cash credit as income of the assessee. He has referred to the copy of the order-sheet to support his contention that the confirmation of the creditors was produced before the AO. He stated that merely because the assessee could not produce the creditors and, therefore, accepted the cash credit as his income, it cannot be said that the assessee has concealed the particulars of income and he is liable for penalty of concealment of income. In s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of Hon'ble Delhi High Court and one decision of Hon'ble jurisdictional High Court. We find that in the case of CIT vs. Ram Commercial Enterprises Ltd. their Lordships held as under: The satisfaction as to the assessee having concealed the particulars of his income or furnished inaccurate particulars of such income is to be arrived at by the AO during the course of any proceedings under the Act, which would mean the assessment proceedings, without which, the very jurisdiction to initiate the penalty proceedings is not conferred on the assessing authority by reference to cl. (c) of sub-s. (1) of s. 271 of the IT Act, 1961. A bare reading of the provisions of s. 271 and the law laid down by the Supreme Court makes it clear that it is the assessing authority who has to form his own opinion and record his 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. 7.1. Similar view was taken by their Lordships in the case of Diwan Enterprises vs. CIT Ors. wherein it was held as under: that as regards s. 271(1)(c), the AO had nowhere recorded till the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issuing notice under s. 273, the AO must record his reasons in writing for doing so. Although the AO must have satisfaction as required under s. 273 of the Act, it is not necessary for him to record that satisfaction in writing before initiating penalty proceedings under s. 273. 7.5. Hon'ble jurisdictional High Court in the case of Becker Gray Co. Ltd. vs. ITO held as under: that it was first contended for the appellant that before issuing a notice, it was incumbent on the ITO to record his prima facie satisfaction about the conditions specified in s. 271(1)(c). It is true that the ITO should be prima facie satisfied before the penalty notice is issued, but it does not mean that he is required to record such satisfaction in writing in every case. Whether the ITO was so satisfied before he issued a penalty notice under s. 271(1) depends on the facts and circumstances of each case. In the present case, the notice was issued by the ITO during the course of assessment proceedings. He had all the relevant facts before him when he issued the notice. Further, in the assessment order he added a huge sum of money and also recorded that he had already issued a penalty notice. The facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of Hon'ble apex Court. In that case there was a partnership firm in the name and style of S.V. Veerappan Chettiar Co. The firm was registered under s. 26A of the IT Act, 1922. The AO levied the penalty for concealment of income for asst. yrs. 194748, 1949-50 and 1950-51 upon the firm. The firm was dissolved as per agreement between the partners on 13th April, 1951. One of the partners of the dissolved firm filed a writ petition before Hon'ble Madras High Court on the ground that the penalty cannot be levied after the dissolution of the firm. Hon'ble High Court accepted the plea of the petitioners and set aside the order of the ITO, dt. 20th May, 1954. The Revenue filed an appeal against the above order of the Hon'ble High Court before the Hon'ble apex Court. Hon'ble apex Court held that the penalty can be levied against the registered firm notwithstanding the dissolution of the firm. However, during the course of argument before the Hon'ble apex Court learned counsel for the assessee challenged the validity of the penalty imposed on the ground that there was no evidence that the ITO was satisfied in the course of assessment proceedings that the firm had concealed the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the penalty proceedings but they have stated that the noting in the assessment order penalty proceedings are initiated separately under s. 271(1)(c) is sufficient to prove that the AO was satisfied during assessment proceedings that the assessee has concealed his income. 8.3. Hon'ble jurisdictional High Court in the case of Kshetra Mohan Roy has held that it is a condition precedent for assumption of jurisdiction for the issue of notice under s. 271 of the Act that the ITO should be satisfied that the assessee has concealed the particulars of his income. 8.4. In the case of Becker Gray Co. Ltd. vs. ITO the Hon'ble jurisdictional High Court has held that it is true that the ITO should be prima facie satisfied before the penalty notice is issued but it does not mean that he is required to record such satisfaction in writing in every case. 8.5. In the case of Shyam Biri Works (P) Ltd. vs. CIT, their Lordships of Allahabad High Court has held although the AO must have satisfaction as required under s. 273 of the Act, it is not necessary for him to record that satisfaction in writing before initiating penalty proceedings under s. 273. 8.6. From the perusal of all the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealing with the penalty under s. 271(1)(c) meaning thereby that the ratio laid down in the above case is considered to be applicable to s. 271(1)(c) of the IT Act, 1961. Therefore, respectfully following the above decision of the Hon'ble apex Court, we hold that if at the foot of the assessment order the AO has recorded the finding that penalty proceeding under s. 271(1)(c) is separately initiated, it would be sufficient to hold that AO was satisfied during the course of assessment proceedings for initiation of penalty proceedings. 9. Reverting back to the facts of the case under appeal before us, we find that in the body of assessment order while making the addition the AO has mentioned the addition clearly attracts the penalty provision under s. 271(1)(c). At the end of the order i.e. after the determining of total income and the computation of tax again it is mentioned penalty proceedings under ss. 274/271(1)(c) is initiated separately. 10. Respectfully following the yardstick laid down by the Hon'ble apex Court in the case of CIT vs. S.V. Angidi Chettiar we hold that the AO was satisfied during the course of assessment proceedings that the assessee has concealed his incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interference with the order of the High Court is called for. The civil appeals are dismissed. Thus the order of the High Court was sustained by their Lordships of the apex Court considering the facts and circumstances of that case. 11.3. Learned counsel for the assessee has also relied upon the decision of Hon'ble Kerala High Court. In the said case the AO has levied the penalty under s. 271(1)(c) which was cancelled by the Tribunal on the ground that cl. (B) of Expln. 1 to s. 271(1)(c) was applicable. On reference by the Revenue their Lordships of Kerala High Court held that no question of law arises. The relevant finding of their Lordships reads as under: that mere failure on the part of the assessee to substantiate its explanation was not enough to warrant penalty if such explanation was bona fide and all facts relating to the same were disclosed by it The assessee had offered an explanation in respect of the entries and it was a case of the assessee's failure to establish or explain them. Therefore, the Tribunal was justified in treating it to be a case covered by cl. (B) of Expln. 1 to s. 271(1)(c) and cancelling the penalty. The Tribunal had based its conclusion on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s valid. 12.1. He has also relied upon the decision of Hon'ble Madras High Court in the case of C. Ananthan Chettiar wherein their Lordships held as under: that the assessee had offered no explanation except to assert that he disclosed the income only to buy peace with the Department and what was disclosed was additional income. The reason for not having disclosed the income earlier was not stated. Thus, the Tribunal was not right in holding that no penalty should be levied with reference to the concealed income seized in the form of jewellery and cash following the ratio of the Supreme Court in Sir Shadilal Sugar General Mills Ltd. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC) even after the amendment to s. 271 in 1964 and 1975. 12.2. Learned Departmental Representative has also relied upon the decision of Hon'ble apex Court in the case of K.P. Madhusudhanan vs. CIT. The facts of that case are that the assessee had taken certain bank drafts for payment to suppliers of rice. It had made entries in its account not on the dates on which drafts were obtained but a few days later. The explanation of the assessee was that sufficient cash balance was not available o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch explanation is bona fide 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 cl. (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. 14. From the above Explanation it is evident that the Explanation is a deeming provision and if the assessee's case falls within the ambit of circumstances provided in Part A or Part B of the Explanation, it will be deemed that the amount added or disallowed in computing the total income of the assessee represents the income in respect of which particulars have been concealed. 14.1. Part A of the Explanation would be applicable in circumstances-(i) where a person fails to offer an explanation; (ii) where a person offers an explanation which is found by the AO or by the CIT{A) to be false. 14.2. Part B of the Explanation would be applicable-(i) where a person offers an explanation but he is unable to substantiate the same; (ii) and he also fails to prove that such explanation is bona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e complete details with regard to cash credit along with confirmation from all the creditors In view of above we hold that the assessee is not liable for penalty under s. 271(1)(c) in respect of addition of Rs. 8,70,000 for unexplained cash credit. 16. Regarding addition for unexplained difference between the closing stock shown in the trading account/balance sheet. 16.1. During the course of assessment proceedings while scrutiny of the books of account it was found by the AO that the assessee has shown the closing stock in the trading account and balance sheet at different figures. He asked the assessee to explain the discrepancy. Since the assessee was unable to explain the discrepancy, he offered the income of Rs. 87,500 in this regard. The AO made the addition of Rs. 87,500 and has also levied the penalty under s. 271(1)(c) which is upheld by the CIT(A). 17. At the time of hearing before us, learned counsel for the assessee was fair enough to admit that the assessee has no explanation for the discrepancy in recording the closing stock which shows at different figures in the trading account and balance sheet. In view of above position, Part A of the Explanation i.e. the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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