Delhi High Court

Cit vs Globe Sales Corpn. on 14 January, 2005

Equivalent citations: 2005 145 TAXMAN 530 Delhi

JUDGMENT

1. M/s. Globe Sales Corporation, the assessed filed their return of income for the, assessment year 1992-93 on 27-8-1992 declaring a total income of Rs. 91,120. After notice to the assessed, the assessing officer vide the order of the assessment dated 31-3-1994 assessed the total income of Rs. 1,68,097 and also initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as "the Act).

2. Vide order dated 28-9-1994, the penalty amounting to Rs. 55,006 was levied and the order was, accordingly, conveyed to the assessed. The appeal filed by the assessed before the CIT (Appeals) was disposed of on 8-1-1997.

3. In the appeal, it was held that the surrender of income made by the assessed was neither bona fide nor voluntary. This finding of the first Appellate Authority was disturbed on merits by the Income Tax Appellate Tribunal, which vide its order dated 20-11-2002 ordered deletion of the penalty. This order of the Tribunal has been challenged by the department in the present appeal under section 260(A) of the Act.

4. After hearing learned counsel for the appellant at some length, we are of the considered opinion that the present appeal does not raise any question of law much less a substantial question of law, as contemplated under the provisions of section 260A of the Act.

5. It is primarily a finding of fact, which has been recorded by the Appellate Tribunal as to whether the surrender by the assessed was bona fide or not.

The following findings of the Tribunal, which lead to this court at this stage:-

"On careful perusal of the record, we find that admittedly surrender was made when the discrepancies were pointed out by the assessing officer but it was made at the first instance though the assessed had material to explain the discrepancies. We have also carefully examined the aforesaid judgment of various High Courts and Apex Court in which it has been repeatedly held that if the assessed makes a voluntary surrender he should not be penalized with the penalty under section 271(1)(c) of the Act. So far as satisfaction of the assessing officer or concealment of income before initiating the penalty proceedings are concerned the Jurisdictional High Court has specifically held that the assessing officer is required to record his satisfaction in the assessment order before issuing any directions for initiating the penalty under section 271(1)(c) of the Act. Since we do not find any merit in the penalty sustained by the CIT (A), we do not wish to express our views on a point of satisfaction of the assessing officer for initiating the penalty proceedings. We, therefore, set aside the order of the CIT (A) and delete the penalty.'

6. A bare reading of the provisions of section 271(1), which vests the authorities concerned with the power to impose penalty, clearly postulates that an officer has to record his satisfaction in terms of the section that it was a fit case for initiation of a penalty proceedings. Furthermore, use of expression 'may' clearly shows that penalty is not an automatic consequence of concealment of income or furnishing inaccurate particulars thereof. Wide discretion has been given to the assessing officer and other authorities to apply their mind and come to a conclusion in the light of the statutory provisions as to whether they would or would not like to initiate the penalty proceedings keeping in view of the facts and circumstances of the case. The cumulative reading of the above referred provisions leaves no doubt in our mind that the discretion to be exercised by the officer has to be for valid and proper reasons, which are inconsonance with the spirit section 271(1) of the Act.

7. Learned counsel appearing for the appellant contended that the assessing officer has recorded satisfaction in the order itself. However, bare reading of the order of the assessing officer shows that he has proceeded on the assumption that penalty is an automatic consequence of concealment or furnishing of inaccurate particulars. Not even a single reason has been recorded as to why in the opinion of the assessing officer, it was just and proper to initiate penalty proceedings or in the alternative the surrender by the assessed at the very first instance was not bona fide or voluntary. We do not consider it necessary to deal with this contention any further in view of the finding recorded by the Tribunal and would refer to the judgments of the Division Bench of this court in the case of CIT v. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568 (Del) and Diwan Enterprises v. CIT (2000)246 ITR 571 (Delhi), where after discussing the matter at some length, the court held as under:-

In spite of the above said 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 and because the very foundation for initiation of the penalty proceedings is conspicuous by its absence. The opening clause of sub-section (1) of section 271 itself contemplates a finding as regards satisfaction of availability of grounds under clause (c) being recorded during the assessment proceedings. Recently, in CIT v. Ram Commercial Enterprises Ltd (ITC No. 13 of 1996 decided on 8-10-1998 - in (2004) 246 ITR 568 (Delhi), following the law laid down by Their Lordships of the Supreme Court in D.M. Manasvi v. CIT (1972) 86 ITR 557 (SC) and CIT v. S. V Angidi Chettiar (1962) 44 ITR 739 (SC), we have held that unless requisite satisfaction was recorded in the proceedings under the Act, which would mean the assessment proceedings, the jurisdiction to initiate the penalty proceedings could not have been exercised. 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 conclusion of the assessment proceedings his satisfaction that the assessed had concealed the particulars of his income or furnished inaccurate particulars of such income. This is a jurisdictional defect which cannot be cured. The initiation of the penalty proceedings was itself bad and, consequently, all the subsequent proceedings leading up to the passing of the penalty order must fail. CWP No. 3869 of 1997 is, therefore, liable to be allowed." (p. 578)

8. It is thus apparently clear that the question proposed by the department as a substantial question of law has been squarely answered by different Division Benches of this court and we see no reason to take a different view.

9. For the reasons aforestated, we dismiss the appeal in liming.