Commissioner Of Income Tax vs Jai Bharat Maruti Ltd.
2007 Latest Caselaw 1706 Del

ORDER

Madan B. Lokur, J.

1. The Revenue is aggrieved by an order dt. 13th Jan., 2006 passed by the Income-tax Appellate Tribunal ('Tribunal') Delhi Bench 'E', New Delhi in ITA No. 778/Del/2000 relevant for. the asst. yr. 1994-95.

2. The issue raised in this appeal under Section 260A of the IT Act, 1961 is very narrow and is being decided, effectively, on a demurrer as it were. In CIT v. Ram Commercial Enterprises Ltd. , this Court took the view that if the AO does not record his satisfaction that penalty proceedings should be initiated against the ansessee, the subsequent order of penalty passed by the AO is not valid in law.

3. In the order under appeal, the Tribunal followed the dictum laid down in Ram Commercial Enterprises Ltd. (supra) and set aside the penalty order passed by the AO which was upheld by the Commissioner of Income-tax (Appeals) ['CIT A)'].

4. Challenging the correctness of the order of the Tribunal, learned Counsel for the Revenue has drawn our attention to CIT v. Rampur Engg. Co. Ltd. and Ors./Indus Valley Promoters Ltd. (2006) 204 CTR (Del) 149 : (2006) 155 Taxman 223 (Del). In that case, the view expressed by this Court in Ram Commercial Enterprises Ltd. (supra) and other several decisions to the same effect has been accepted as correct, but the alternative contention raised by learned Counsel for the Revenue in Indus Valley Promoters Ltd. (supra) was referred to a larger Bench. The substantial question of law based on the alternative submission that has been referred to a larger Bench of three Judges reads as follows:

Whether satisfaction of the officer initiating the proceedings under Section 271 of the IT Act can be said to have been recorded even in cases where satisfaction is not recorded in specific terms but is otherwise discernible from order passed by the authority?

5. On the other hand, learned Counsel for the assessed has drawn our attention to the decisions of the Supreme Court in Dilip N. Shroff v. Jt. CIT and T. Ashok Pai v. CIT to contend that the issue before the larger Bench is no longer res Integra. According to him, the Supreme Court approved the view taken by this Court in Ram Commercial Enterprises Ltd. (supra) and there is no question of 'discerning' the satisfaction of the AO from the assessment order.

6. We have heard detailed arguments of both the learned Counsel. Without expressing any view on the issue pending consideration before the larger Bench, for the purposes of the present case, we proceed on the basis that in law the satisfaction of the AO may be discerned from the order of assessment making the initiation of penalty proceedings valid.

7. Proceeding on this hypothesis, we have examined the assessment order dt. 27th March, 1997 passed by the AO and find that it is not at all possible to discern from a reading of the said order that the AO was satisfied in terms of Section 271(1)(c) of the IT Act, 1961 ('the Act') that penalty proceedings should be initiated against the assessed. All that the AO has observed at the end of the assessment order is as follows:

Assessed. Issue necessary forms. Charge interest. Give credit for prepaid taxes. Penalty proceedings under Section 271(1)(c) have been initiated separately.

8. Section 271(1)(c) of the Act reads as follows:

If the AO or the CIT(A) or the CIT in the course of any proceedings under this Act, is satisfied that any person-

  (a) xx    xx    xx
(b) xx    xx   xx
 

(c)has concealed the particulars of his income or furnished inaccurate particulars of such income, or
 (d)xx    xx    xx
 

he may direct that such person shall pay by way of a penalty....
 

There can be no doubt from a reading of the above provision that the AO has to be satisfied that the assessed has either concealed the particulars of his income or furnished inaccurate particulars of such income before penalty proceedings can be initiated.

9. As held in Ram Commercial Enterprises Ltd. (supra), which has been upheld by the Supreme Court in Dilip N. Shroff (supra) and T. Ashok Pai (supra), the recording of the satisfaction of the AO is a sine qua non for the purposes of initiating penalty proceedings under Section 271(1)(c) of the Act. As already mentioned, on a reading of the assessment order in the present case it cannot be discerned that the AO was satisfied, even prima facie, that a case for initiating penalty proceedings was made out. Nowhere has the AO observed in the assessment order that the assessed has either concealed the particulars of his income or furnished inaccurate particulars of such income.

10. Under the circumstances, we are of the view that there is no error in the opinion expressed by the Tribunal and the decision in Ram Commercial Enterprises Ltd. (supra) was fully applicable to the facts of the case.

11. We make it clear that we have not expressed any opinion on the issue pending before the larger Bench. We have proceeded on the basis that even if that question were to be answered in the affirmative, the penalty proceedings against the assessed in the instant case cannot be sustained in law.

The appeal is dismissed.